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Earningspalooza Rolls On

By Chris Hill – Nov 8, 2019 at 11:46AM

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Grubhub falls out of favor, Apple retakes the biggest public company throne, Fitbit ties up with Google, and we're just getting started.

In this episode of Motley Fool Money, host Chris Hill and analysts Andy Cross, Ron Gross, and Jason Moser discuss some of the biggest recent market news. Fitbit's (FIT) struggle in the public markets may finally end following a buyout bid from Alphabet (GOOGL 2.06%) (GOOG 1.83%) subsidiary Google. Starbucks (SBUX -0.93%) puts up fantastic numbers in China, even in the face of increased competition from Luckin Coffee (LKNC.Y -2.34%). Etsy (ETSY -0.69%) shares tanked on earnings, but investors might want to take the long view and use this as an entry point for a solid business. Grubhub (GRUB) failed to charm investors with its cheeky comments and terrible performance. Plus, updates from Dine Brands Global (DIN -2.06%), Apple (AAPL 0.37%), Facebook (META 1.71%), Twitter (TWTR), Teladoc (TDOC -1.39%), UnitedHealth (UNH -1.65%), Wayfair (W 3.16%), Avis Budget (CAR 1.41%), and more. And, as always, stay tuned for some stocks on the analysts' radars.

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.

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This video was recorded on Nov. 1, 2019.

Chris Hill: On Friday, Apple reclaimed its crown as the biggest company in the public markets, so we will start there. Shares of Apple hit a new all-time high in the wake of its most recent earnings report. iPhone revenue in the fourth quarter came in higher than expected, Andy, but services segment continues to do well.

Andy Cross: Chris, it's all about the services with Apple, at least on the growth side. As you mentioned, the iPhone business, as we've talked about, pretty stagnant now. They continue to make really good iPhones. The iPhone 11 is seeing good reception. But revenue up 2%, a little higher than guidance. If you back out the iPhone, growth is up 17%. But really about the wearables. The wearables business continues to drive a lot of the growth on the services side, which includes the wearables. Up 18% on the sales. Now makes up 20% of sales but 33% of the gross profits. They now have 33,000 apps across all the platforms. It was the best quarter ever for AppleCare. 450 million now paid subscribers across all of those platforms. Up from 330 million a year ago. That's up 36%. When you look at the growth of Apple, they continue to add and innovate into the wearables side as they continue to build out that ecosystem that is really tied to the iPhone. And, they continue to drive that part of the profit picture. The net income was basically flat to down, but when you add in all the share buybacks, they boosted the EPS by 4%. Really nice quarter, and about what I think investors expected. But the innovation that they're showing on the wearables side continues to drive the growth.

Jason Moser: I really like how Tim Cook is managing this company beyond the iPhone. I think there were a lot of questions just a few years ago, I think he's answering those questions. We've always talked about Apple being a premium hardware provider. They had some pricing power on that hardware. We're hitting a saturation point there. The ASPs on iPhone are starting to come down a little bit. The neat thing with this business, and I think they can pull this off, it's going to take a little time, but with the services that they're offering, whether it's AppleCare or cloud or music or streaming, there's the opportunity for some pricing power there. I know we talk a lot about those low prices on the video streaming product. If they put out good services, good products, I think that over time, they actually would have the opportunity to raise prices on those services, whether it's the music product, or the video product, or whatever it is. This could be kind of a second act for them, where they could demonstrate some pricing power that maybe some investors aren't really expecting.

Ron Gross: Since 2012, $288 billion in share repurchases. You add in dividends and it's $385 billion of capital returned to shareholders. It's an amazing, amazing number. Turning to Apple TV for a second, am I right that you get Apple TV for free for a year if you buy a phone or upgrade?

Cross: Yeah, if you buy one of the qualifying Apple devices starting September 10th, you get 12 months free of Apple TV+.

Gross: And I've heard the shows are terrible. 

Cross: It's still early.

Moser: That evolves. 

Gross: One should hope.

Moser: They have all the resources in the world to throw at this. It's just going to be a matter of locating some good ideas and then just paying the money that they need to get those things produced. 

Gross: So, Jennifer Aniston and Steve Carell are just not getting it done?

Moser: Wasn't getting it done for me, I just couldn't care less about that show. But to your point about the devices, it's iPhone, iPad, Apple TV, and Mac. If you go just a couple of years back, that's in the neighborhood of 80 million devices they sold for the holiday quarter there. So they're going to have tens of millions of instant subscribers here. And it's really about that first year, communicating some kind of value and getting you to grab onto just one piece of content that you like.

Cross: The wearables business overall was up more than 50%. Now, at $6.5 billion this quarter, it's about as big as the Mac category for Apple.

Hill: To go back to the video streaming service for just a second, you look at all the streaming services. Apple has, I think, very intentionally priced theirs lower than absolutely anyone else's. So, you're right Ron, the early reviews on the first shows right out of the gate are not promising, but Amazon Prime had some stumbles out of the gate, so did Netflix. Not every show they produced right out of the gate was a hit. When you've got the lowest-priced option, I think that buys you a little bit of permission with customers.

Gross: You have to price it low until the content ramps. What is there, four shows? Six? I forget which. You're not going to pay a premium, certainly, for that. I bet we'll see price hikes as that ramps.

Hill: Alphabet's third quarter report on Monday evening got overshadowed by reports that the company had made an official bid to buy Fitbit. By Friday morning, the deal was done. They're paying $2.1 billion for Fitbit. Jason, the third quarter was a small miss. Shares of Alphabet down a little bit. This seemed like one of those speed bump quarters that Alphabet puts up every now and then.

Moser: Yeah. They maybe they had some good wins in cloud. It's hard to overstate really how strong YouTube is becoming for the business. I think you're right. I mean, it's basically steady as she goes for the core business. But the Fitbit news is really the big news of the quarter. This, I think, is the best-case scenario for Fitbit shareholders. I'm not 100% sold on how meaningful this can be to Alphabet. But, I mean, it's a $2 billion acquisition, it's a rounding error in the context of their balance sheet and considering the fact that they essentially have just unlimited access to capital. 

Now, I do get why they made this acquisition. Let's not forget, for the first six months of this year, Fitbit sold 6.5 million devices. That's verses 4.8 million devices a year ago. It's not like this is an insignificant business. It's just, they've not done a very good job of monetizing beyond that device base. Google's got a lot of power in regard to that. If you're looking to build a subscription business, Google's got some skills in that regard, and the infrastructure to take care of it. So I think that given time, they could probably build something out with this. And I do think there is a market for a dedicated fitness device. The Apple Watch is a nice device, but it does an awful lot. I think there are a lot of people out there looking for something maybe a step down, certainly not nearly as expensive. I think that's where this device fits in. Now, I think it's up to Google or Alphabet to really build an accompanying subscription business to go with it, add value.

Cross: I think that's a great point, Jason, on the subscription business, add value. I think when Ruth Porat came in and started to really slim and focus Alphabet into what is the highest priority, and clearly, it's a $2.1 billion acquisition. They earn north of $30 billion every year. They have plenty of cash on the balance sheet. So it really is just a rounding error. But what they can do with it, and clearly Ruth has signed off on this and said, "Hey, there's some optionality here, we can actually take this hardware business and turn it really into a powerful subscription business that ties nicely into the Google ecosystem."

Hill: I guess we now had to put Fitbit in that category of companies that just couldn't cut it in the public markets. It's worth remembering, this was a company that went public at $20 a share, and the buyout price, which represents -- to your point, Jason -- a nice premium late in the year for Fitbit, about $7.40 a share.

Moser: Most hardware businesses are a race to the bottom. That's why it's so important to be able to go beyond that. Apple was always that exception. They could command that pricing premium on the hardware. We're seeing that disappear. But we're seeing them really pick it up on the services side. That's why it's so important.

Gross: I know a lot of times, shareholders don't like when their companies get acquired out from under them, because they want to grow with the company. I think in this particular case, this is a gift to Fitbit shareholders.

Hill: Starbucks closed out the fiscal year with strong sales growth in both the U.S. and China. Ron, the stock really didn't move much this week.

Gross: Yeah. But, I think, a solid quarter on China expansion, loyalty program growth, growth in cold drinks. China has 10 million active members now. Loyalty, U.S. membership in that program was up 15%. Global net store growth of 7%. 600 stores in China opened in the quarter, now past the 4,000 store mark there. Really explosive growth continuing. Cold drinks, which I didn't realize really was a thing here, whether it's iced tea or their refreshers fruit drinks or Nitro cold, really showing some strength here, leading to a 20% increase in EPS, which is not too shabby. Investors just kind of shrugged it off as, it's just a fine quarter, kind of a thing.

Hill: You think about the IPO of Luckin Coffee, you had analysts on Wall Street who were saying, "Boy, this is really going to be bad for Starbucks." And the early results so far indicate the opposite.

Gross: Starbucks is remaining very competitive there. They plan to open 2,000 new stores in 2020, 1,400 of them being internationally, and the bulk of that will likely be in China. Luckin, certainly a competitor here, but Starbucks holding their own.

Hill: Record revenue for Facebook in the third quarter. Profits came in higher than expected. Shares of the social network up again this week, Andy.

Cross: There aren't many $550 billion companies that have been able to grow nearly 30% a year. You think about the growth rate, it was 29% on the revenue side this quarter. That was vs. 28% last quarter. 26% the quarter before that. Not only high revenue growth for that size, but some acceleration. Some nice growth on the earnings per share side. Facebook daily active users up to 9% vs. 8% last quarter. There are now 2.2 billion Facebook, Instagram, WhatsApp or Messenger users, at least once per day, that's up from 2.1 billion. Continued growth into both the platform as they are expanding their reach, being more meaningful, but then also clearly showing up on the business side. Ad impressions were up 37%. Revenue per ad was down a little bit. That's interesting to watch. And a little bit of boost from the payments and other. 

A lot of conversation on the conference call about the political ad situation that Facebook has now found itself, obviously, in. A little bit of Mark Zuckerberg's testimony. That juxtaposes with what we heard from Jack Dorsey over at Twitter with them refusing to accept money from political advertisements onto the Twitter platform. 

A really nice quarter overall from the business, but clearly, obviously, a lot of exogenous and big-picture issues to watch with Facebook.

Hill: Yeah, interesting bit of gamesmanship by Jack Dorsey on Twitter. It was just a few hours before Facebook came out with their quarterly report that he announced, as of, I believe, November 22nd of this year, Twitter will no longer accept money for political ads. I think, Jason, it represents somewhere in the neighborhood of 2% or so of ad revenue for Twitter right now. So, that seems like, from a monetary standpoint, it was a relatively easy decision for Dorsey to make. On the call, you touched on this, Andy, Zuckerberg said that in 2020, Facebook expects that the revenue they get from political ads will be less than 0.5%. It makes me wonder, why are they doing this for so little money? It really seems like it's not worth the headache.

Moser: It does feel like the juice isn't worth the squeeze here. I guess the only way I can really come to grips with this, to me, Zuckerberg right now is kind of like SoftBank with WeWork. He just can't quite admit that he made a mistake here. I think he will ultimately change his mind, because the upside to me is exponential vs. -- I mean, it actually costs them more to accept money for these ads and then deal with the aftermath. Whereas, if you pull back and just eliminate yourself from the equation there -- it's not that politicians can't get their messages out there. The Jack Dorsey put it, I think this is really well-said, it should be earned and not bought. And I think that's the bottom line, really.

Gross: But Twitter is not going to censor tweets. You can go out there and basically create your own ad as much as you want, whether you're a prominent person or a super PAC or whatever you want, just doing it by tweet, not paying for the advertisement.

Moser: You can't pay for the reach. I think that's the ultimate point. That they don't want to be subject to people putting contentious or potentially false messages out there, and then getting that reach by paying for it. Again, it goes back to earned and not bought. I think most people would think that makes sense.

Cross: It was really cheeky timing by Jack Dorsey ahead of Twitter's earnings call this week. I think what was really interesting is, for me, it's like Mark Zuckerberg is going to the mats for this. He's talked about this to his team. He believes in free speech. He's trying to protect it. My take on this is, I just think, if they want to continue to accept money for these political ads -- he has talked about how much they want to police them, monitor them -- I think they should just take some of the resources they are putting into the business and focus on making this a better experience for those politicians and, most importantly, the readers and the consumers of the content, to be able to make that whole process far better, and also to be able to support that initiative.

Gross: Just curious, has anyone at the table ever even looked at a political ad on Facebook? 

Hill: Not intentionally.

Cross: I don't know if I have or not.

Gross: They just fly right by me, doesn't mean a thing. 

Hill: Teladoc Health reported a loss in the third quarter, but it was a smaller loss than Wall Street was expecting. Overall sales came in higher. Shares of Teladoc moving higher as a result. Ron, you follow this company closely. Oh, no, wait!

Moser: [laughs] Wait, wait!

Hill: Jason Moser, your thoughts on Teladoc?

Moser: Sure! I like what I'm seeing. To your point about the top line growth, they hit their top line guidance. They've raised full year guidance a little bit. Management clearly understands the need to develop this massive network with a comprehensive offering. To this point, it's the far and away leader in the space. Looking at the numbers, revenue, 24% growth of $138 million. Visits, 928,000, were up 45%. Utilization remains strong. The membership base is what's really impressive here. U.S. paid members now at 35 million, and visit-fee only at 19 million. Those are the biggest increases in the company's history. Most of that is because they have brought UnitedHealth Group's network into their network. You're seeing Teladoc partnering up with this virtual visits entity, which is a service provided by UnitedHealth. It reminds me of PayPal in the payments space. It's not like they're trying to completely shake things up, but they're partnering with the big players in the space to make it a better space. Ultimately, it seems to be working out. The expectations to be operating cash flow positive for the full year are intact. In fact, they're already there on a trailing 12-month basis. In regard to revenue growth, management is targeting 20% to 30% annualized growth for the next three to five years at least. They are making all of the right moves here. I think it's going to be difficult for other competitors to catch them. Ultimately, I feel like maybe Teladoc ends up getting acquired, though. I hope it doesn't.

Hill: Wasn't UnitedHealth working on their own version of a competitor in this space to Teladoc?

Moser: They've been working on their own. They've been partnering with other providers. And ultimately, they're bringing other providers into the network. No. 1, United is a tremendous network. You do have other companies in the space that are working in telemedicine. It's just, that's the best benefit to being a business that focuses on doing one thing right. Teladoc, that's how it began. That's how it's grown. And I think that's why it's succeeding so well today. It's because it's grown this big network, but more so, it's got a very comprehensive offering that is very difficult to match.

Hill: It's a $5 billion company. UnitedHealth, $240 billion. It seems like one of those situations, if the partnership goes well, UnitedHealth going to make them an offer. 

Moser: It wouldn't surprise me, though you can understand my selfishness in wanting to see Teladoc go it alone, given the market opportunity that exists.

Hill: Texas Roadhouse (TXRH -2.00%) served up a strong third quarter report. Profits and revenue came in higher than expected. Shares of Texas Roadhouse up 16% this week, Ron.

Gross: Great to see because it is a Total Income recommendation. The stock is still down slightly on the year. They needed to put in some good numbers, and they certainly did. Comp sales at company restaurants up 4.4%. Domestic franchise restaurants comps were at 3.2%. Those are pretty strong numbers. They had some nice increase in margins as a result of higher average checks, but they also had some higher labor costs, as we're seeing really across the board. Still, diluted earnings per share were up 29% as a result. That's a very strong number. Company continuing to grow. Four company restaurants, including one Bubba's 33, were opened. Two international franchise restaurants were opened. They repurchased $19 billion of stock, and they plan on opening 30 new restaurants in 2020. The growth story continues. I like the margin expansion, and the earnings followed suit.

Hill: Bubba's 33 is their sports bar concept. The comps in the quarter were roughly double what they were doing at Texas Roadhouse locations. Any chance they're going to ramp that up in terms of more Bubba's 33?

Gross: They're definitely going to ramp up the growth, but it will never overtake the number of actual Texas Roadhouse restaurants. But we'll definitely see growth. 

Hill: Disastrous week for Grubhub. Third quarter sales were weak. Guidance for the fourth quarter was terrible. Shares of Grubhub fell 45%, Andy. It's at a three-year low.

Cross: Yeah, really tough quarter. Average daily grubs grew 10%. That's basically the orders they have. That's much lower than the expected numbers from both the company and also from analysts. Total costs and expenses for the quarter up 41%, and up 50% for the first nine months of this year, vs. revenues up 30%. 

The real story here is the concern about the marketplace and the competitive pressures that Grubhub is facing. They said that the pressures from some of the other players, like DoorDash or Uber Eats, maybe Postmates, the pressure that they are putting on to the entire space lowered some of the diner growth rates by up to 300 basis points or 30% of the growth rate. When you look at the environment and the costs that Grubhub has to continue to put into the business, to expand their networks and add more diners, it just is really starting to add up, and we're not seeing it yet. We've seen this deceleration in the number of diners and restaurants that they're going to be able to add onto the platform.

Hill: I've said this before and I'll say it again, winning cures everything. If you're doing great, and your business is doing great, and your stock's going up, you can come up with all the cute names like average daily grubs you want. When your stock drops 45% in a week, nobody wants to hear that. 

Gross: Stop being cute!

Hill: And the CEO, whether he meant to be joking or not, talking about how online diners are becoming more promiscuous? Like, don't go for humor, your stock's down 45%.

Cross: Matt Maloney, the CEO and founder, he actually put out a 10-page letter for the first time to shareholders trying to explain the market. Now, whether it is going to turn the stock in the right direction or not remains to be seen. But clearly, the market itself is seeing some real pressures.

Hill: Wayfair shares down 30% this week. The online home furnishing company's third quarter report came with weak guidance for the fourth quarter. You tell me, Jason, how bad is it?

Moser: Well, it wasn't as bad as Grubhub, so I wouldn't say disastrous. But Chris, it's not good. It's not good at all. It's a really difficult time right now if you're a top line story. The market is really focused on businesses making some money actually. Wayfair is not there yet. Now, with that said, they are doing some good things. But if you go to the guidance, and really, the call said at all, they said that since the beginning of the year, more than 90% of their suppliers, who are subject to China tariffs, have raised wholesale prices. That's resulting in higher retail prices, and that's affecting consumer behavior. It's resulting in volatility and some hemming and hawing, so to speak, not really committing on buying. That's a problem for Wayfair in the near term, of course. But there is light at the end of the tunnel. When you look at the core metrics of the business, they're still quite sound. Gross margin ticked up 40 basis points from a year ago. Active customers up 37%. Orders delivered up 32%. Percentage of orders from repeat customers -- remember, that's a really important metric -- it's 67.3% now, up from 66.3% a year ago. They're investing a lot of money right now in fulfillment and logistics. There are some questions regarding China tariffs. That's not just a Wayfair problem. I understand the market's trepidation today. I don't think it takes away from the long-term opportunity that they have. I think they're doing the right things. It's just going to require some patience. 

Hill: I saw one analyst note that said that the lack of urgency with respect to profitability was perplexing. Is that fair to Wayfair's management? 

Moser: I think so. It's a question I start to ask myself every quarter now. I'll look back to another company where I felt this way, it was Zillow. It seemed like quarter in and quarter out, there was this lack of urgency for them to get profitable. I am starting to feel a little bit that way about Wayfair. I'd love to see a little bit more information on that from management.

Hill: Shares of Mattel (MAT -1.22%) up more than 15% this week after better-than-expected results in the third quarter, thanks, Ron, to, of course, Barbie. It's always Barbie. Barbie is always getting it done for Mattel.

Gross: You know, it's actually interesting, most of the strong sales were international, especially in Asia. Lifted by sales of dolls based on Korean boy band BTS. I must admit, I've never heard of BTS. 

Hill: You're not the target demo. 

Gross: [laughs] Good point! You know, call me nostalgic, but it was nice to see Barbie up 10% and Hot Wheels up 25%, that kids are still playing with toys. That sounded nice to me. There was some weakness. Their infant, toddler, and preschool divisions were weak. That that offset some of the strength. Revenues were only up 3.1%, but it was still significantly better than expected. You got some widening margins due to cost-cutting, which led to an adjusted earnings per share increase of 44%, which is a really strong number for a company that has had a tough road of late. Relatively new CEO has done a pretty good job of stabilizing that core doll business, and then also moving into entertainment with feature-length films and shows and amusement parks, a lot of what Hasbro is doing as well. 

Interestingly, they saw no impact from tariffs, whereas Hasbro spent a significant amount of time focusing on the impact that tariffs had on their business for the quarter. That's an interesting difference.

Hill: The story with Mattel is one that we've seen play out with different companies in different industries. By that, I mean, you've got several divisions. One of them continues to deliver quarter after quarter, and maybe another doesn't get it done quarter after quarter. Yum! Brands, certainly, with Pizza Hut. That's been the story for literally years now. When you see a business like that, does the activist investor part of your history kick in and really urge them to either double down on what's working or just cut their losses with the other division?

Gross: Absolutely. If you see a division consistently having declining revenue, or not being profitable, something has to change. Sometimes the easiest thing to do is just shut it down. I do just want to mention, I'd be remiss if I didn't, the company also resolved a whistleblower complaint regarding their accounting. They're going to have to restate some 2017 accounting quarters, but there's actually no material impact at all. But, the CFO, who was also relatively new, is leaving the company. 

Hill: Arista Networks (ANET 1.65%) took a page out of Wayfair's playbook. Third quarter results came with fourth quarter guidance that was well below expectations. Shares of Arista down big, Andy.

Cross: Yeah, tough day. Many of our members and listeners own Arista, I'm sure. It's a popular stock here at The Motley Fool. Not to bury the lede, the real story here is, Arista, which provides cloud networking for data centers, software and hardware for data centers, big clients, including Facebook and Microsoft, cloud titans -- well, one of these cloud titans looks like it is now changing its spending habits for the fourth quarter, and, importantly, into 2020. These are large, meaningful, north of 10% revenue for Arista. That really has gotten some investors spooked. When you look at the profits, Arista is very profitable. It's been able to grow very handsomely over the last five years. But now, they really are expecting a drop in the fourth quarter in revenues. For a company that has steadily put up very handsome, north of 25% growth rates, that's sent a shock to the system, and investors are selling the stock off this week.

Hill: Etsy's third quarter results didn't look that bad, Jason, but shares of the online retailer fell more than 20% this week. Was it that bad? 

Moser: No. [laughs] 

Hill: [laughs] So, investors got it wrong?

Moser: This is like your wife making you sleep on the couch for making tater tots instead of mashed potatoes. I mean, it's a total overreaction! 

Gross: [laughs] Has that ever happened?

Hill: Apparently it has.

Moser: It never happened to me, but I could just imagine. I feel like, with Etsy --

Hill: I'm sorry, that was an oddly specific example, so forgive me if I don't believe that hasn't happened. [laughs] 

Moser: I'm not going to go any further on that. Let's talk about Etsy. [laughs] 

Hill: [laughs] Let's move on!

Moser: We talked about Wayfair, and the top line story being such a difficult one with Etsy, there are fundamentals in play here. This is a company that makes money and cash and all that good stuff. Gross merchandise sales were up 30%. Revenue up 31.5%. Sellers up 27%. Buyers, 21%. They're growing mobile share. I think the only thing in the call that really stood out to me, and maybe the market's parsing a little bit of that Reverb data in regard to the revised guidance, maybe they were expecting a little bit more from the core Etsy business itself. Maybe part of it has to do with the take rate, the revenue that Etsy is making on the total gross merchandise sales. That blended rate's going to come down a little bit with that Reverb acquisition. But that's also opportunity. 

So, for me, this really was a short-sighted reaction. It's nice to see the market is giving it a little bit of credit today. It's coming back a little bit. But, yeah, this to me stood out as a big overreaction in virtually every way.

Cross: Active sellers up almost 27%. Active buyers up 21%. They pulled in the profit margin guidance for the quarter, to Jason's point about maybe not taking as much on the profit side. That seemed to really send some fear into the investing marketplace. Chris, as you and I talked about this week, that really made me think more of a buying opportunity. 

Moser: I'm already doing some Christmas shopping on Reverb. That is a fun site to look around on if you have any musical inclinations. 

Hill: When you look at shares of Etsy, they're roughly where they were a year ago. To your point, Jason, we're going into the holiday quarter. It seems like, if this is a stock you've had on your watch list for a while, this might be the time to pull the trigger. If they come up with a halfway decent holiday quarter, you have to believe shares are going to pop.

Moser: They very well may. I do agree with your point on the buying opportunity. I said as much this week. To me, this is a very well-run business with very strong leadership in Josh Silverman. I just expect big things. I own shares personally and have no intentions of cutting them loose anytime soon.

Hill: Third quarter profits for Avis Budget fell 11%. Shares were down for the week. Ron, the stock is a few bucks away from a five-year low.

Gross: It's really tough for them in this Uber/ Lyft world we live in. It's just a struggling business that is getting disintermediated and disrupted. They're doing their best to try to mitigate that by creating partnerships with these folks, whether it's Uber or Lyft, where their cars are available to drivers of those services. I'm not sure that's going to get this done, to be quite honest. You see it in the numbers. Revenues were basically flat, up a meager 1%. They did have some per-unit fleet costs that improved to the tune of about 6%. But, as you noted, profits down 11%. The company tried to mitigate some of the damage. They purchased 2.1 million shares for a total of $59 million during the quarter, at a price pretty much right where the stock is right now. I don't know if that's going to be a good use of capital, quite honestly. So, it's just kind of a meh.

Cross: I heard the term "car-as-a-service" this week from an analyst.

Gross: [laughs] Oh, no!

Cross: I just kind of rolled my eyes.

Moser: Green Dot brought in banking-as-a-service as well. 

Cross: BaaS.

Moser: Are we, perhaps, podcasts-as-a-service? 

Hill: Possibly. 

Gross: This guy has a lot of debt, too. $3.5 billion in debt. Don't sleep on that, dude, that could be a little dangerous.

Hill: You know how we look at different industries and we say, there's going to be more than one winner in this industry, it's not a zero-sum game -- is this one of those situations where the opposite is true? There's not going to be any winners? Hertz, that stock has been down over the last few years. You look at Avis. Is this just now officially a bad business to be in? 

Gross: Yes. [laughs] The answer is yes. You have to look at the multiples. They'll just tell you everything you need to know. 6X forward earnings for Avis. 9X forward earnings for Hertz. It's just tough.

Hill: Their next report will incorporate holiday travel, so hopefully that's going to pay off for Avis Budget. 

Gross: Yeah, we'll see.

Hill: Speaking of the holidays, Dine Brands Global is the parent company of IHOP and Applebee's. Over the past few years, shares of Dine Brands Global are up nearly 60% thanks in no small part to the creative drink specials that Applebee's has rolled out. This month -- ah, just in time -- it's the $1 vodka cranberry lemonade, served in a 10-ounce mug. Applebee's said in a press release, and I'm quoting here, "This will help you get in the Thanksgiving spirit," because sometimes you just need some inexpensive alcohol to deal --

Gross: [laughs] That could do some damage!

Hill: -- with your extended family. You know, we joke, and we've joked in the past when they had the $1 Long Island Iced Tea that they rolled out right before Christmas, but this is actually moving the needle. This is actually one of those things that we kind of poke fun at that is legitimately good business, and is materially driving this stock higher.

Gross: Yeah, you come for the cheap booze and you stay for the chicken fingers. That works. 

Moser: You can't underestimate the power of alcohol, in any form. The American consumer is a total sucker for it.

Gross: I bet you they still make money on $1, based on the amount of alcohol --

Cross: And it's cheap alcohol. 

Gross: Yeah. I don't know for sure, but I bet there's a couple of pennies of margin in there.

Hill: We were talking during the break after we discussed Texas Roadhouse, talking about, maybe we need to do a road trip to get to a Bubba's 33. There's one not too far from here. Maybe we need to do a little boots-on-the-ground research at an Applebee's, and see what this vodka cranberry lemonade's all about.

Gross: Tasty food. They've got, basically, Kraft mac and cheese. The chicken fingers, as I just noted, are pretty good. 

Cross: You can order delivery, with a partnership with Grubhub.

Hill: [laughs] And Grubhub shareholders would love if you would do that over and over.

Cross: [laughs] I don't know if you can buy the drinks.

Hill: Real quick, if you're looking for even more stock ideas and recommendations, check out our flagship service Stock Advisor. You get stock recommendations from Tom and David Gardner. You get their Best Buys Now and a lot more. Just go to 50% discount for the dozens of listeners. Check that out when you get a chance.

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

Gross: I got CME Group, ticker CME. Operates the world's largest future and options exchange. Most powerful player in the space. Great position to innovate or acquire. Great tollbooth model, where they process a trade and they charge for transactions, clearing, settlement fees are collected as well. As institutions look to manage risk, they turn to derivatives. That only increases their business. They have increased their regular dividend consecutively for the past nine years. They also pay an annual variable dividend based on profits. When you look at all of that combined, the yield right now is at about 2.3%.

Hill: Steve, question about CME Group?

Steve Broido: What's an options strategy that you would recommend I never take or try?

Gross: [laughs] Nothing naked, which means you have to own the underlying stock at the same time. Don't just speculate using options. 

Hill: Oh, really? That's what naked refers to? I thought it was just some creative term to get people interested in options.

Gross: [laughs] No.

Hill: Jason Moser, what are you looking at this week?

Moser: Going to with what is now the top-performing stock in my augmented reality service. Everybody's heard of this one, say with me folks -- Lumentum. Ticker is LITE. As I led into here, second quarter results were very good for the company. They are a chip maker, ultimately, in the VCSEL, vertical-cavity surface-emitting laser. Ultimately, that's the technology that's required for 3D sensing, which gets us into great places like biometric authentication, augmented and virtual reality, etc. 5G rollout is a nice tailwind for this company. And they really do actually own that VCSEL space. A lot of things to like there. It's a good start to the year for them.

Hill: Steve, question about Lumentum?

Broido: Where can I see this product in the field today? Not 20 years from now, but today. Where's this today?

Moser: Check out your local smartphone, whether it's an android or an iPhone. You're going to typically find that technology being incorporated into all of these new phones. 

Hill: Andy Cross, what are you looking at this week?

Cross: EPAM Systems, symbol EPAM . $9.6 billion company. It's a digital and software consulting firm. It's recommended in a few of our services. It's founder-led. Arkadiy Dobkin founded the company back in the early 90s. It provides digital and technology consulting services for lots of different firms around the world. Expectations are quite high coming into the next quarter that's released next Thursday. Sales have grown 20% for 30 straight quarters. If my math is correct, that's a little over seven years. The travel and consumer side of the business, different travel sites and consumer sites, has been growing only about 8% last quarter. That's a little bit slower than what we'd like to see vs. some of the financials and tech part of their client base, which is more like 17% or 24%. So I want to see the travel business show a little bit of a rebound.

Hill: Steve, question about EPAM Systems?

Broido: What's driving the growth going forward?

Cross: All the digitization, all the applications we're using, when we look at companies and what they're trying to do, how they're evolving, everybody is trying to become more digital. That's really been a big driver for EPAM over the last 10 years.

Hill: Steve, we've got CME Group, Lumentum, EPAM Systems. None of them household names, but three very interesting businesses. You got one you want to add your watch list?

Broido: I think Lumentum makes the most sense to me right now, so that's what I'm going with.

Moser: Hey, now!

Hill: Does it have anything to do with the sales job that Jason did? He really sold it.

Broido: He did.

Cross: Vertical-cavity... that was a mouthful.

Broido: You had me at vertical.

Hill: [laughs] Yeah. You lost me at cavity. Jason Moser, Andy Cross, Ron Gross, guys, thanks for being here!

Keep the emails coming in. [email protected] is our email address. Keep in mind, later this month, we've got our annual Thanksgiving special coming up. Speaking of Thanksgiving, it's possible we're not going to get to Applebee's, so if someone out there among the dozens of listeners wants to do a little boots-on-the-ground research for us, let us know how Applebee's is. Maybe try the new drink special. We'd appreciate it. 

Moser: Did you say booze-on-the-ground research? 

Hill: Oh, I like that!

Gross: Nice!

Hill: Go ahead and trademark that. We'll make at least a dollar off of it. Alright 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 is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft 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, Netflix, and Starbucks. Chris Hill owns shares of Amazon, PayPal Holdings, and Starbucks. Jason Moser owns shares of Alphabet (C shares), Amazon, Apple, Etsy, Hasbro, PayPal Holdings, Starbucks, Teladoc Health, and Twitter. Ron Gross owns shares of Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, and Starbucks. Steve Broido owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Arista Networks, Facebook, Microsoft, Netflix, PayPal Holdings, Teladoc Health, and Twitter. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Arista Networks, CME Group, EPAM Systems, Etsy, Facebook, Fitbit, Hasbro, Microsoft, Netflix, PayPal Holdings, Starbucks, Teladoc Health, Texas Roadhouse, Twitter, Wayfair, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool owns shares of Luckin Coffee Inc. The Motley Fool is short shares of Hasbro and has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool recommends Grubhub, Lumentum Holdings, Uber Technologies, and UnitedHealth Group and recommends the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, long January 2021 $85 calls on Microsoft, and short January 2020 $97 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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