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IPO Fever and Apple's Event

By Chris Hill – Sep 18, 2019 at 3:00AM

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WeWork’s debacle of an IPO continues to stumble along, while Apple’s updates suggest a strong long-term future.

In this episode of Motley Fool Money, host Chris Hill and senior Fool analysts Ron Gross, Andy Cross, and Jason Moser hit on some of the week's biggest business news. GameStop (GME 4.52%) is cutting store count, but not enough, leaving questions about its future. Zscaler (ZS 3.41%) lost a quarter of its market cap on earnings, but its long-term picture is still bright. Gap (GPS 3.55%) is getting ready to spin off Old Navy and plans to nearly double its store count in the next decade. Plus, updates from SmileDirectClub (SDC 2.85%), WeWork, Dave & Buster's (PLAY 2.79%), Shopify (SHOP 4.99%), and Restaurant Brands International (QSR 1.90%). And, as always, the analysts share some stocks on their radar this week. Also, Chris chats with Fool analyst Tim Beyers about Apple's (AAPL -1.26%) event -- the new iPhone models and pricing, the Apple TV+ strategy, and more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Sept. 13, 2019.

Chris Hill: First, SmileDirectClub went public this week. Shares fell 28% on the first day. That is a rough start, Jason, for the online dentistry company.

Jason Moser: Yes, maybe, but --

Hill: Wait, "maybe"?

Moser: It's pulling back a little bit! All in all, it was a net loss for the week, but maybe it wasn't as bad as the first day portended. You look at IPOs, generally, they fall into one of two categories. Either it was well done and they made a lot of money from it, or it was mispriced and they didn't.

Ron Gross: Hot or not.

Moser: It looks like in this case, maybe it was a mispricing. I would encourage investors to not use an IPO mispricing as the reason to say, "This is a bad business/ a bad company." You dig through the S-1 for Smile Direct, and there's some interesting things here. It actually looks like it could be a pretty compelling idea. They paint a picture, certainly, of a very big market opportunity. U.S. market opportunity of 124 million people, $234 billion based on that $2,000 price tag. If you expand that out globally, obviously, it gets much larger. 

I do like the value proposition vs. the traditional orthodontic model. Mac Greer, I know, loves it whenever I mention Teladoc and telemedicine. This gives you the opportunity to say teledentistry, Chris. Teledentistry. Just say it a few times. It rolls right off the tongue. Listen, they have 300 Smile shops around the world. Partnering up with CVS and Walgreens. You can either get this thing done through the mail or you can actually go to one of those mall shops and see an orthodontist in their network. 

What works against them. They do have a very convoluted organizational structure that I would encourage investors to at least understand a little bit more about. But all in all, again, don't look at a bungled IPO as necessarily a sign of a bad business. It was obviously a bad IPO and not the best start, but it's an interesting business from a number of angles.

Gross: Yeah, yeah. Great business! Back to the IPO for a second. Am I right that they priced higher than the indicated range, and then the stock got slammed? That's and investment banking bundle a bungle to the 10th degree. That's a terrible pricing!

Andy Cross: And didn't they raise the range up a little bit too from what was originally reported?

Gross: Somebody did not read the demand correctly on this one. That's a big deal. 

Cross: You'll often see that.

Hill: The We Company saga continues. The parent company of WeWork is trying to salvage its IPO by updating its S-1 filing. Andy, they're trying to make it more shareholder friendly. Their initial plans to go public at a valuation of $47 billion are quickly becoming a distant memory.

Cross: Yeah, pretty much off the charts now. Speaking of bungled IPOs, they're trying to prevent having a bungled IPO. They've made these changes to filing their S-1. Now they'll be listed on the Nasdaq, apparently. Apparently now, reports are that they're going to try to go in late September. Will set the initial price sometime soon. They changed a lot with how Adam Neumann, the co-founder, the CEO, the brand of WeWork, his relationship with the company. They committed to appointing more independent directors. The board will choose his successor rather than committee.

Gross: His wife was supposed to be able to choose. I've never heard of that!

Cross: She actually works for the company. She is no longer involved in that decision. Importantly, his high vote stock, which was 20 votes to one, is now going to be pulled back to 10 votes. So, they are trying. But, Chris, you mentioned the valuation. Initially, earlier this year, SoftBank invested billions, had a $47 billion valuation. Now there are talks of this valuation being $15 billion to $20 billion. They're trying to avoid the situation that other IPOs like Smile Direct might find themselves in, when they have a bad day. And trying to avoid a stock price that, a couple of days trading after, is much lower.

Gross: I'm all in favor of improved corporate governance. This was pretty egregious. It's still a little egregious. But it's better. But that doesn't forgive the business model. The business model should never have supported a $47 billion valuation in my opinion. SoftBank, I'm sure, has real smart folks over there. That baffles me. They've done a great sales job, I would say, with raising private money. But that sales job doesn't seem to be continuing to the IPO roadshow, because I think people are seeing this business model for what it is.

Cross: SoftBank owns about 30% of the company, SoftBank and its entities. They are seriously invested into the success of WeWork.

Moser: You talk about the questionable business model. They're basically taking the concern of the fixed cost of real estate for many workers and eliminating it. The problem is, in eliminating it, they're just taking that risk on themselves. Real estate, at the end of the day, is still a very expensive proposition. To put some numbers around it, remember, in 2018, they brought in $1.8 billion in revenue. That's terrific. But, they spent $3.5 billion to make that $1.8 billion. They're losing an astounding amount of money. There's no real flipping point there where that turns around and goes the other way. If we run into recession or some other type of real estate crisis, this is a company that stands to get hit very hard. It seems like a real mess. I understand why they're trying to rush to market, there are a lot of people that want to cash out for this. But man, oh, man, Smile Direct is looking a little bit better right now.

Cross: Importantly, they have a $6 billion line of credit lined up. But it depends on a successful IPO raising over $3 billion. As Jason mentioned, losses piling up. They have capital needs. Really interesting to see SoftBank and how much they are pushing WeWork to go public sooner. Or, are they not trying not to, but bankers are saying, "No, you have to go to the market now."? There are a lot of investors out there in the market who don't want this to go because they're worried about what it does to the overall IPO market.

Gross: Yeah. The business, there's nothing proprietary here. There's competitors out there. It's duplicatable. Landlords, owners of real estate, can replicate this. Real, true competitors using the same business model are out there. Again, speaks to the valuation. Speaks to margins. Speaks to cash flow eventually. I just don't see it.

Hill: I realize that we're living in a different time than we did 20 years ago, particularly in terms of media and information. Ron, have you ever seen anything like this before? The closest thing I can think of is 20 years ago, when AltaVista was looking to go public. But that was a market condition thing. They canceled their IPO. I've never seen something like this, where they are stumbling to the finish line.

Gross: You just nailed it. I was going to say, I've seen IPOs be pulled, but it's usually the result of market conditions, not typically the results of something specific to a company. This is a debacle.

Hill: Dave & Buster's down a little bit this week. Second quarter profits and revenue came in higher than expected, but Dave & Buster's cut guidance. The stock took a hit initially, Ron, but it looks like it's mostly recovered.

Gross: Yeah, not a terrible report. But investors are rightly focused on negative comps, lowered guidance. But you did have revenue up 8%. That's largely because of store count increasing by 11%. That obviously helps boost overall revenue. You had a 9% increase in amusement, 6% increase in food and beverage. That all sounds good. But again, it's only because there were these new stores that were opened during the period. Comparable store sales actually fell 1.8%. That's not good. That's what investors are focused on. They should be. 

Interestingly, the company has a lot of initiatives in place to improve results. They continue to repurchase shares. They pay a dividend. They're remodeling stores. They have a plan to continue to open new stores. But these new initiatives are going to take time. Therefore they had to lower their nearer-term guidance. The stock takes a hit, as it should. The shares are only trading at 13.5, so if you think the longer-term initiatives are going to bear some fruit, it's actually not an expensive stock right here.

Hill: Speaking of store count, things continue to look rough for GameStop. Same-store sales fell 12% in the second quarter. The video game retailer cut guidance. Andy, they're saying they're going to close a couple of hundred locations, but there are still an awful lot of GameStops.

Cross: 5,700. They have 5,700 GameStop stores. They're just moving in the wrong direction. This stock pretty much peaked around $57 in 2013. Now it's down to $4. That's a 93% loss. It continues to try to find its way, in a market where consumers are not going into the stores to buy and to interact with games like we used to. We've shifted away. GameStop the business is trying to shift within. They're putting forth some initiatives, digital initiatives, other initiatives, and they're closing some stores. But they have a lot of activist investors and hedge funds getting involved. There was a proxy fight earlier this year. A lot of vulture investors pushing for them to make much more draconian steps, and they still haven't quite done it. The stock has suffered for it over the past couple of years.

Gross: It's interesting, they recently bought $12 million of their own shares in a modified Dutch tender at $5.20. Where are we now? In the $4 range somewhere. Appears to not be a good use of capital, at least in the near term. I do like that they're paying down their debt. They still have about $400 million in debt. It's relatively equal to the amount of cash they have. I don't see any balance sheet trouble right here right now. Stock's trading at 3.5 times earnings.

Cross: Yeah, but those earnings are not going to improve. Chris, you mentioned, they were guiding for comps a drop in the 5% to 10% range. Now they're going to be in the low teens. The only part of their business that was up with the collectibles business. If that's your headline, that's a little sign of trouble.

Hill: This week, Shopify made a cash and stock deal to buy 6 River Systems, a company described in the press release as quote, "a leading provider of collaborative warehouse fulfillment solutions." We're talking robots, right?

Moser: We're talking about the rise of the machines.

Hill: $450 million in cash and stock for a lot of robots. 

Moser: That's right. At its very core, this acquisition is about warehouse automation. It's another sign of the grand aspirations of founder and CEO Tobi Lütke. One of the great things about commerce from the investor's perspective, there are a lot of opportunities because it offers a lot of ways to innovate and bring more to the table for your customers. This is right out of the page of the Jeff Bezos playbook. There are folks who work at this company who came over from Amazon Robotics, or what was formerly known as Kiva Systems. Their robot's name is Chuck. It's very easy to implement into. 

Gross: I don't want to know the name.

Moser: Sure you do. Let's take this to a personal level. Twelve- to 18-month payback on the investment, which I think is attractive. They have a very robust customer base. Listen, don't get me wrong, I'm not saying that Shopify is going to be the next Amazon. But Tobias Lutke has that same passion and customer-centric nature. The only way you keep and grow your customer base is by offering great products and services and continuing to innovate and bring more to the table. Like you said, $450 million deal. Mix of cash and stock. Unfortunately, as the story with Shopify has always been, it is not something that is going to impact the top line here in a positive way anytime soon. In fact, it's going to add to their expense line. The business is going to continue to be unprofitable for some time to come. To put that into context today, Shopify is trading around 40 times sales, versus Amazon's 4. Take that into consideration when you're thinking about adding shares of Shopify. With that said, we own it in the Augmented Reality portfolio. Love the business! The market's pulling for a lot of success.

Hill: Rough week for Zscaler. The cyber security company closed out the fiscal year with its fourth quarter report. Shares are down 25% this week. Zscaler was your radar stock last week, Andy. I say that just to remind folks not to blame me.

Cross: Thank you! [laughs] 

Hill: Was the report bad? Or are expectations that high?

Cross: It's the expectations, Chris. This is yet another lesson that we talk about for these high beta, high growth, high multiple stocks. When they start to struggle -- they actually had a nice quarter, but the guidance was a little bit weaker on both the revenues and the profitability. I think investors saw that. Also something, Jay Chaudhry, the CEO and co-founder and largest shareholder, talked about some of the larger customers starting to slow a little bit of their purchases. I think investors were looking at that. 

But the quarter that they reported. Revenues were up 50%. Billings were up more than 30%. Profits beat both their own expectations as well as investors'. But the guidance for revenue, up about 32% versus more than 50% growth last year. The profit picture weakening a little bit for the investments they're making. Investors saw that and wonder if the growth is starting to slow a little bit. Competition ramping up for them in the security space, the cloud security space. Wondering if the stock, at more than 20X sales, is worth that price. Obviously, they thought not. 

Long-term, I still like this business. It's a cheaper stock, obviously, now. Long-term, that market is extremely attractive. North of $20 billion in total potential sales down the road. I think the stock at $6 billion in market cap, with lots of cash in the books, and they're free cash flow positive, looks like a better buy today than it was last week.

Hill: Next year, Old Navy will be spun out of The Gap as its own public company. This week, Old Navy announced plans to open 800 stores. Ron, for context, right now Old Navy's got about 1,100 stores. That's a seriously big ramp up they're talking about.

Gross: Almost double. Will open about 75 stores per year. Smaller markets, off-small locations. Trying to get the $10 billion revenue over time. They stand at about $8 billion right now. After the spin, Gap, Athleta, Banana Republic will remain with the new Gap. They will be focusing on denim, for those who are interested in being or remaining Gap shareholders. Yeah, I don't know about that. I think the Old Navy Company is much better positioned going forward. Certainly, as we say, big expansion plans. I will remind folks, though, that they've struggled a little bit as of late. We've seen some cracks in comp sales for Old Navy. Actually, they were negative in most recent periods. Not a completely rosy picture. But I do think the spin-off makes sense.

Hill: Yeah, but you look over the past decade, and frequently, when The Gap was issuing its quarterly report, the story was, "Old Navy, much better than literally every other brand The Gap has."

Gross: For sure. Hence the spin-off to create the appropriate value.

Hill: Restaurant Brands International is the parent company of Burger King, Tim Hortons, and Popeyes. You may recall Popeyes made headlines in August with a chicken sandwich that was so popular it sold out. As the company tries to get its supply chain in order, Popeyes rolled out a new marketing campaign encouraging customers to BYOB -- bring your own buns. That's right. Bring your own buns, Jason. Popeyes will sell you the chicken tenders so you can assemble your own sandwich. Surprisingly to Popeyes, but not surprisingly to everyone else, this backfired. Customers, not happy at all.

Moser: Understandable. But what about those who are perhaps a little bit hasty, and they immediately take off right after BYOB and they show up at the store with a 12 pack of beer? That's what we grew up with for BYOB. It sounds like no matter what you show up there with, I don't know that bringing in external food is acceptable anywhere at any time in the restaurant business. It just seems like a lawsuit waiting to happen.

Gross: I've got an idea: Order more buns! 

Moser: Isn't there a local grocery store, some Pepperidge Farm or something?

Gross: Don't ask me to bring a bun and then give me chicken fingers and tell me you're selling me a sandwich!

Hill: I think I get what they were trying to do. Clearly, they are trying to get their supply chain in order. But Andy, they're basically trolling their customers, which is never a good idea.

Cross: And it's not like Restaurant Brands is a small company. This is a $20 billion company, headquartered in Toronto. As you mentioned, Chris, they have a lot of brands. They have a lot of people understanding and thinking about their customers and marketing, somehow to do this. I'm wondering, hmm, what was the strategy behind that?

Moser: I just feel like they were trying to parlay the success of this campaign and they flew a little bit too close to the sun.

Hill: Earlier this week, Apple CEO Tim Cook took the stage at an event in Cupertino, California to unveil the iPhone 11. Here to help us sift through the headlines of Apple's event is Tim Beyers, media and entertainment analyst for The Motley Fool. He joins me now from Colorado. Tim, thanks for being here!

Tim Beyers: Thanks, Chris!

Hill: What is your headline for the Apple event?

Beyers: It's on like Donkey Kong, because we've got games, for real. This is very much a services announcement wrapped around an iPhone upgrade and some new watches.

Hill: Let me put a pin in the games for a second. I want to talk about the iPhone first. Part of what's getting people's attention here is the pricing. Pricing both for the video service, which we'll talk about in a minute, but also for the iPhone 11, which starts at $700. On the surface, this seems like a pretty compelling offer compared to, in years past, certainly the past couple of years, where Apple has unveiled the new phone, whatever it is at the time, and it's usually got a price tag of around $1,000. Did you see enough with the iPhone 11 to make you think this is a compelling argument for someone who's looking to upgrade?

Beyers: It's a compelling argument if you are looking to upgrade but not go all the way up the stack. This is really epic rebranding. Business Insider get some credit for this. They did a review. What they found is that the iPhone XR, last year's big phone, is roughly the same as the low end of the iPhone 11. So now, you're not getting a rebranded low end of the phone. It's just all iPhone 11. It depends on how high you go up the stack, all the way up to the iPhone 11 Pro. That $700 price point looks very attractive, but really, what you're getting is an incrementally upgraded iPhone XR. I think that's interesting. I think it's smart marketing. I don't think that it is a compelling value proposition necessarily. 

Now, what's very interesting to me is the iPhone Pro, the recognition that there are some photographers now who are making a living using their phone as their primary camera, or at least the one that they are using to get out and get shots on the scene. It does a really excellent job. I do think there is a professional market for an iPhone camera. I think Apple is pricing in that area. They're certainly delivering in terms of features with the multi lens camera. But I think that is the outlier announcement here. 

Really, the big announcement is, can the iPhone 11, at the base level, drive enough demand to stop the bleeding? The iPhone business has been growing a lot more slowly in recent years. We want to see this turn around. I'd be looking to see how many of those $700 iPhones we're lining up for. My expectation is, not that many. But I do expect there to be outsized demand, at least in that niche that needs it, for the iPhone 11 Pro.

Hill: We saw this a few years ago in the enterprise space -- computers, desktop and laptop, were improving over time. So, you had large companies that were essentially not hitting the refresh button. They were extending the lifetime of the equipment that they had in their offices. We're seeing this now a little bit with smartphones. The average consumer keeps their smartphone for about three years. I've had mine even longer than that. If you're an Apple shareholder, or you're thinking about buying shares of Apple, do you need to lower your expectations for what iPhone is going to do to the bottom line?

Beyers: I do think you have to. I'm right there with you, Chris. I've had my tiny little iPhone SE for coming up on three years now. I'm not going to upgrade. I do think we're in this phase now where the smartphone refresh cycle is extending. That's part of the natural evolution of technology. The better the technology gets, the better the underlying gear gets, the sturdier it gets, it has a longer life. There's less temptation to upgrade. On top of that, you have cloud services, services that you can get anywhere, apps that you can get anywhere. It's much easier to upgrade the phone without upgrading the hardware. This is Apple killing itself in a way, because the services business is growing fast. It is the second biggest part of Apple in terms of overall revenue. By making its services business so attractive, it does, in a weird way, make the business of upgrading your iPhone, it's just a little easier to put it off now. So, yes, I do think we're seeing that. 

Now, if you're going to become an Apple shareholder -- to answer the second half of your question -- what you really should be focused on is what Apple can do with its balance sheet and in this services business. Certainly, one of the things that people are going to be looking at, is the wearables business. I know we're going to get to that. That is a potential catalyst. But the future of this company is going after Netflix, going after Amazon, going after Nintendo, going after all content and trying to own all of it through every device that they sell. It becomes content at the center, and we happen to sell devices around it. That's an interesting strategy. If you believe that Apple can own that, and disrupt Netflix and Amazon and others, then it's a compelling buy here.

Hill: Apple TV+, their video streaming business, they came out with a price tag. $4.99 a month. Are you surprised they went that low?

Beyers: I am very surprised they went that low. That's a gut punch, man! I think Netflix and Disney took a hit after that announcement, the stocks of both those companies, because that's a gut punch. Basically, Apple is saying, "We're going to run our content business at a loss in the short term because we are intent on grabbing market share." This is not new. Apple has been in content business for a little while. Their content hasn't caught hold. Now, by lowering prices so dramatically, Apple is saying, "Give us a try. You're going to like what you see." The content is not selling itself right now. They're looking for the price to sell the content until the content can sell itself. I'm very surprised. It's a bold move. It may pay off, but not in the immediate term. This is much more of a long-term play, where Apple is using its balance sheet, that $100 billion in cash that they have available, to make a power play in both the gaming business and the TV business.

Hill: They also got a tiny bit of a leg up on Disney with the timing of when Apple TV+ comes out. It's coming out November 1st, nearly two weeks ahead of Disney+.

Beyers: Right. That's important, too. There's definitely going to be a rush to figure out, especially going into the holiday season, do I want the Apple TV? Am I going to buy a new Amazon device? Am I going to order Disney+? It's going to be a really interesting holiday season. And in the middle of all this is Netflix. So, now we get to see just how sturdy the Netflix model is. Up to this point, Netflix has had two principal advantages. The first is that they had scale. They have a lot of scale, a lot of shows, a lot of inventory. The second advantage they had is, they're beloved by artists and creators because they give you a budget upfront, and you create, and you dictate terms. Artists have been willing to give up things like royalties and residuals in order to work with Netflix. Will that continue to be the case when Apple is throwing money at the business? If Disney is throwing money at this business? We'll see. I think it's going to be a very interesting time for all three of these companies. But the one that's most at risk is Netflix.

Hill: Let's talk about wearables for a second. One of the things I was thinking as I was looking at coverage of this event, and also some of the highlights, is that it seems like Apple is positioning the Watch as a health device. They had this video of people who were warned of heart attacks by the Watch. I'm not someone who wears a Watch. But they made a pretty compelling, almost emotional, case for buying this device.

Beyers: That is Apple at its best. Apple at its best makes emotional appeals and connects emotions to technology so that you feel invested. It's interesting. It's certainly a good short-term strategy to connect the dots and say, "Look, this is what you need." In the environment we're in now, people are working longer hours, we're working out, we're trying to measure our fitness, measure our lifespans, and everything else. The Watch is the hub for health tracking. It's an interesting play. But it's also bigger than that. If that is the loan pitch that Apple makes for the Apple Watch, I think that dies in six months. We've heard this before. Before, our health tracking device has been our smartphone. Are we really going to take the leap from where we are using our smartphone to track our health with apps like Strava, or even the built-in app inside the iPhone or any other smartphone you pick, and moving it to the Watch? I don't necessarily think, despite the emotional appeals, that translates over the long term. But in the short term, yeah, it's an interesting pitch.

Hill: Tim, this event reminded me, without Apple ever talking about it on stage, and there's no reason that they would, of how much of an asset their cash balance is. If you think back to the initial launch of the Watch, it was a ho-hum response from Wall Street. The talk of video programming for a long time has been just that, talk; or, to the extent that they've executed against that, it hasn't been that inspiring. This has been a nice reminder that, one of the things that cash enables you to do is, it buys you time. We have now new iterations of the Watch. And now, they're in a position where they can throw enough money at video programming. As you said, we're going to operate this at a loss, we're going to give stars in the industry the bandwidth to create great programming. And we can do that because we got the cash.

Beyers: Absolutely right! Let me give you a stat here, Chris. Apple has about $100 billion on its balance sheet in cash. Right around $95 billion. They also have a little under $110 billion in debt. What you don't see unless you look at the balance sheet is, there's another $100 billion in long-term investments. Apple has a lot more cash that they could either repatriate from other countries or from other businesses and put to work. They have a huge runway. Apple has gone from being a company that's keeping cash as a cushion to now being a company that's using cash as a weapon. That's different. This is a very different look for Apple. It could bring in a new era for this company and drive returns for a while. But it does remain to be seen. It's a fundamentally different pitch. Apple has always pitched itself as, "we build something that is high quality, that has emotional resonance, that you're going to want to associate with." They've never been able to get over that hump in entertainment. Now, the sales pitch is different saying, "Look, this is cheap. If you give it a try, I know we can convince you that the stuff we've got is high quality and has emotional resonance." But they haven't been able to make their core sales pitch in this entertainment business. They're trying something different. And they're using cash to do it. It's a very interesting time to be an Apple shareholder if you have shares now. If you don't, it's an interesting time to look at the business. They're going to be very aggressive. That's one of the main takeaways I got from this event, Chris. This is a sharper-elbowed Apple that is taking fewer prisoners than it used to. 

Hill: Last thing, then I'll let you get back to work. Shares of Apple are up around 40% year to date. What is something you're going to be watching in Apple's business going forward?

Beyers: I'm going to be watching the services line item. It's growing quickly. It's not growing as fast as wearables. But I want to see what the uptake is. I want to see not only the growth on the top line, but, what does the operating margin look like? If I'm right, and this is running at a loss, we're going to start to see some thinning margins inside that services business. That's OK as long as the top line is growing very quickly. I'm looking for maybe some acceleration in terms of revenue from the services business, while the operating income, where a lot of the expenses, some of the fallout from running this at a loss, is going to show up. If those two things start to normalize and get bigger, boy, I'll be very interested to see that. If it moves faster than I expect, then two things I expect will happen. First, the stock will respond accordingly. It might be a dark day for Netflix. 

Hill: Tim Beyers covers media and entertainment for The Motley Fool. Tim, always good talking to you!

Beyers: Same here, Chris! Thanks a lot!

Hill: We will get to the stocks on our radar in a minute. If you're looking for even more stock ideas, you can check out our flagship service, Stock Advisor. Every month, you'll get stock recommendations from Tom and David Gardner. You'll get their Best Buys Now and a lot more. And you can get a 50% discount off the price.

Gross: What?

Hill: That's what we negotiated for the dozens of listeners, Ron. Just go to and get 50% off Stock Advisor

All right, let's get the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Ron, you're up first. What are you looking at?

Gross: I got CRISPR Therapeutics, CRSP. It's part of my gene therapy basket, along with six other companies including Editas and Intellia. They're a Switzerland based gene editing company focused on the CRISPR-Cas9 editing technology. Shares are up 70% this year, but don't let that scare you. This is still an early stage story. It's going to take a long time to play out. There's going to be plenty of ups and downs over the years. The partnering with Vertex Pharmaceuticals to treat blood disorders through this gene editing technology. Balance sheet's solid. $428 million in cash. Another $175 million coming due to an expanded partnership with Vertex. Strong balance sheets are essential if you're going to play this early stage biotech game.

Hill: Steve, question about CRISPR Therapeutics?

Steve Broido: When will I first see some results of their work?

Gross: I think within the next 18 months, you'll see a lot of trials progressing to the stage of where we'll either be really excited or really disappointed. There's a lot of really interesting stuff happening. 

Hill: We've got a little bit of time. Ron, do you want to ask Steve a question?

Gross: Steve, I would love to. According to your Facebook page, you're a fan of musician Bob Mould. Please explain that.

Broido: Bob Mould. He's huge. Hüsker Dü. He's from Minneapolis. He's a great musician!

Hill: Jason Moser, what are you looking at?

Moser: Giddy up, fellas because I'm taking a look at Churchill Downs, CHDN, for a big project we have coming up here at the end of the year, Chris. We'll probably get into more of that later. You may not know this, but the Kentucky Derby is the longest continuously held annual sporting event in the United States today. Pretty impressive. Churchill Downs is far more than just the Kentucky Derby company. It operates casinos, other tracks, online gambling sites, including TwinSpires, which is the largest legal online horse racing platform in the U.S. Of the three major revenue buckets in racing, online wagering, and casino, it's casino that's actually the biggest moneymaker for the company. But as we see this regulatory landscape in the U.S. continue to evolve in regard to gambling, I think Churchill Downs could be in a really good position to benefit given their experience in the space. 

Hill: Steve, question about Churchill Downs?

Broido: When do you think brick and mortar casinos will go away?

Moser: I don't know that they'll go away. But I do think that's a good point, Steve. As we've seen the proliferation of mobile technology, a lot of companies out there capitalizing on mobile sports betting. Churchill Downs is no exception. 

Hill: Want to ask Steve a question?

Moser: You know, Steve, just kicking around another project to do around the house. I was wondering, what was the last home renovation style project that you undertook at your casa?

Broido: Well, I tried to paint a door last week. When I messed it up the first time, I tried again last week. I think I'm going to be hiring someone to do it.

Hill: Andy Cross, what are you looking at?

Cross: Scholastic Corporation, SCHL. Largest publisher of children's books and magazines. Steve-o, maybe your kids read Scholastic News like my daughters do at school. Reports earnings next week. Stock's around $40. Market cap of $1.4 billion. $300 million cash on the books, no debt. Yields 1.5%. Stock has not gone much anywhere. We actually shorted it in another Motley Fool service before. What's interesting to me is how they're moving into the digital space, like streaming, taking some of their brands into Amazon Prime and PBS Kids, like Clifford the Dog.

Hill: Steve?

Broido: Five years from now, will they be having anything in print format?

Cross: Yes, they still will. 

Hill: Three stock, Steve. You got one you want to add your watch list? 

Broido: I'm going to go with CRISPR.

Gross: Nice! Finally!

Hill: Ron Gross, Andy Cross, Jason Moser, guys, thanks for being here! That's going to do it for this week's edition of Motley Fool Money! Our engineer is Steve Broido. Our producer's Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next time!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Andy Cross owns shares of Facebook, Gap, and Netflix. Chris Hill owns shares of Amazon and Walt Disney. Jason Moser owns shares of Amazon, Apple, Teladoc Health, and Walt Disney. Ron Gross owns shares of Amazon, Apple, CRISPR Therapeutics, Editas Medicine, Facebook, Intellia Therapeutics, and Walt Disney. Steve Broido owns shares of Amazon, Apple, Facebook, Netflix, Shopify, Teladoc Health, Walt Disney, and Zscaler, Inc. Tim Beyers owns shares of Apple, Netflix, Shopify, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Editas Medicine, Facebook, Netflix, Shopify, Teladoc Health, Walt Disney, and Zscaler, Inc. The Motley Fool owns shares of CRISPR Therapeutics and GameStop and has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool recommends CVS Health, Dave & Buster's Entertainment, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$149.84 (-1.26%) $-1.92
The Gap, Inc. Stock Quote
The Gap, Inc.
$8.74 (3.55%) $0.30
GameStop Corp. Stock Quote
GameStop Corp.
$27.31 (4.52%) $1.18
Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
$32.03 (2.79%) $0.87
Restaurant Brands International Inc. Stock Quote
Restaurant Brands International Inc.
$55.76 (1.90%) $1.04
Shopify Inc. Stock Quote
Shopify Inc.
$29.24 (4.99%) $1.39
Zscaler Stock Quote
$168.78 (3.41%) $5.57
SmileDirectClub, Inc. Stock Quote
SmileDirectClub, Inc.
$1.00 (2.85%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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