Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Starbucks Runs Hot; Facebook Keeps Accelerating

By Chris Hill - Nov 10, 2019 at 10:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It’s tough to find anything to complain about in these earnings reports.

Starbucks ( SBUX -0.89% ) came through with strong sales growth in the U.S. and abroad, but its shares didn't move much. Apparently, the markets took rising sales of its newer cold beverages for granted and were unsurprised that competition from caffeinated upstart Luckin Coffee ( LKNC.Y -2.58% ) isn't hindering Starbucks' expansion in China. But if you think the coffee leader's results were impressive, check out Facebook ( FB -4.27% ). Despite the various reputational headaches it's facing, it produced record revenue and an earnings beat. In this segment of the Nov. 1 Motley Fool Money podcast, host Chris Hill and Motley Fool senior analysts Jason Moser, Andy Cross, and Ron Gross pull out the key points for investors from both companies' Q3 updates.

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 Nov. 1, 2019.

Chris 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.

Ron 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.

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, Nov. 22 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.

Jason 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$310.60 (-4.27%) $-13.86
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$108.66 (-0.89%) $0.98
Luckin Coffee Inc. Stock Quote
Luckin Coffee Inc.
LKNC.Y
$13.58 (-2.58%) $0.36

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.