In today's Market Foolery, host Chris Hill talks with Australia's Motley Fool Money host Scott Phillips about some of what he's seeing on the other side of the world. Tune in to hear Scott's takes on some American tech companies, like Apple (AAPL 2.15%), Amazon.com (AMZN 0.89%), Alphabet (GOOG 0.56%) (GOOGL 0.42%), and more; a couple of tech trends that are shaping the Australian market; how Australia's television ads scene is similar and different from the U.S. one; how Australia is looking at the U.S. China trade war, and what it could mean for its economy; a couple of exciting Australian companies you might want to add to your watch list; and more.
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This video was recorded on Nov. 14, 2019.
Chris Hill: It's Thursday, Nov. 14. Welcome to Market Foolery! I'm Chris Hill. As mentioned earlier in the week, we're at Foolapalooza, which is our annual meeting. I'm happy to say we were able to record this earlier in the week with the host of Motley Fool Money, the No. 1 business show in Australia. It's the one and only Scott Phillips.
Scott Phillips: Chris Hill, g'day!
Hill: So good to see you, my friend!
Phillips: Thank you, sir! It's very good to be with you!
Hill: Pleasure to have you in the studio! And, yes, for those unfamiliar, or those who are new to this podcast, yes, we have Motley Fool Money here in the States; there's also a Motley Fool Money in Australia, which Scott is the host of. If you're not listening to it, you really should check it out.
Let's start with this. One of the things that you do on your show is check in the view from down under on some of the biggest companies here in the States. I'm curious what you think of the current state of some of the tech behemoths -- in particular Apple, Alphabet, Microsoft. Go in any order you want.
Phillips: Chris, look, I am telling our investors at home to invest in these businesses, in the companies that are, I use the phrase inventing the future, which sounds like a wonderful marketing tag line that someone should be using. But they literally are. The businesses that are literally changing the way we do what we do -- the way we consume entertainment, the way we work, the way we live. These are the businesses that are literally creating the products and services of the future. So, you've got to be investing in these kind of companies.
Now, all of that said, tech is a really fascinating space and time right now. We've seen Apple just hit high after high after high. It's a really interesting time to think about what comes next. Disney+, of course, having just launched recently. So much movement in tech. I have to say, for what it's worth, as a group, I'm incredibly bullish on the long-term future of these companies. Individually, I think there's a whole lot of questions yet to be answered, and a whole lot yet to play out.
Hill: It's pretty amazing, when you think about the narrative, particularly around hardware. For so long, for decades, it was as simple as, "Well, the cost comes down over time." We've seen that certainly with televisions. A flat screen TV with wonderful high def and all that, that's going to cost you less in real dollars than it would a decade ago. But, Apple, and their ability to continue to command premium prices for their products is really astounding.
Phillips: It is. And Warren Buffett said very nicely, I won't quote him directly, the idea that the phone screen is the most valuable real estate in the world continues to be true. If you think about it, yes, they're incredibly expensive devices. Think about how many hours a day quite literally we spend with our eyes looking 12 or 8 inches from our bodies, looking at the phone in our hand to see what's going on -- emails, social media, appointments, entertainment, web browsing, a lot. It is literally the new device. When you go back to those tech companies, I think this is the really interesting part -- where does connected technology broadly go? Anirban Mahanti I work with on Motley Fool Money in Australia, the human computer interface, that entire thing -- I watch a little bit of TV. I've checked on some American football when I've been here. The number of ads I've seen for the Google Nest, the Facebook Portal... hopefully it won't last very long. The wearables revolution. This is going to continue to be huge. Plenty of ads for Alexa. The whole lot. This is very much the new frontier. Past that, wearables technology, how that moves forward. This has a long, long way to play out. I'm really bullish about the hardware and software makers, the revolution coming there, and continue to come, whether it's Google Glass or Apple Watch, or it's frankly something none of us have thought of, but in a lab somewhere in those companies, they're spending a fortune, and a lot of people working on those things. You don't have to know what's coming next. But it's a very, very good bet these guys will either invent it or they'll buy it. Either way, if you're a shareholder, you're going to win.
Hill: I know that broadcast television has been, as an industry, in decline over the last couple of decades, as streaming services like Netflix, Hulu, etc., are on the rise. That said, I'm glad you mentioned the television ads while you were watching the football game. I find television ads to be instructive in the sense that they cost a lot of money, and I think it is an excellent window into what a company decides to promote, and the messages they decide to push. In the same way, as Buffett said, the phone screen is the most valuable real estate, if you've got time to make a 30-second television ad, you have to be very intentional about what you're going to promote, what the message is going to be. I'm curious, television in Australia, are these big tech companies doing similar advertisements down there?
Phillips: What's fascinating is, Amazon is massive here. I'm an Amazon shareholder, for full disclosure. I'm also Alphabet shareholder. The Alexa hasn't gone anywhere near dominating the Australian market the way it has here, because Amazon itself isn't very big yet in Australia. It's all Google Home, all the time. Google has made a massive, massive mark. Whether it's the Mini, the Max, all of those new devices, that remains a really strong place. In terms of television, look, they are struggling meaningfully for advertising dollars and viewing numbers. The Australian economy is softer than the U.S. economy. You guys are doing very, very well in absolute terms, but also relatively compared to Australia. That's a tough ad market for TV. Live sport -- back to your point about sport -- is really the only thing left going for live television in Australia. It's live TV and reality TV. I imagine it's probably the same in the U.S. Outside that, what do they have that you can't get on Netflix, you can't get on some streaming services locally, in Australia as well? Disney+, Apple TV+. They're going to be the new way of consuming non-temporal entertainment -- so, the idea of, not actually live at the time. That's where it's at. Live TV thus far is all about sport, and thus far, the TV stations are hanging onto that for grim life, because they lose that, they're in trouble.
Hill: What is the tech scene in Australia these days?
Phillips: Really fascinating. We haven't had a lot of tech for a long time. We've caught the second wave. Australian tech was a no man's land. It feels a bit harsh, it probably is, but relative to what's happening in the U.S. and most of the rest of the world, we haven't had a lot.
Two really big things that have changed in the tech space in Australia. Some of that's come over to America already. Buy now, pay later. I'm not sure how big that is in the U.S. now. For listeners, people older than you and me, Chris, we're young men, will remember Laybuy, when you go and you put some money down, then pick up your product in two or three months after you've paid it off. Buy now, pay later is the reverse of that. Afterpay is the company that's really leading that. Kim Kardashian has jumped on that here, I know. It is just taking the Australian retail landscape by storm. Young people in particular seem to all have it. Almost every decent retailer any size offers this buy now, pay later idea. Rather than handing over your cash or putting your credit card or debit card over the counter, you're saying, "I'll pay it off in four installments over four weeks." Now, JMo talks about the war on cash. This is absolutely war on cash territory. Another way to pay, often for those people who don't have credit cards, can't get credit cards, are younger, and have a different way to pay. Buy the pair of jeans now, pay it off over four or six weeks. That's really big.
The other thing that's changing is what we call financial technology platforms. The ability to take management of people's money, for a fund manager, for a bank. A lot of Australian tech innovators have taken over that space. The big banks in Australia own the entire financial relationship with almost everybody. They're disrupting that really meaningfully.
Two relatively niche areas, but they're really big business for Australia. There's some really successful multi billion dollar companies. That's small in the U.S. In Australia, that's big. There are some really meaningful changes in those two technology spaces.
Hill: To what extent, if any, does the trade war between the U.S. and China impact investing in Australia?
Phillips: We don't yet know, but it's scary. The first thing is, to the extent it impacts global growth, global economic activity, that's a big deal. Two of our biggest trading partners, funnily enough, China and the U.S. Look, if it remains just between China and the U.S., everyone else is OK, we're fine. China is Australia's largest purchaser of raw materials and minerals. We sell a lot of iron to China. If that slows down, that hurts the Australian investor, it hurts the Australian economy, it hurts the Australian Federal Budget position. So, really, really big deal there.
For consumption products, America is our biggest consumer, our biggest export partner. Again, same thing. If the U.S. economy slows down, there are some direct and indirect impacts that really... the old line in Australia used to be, and still is to some degree, if America sneezes, Australia catches a cold. That remains, probably more so now, if America or China sneeze, then we're in trouble.
We're pretty worried. If it does become a bigger deal, either directly or indirectly, we've got a lot of pain to feel if it goes badly. Australia's economy is not in such a good position right now that we can afford that external shock.
Hill: Before we wrap up, you mentioned Afterpay. What is another stock for any U.S. investor who's thinking about exploring investment opportunities in Australia? What is a stock they should put on their watch list?
Phillips: Chris, I thought I had one that made some sense to you, made some sense to our conversation. I know you're not a beer man. You're a whiskey man.
Hill: I am not a beer man, but I appreciate the investment opportunities that beer presents.
Phillips: Could he do in a wine tipple, potentially?
Hill: [laughs] Absolutely!
Phillips: Excellent! There we go. Now we've got some common ground. And I'll throw China into the mix. There is an Australian company known as Treasury Wine Estates. Treasury Wine Estates sells some really high-quality Australian, French, and American wines wide around the world. Particularly, the big growth now is going into China. Now, if you still believe, as I do, that over the long term, China is a huge consumer market opportunity -- Australian wine into China is growing at 20% per annum in volume terms, and another 20% per annum in price terms.
Hill: Those are nice trends.
Phillips: They're nice numbers, right? Chinese consumers are drinking more wine, but more importantly, more premium wine. People like Treasury Wine Estates are getting higher and higher prices for that wine. We know this is a massive market -- 1.3 billion people at last count. If you can get a just a few of those to want to buy some of the more expensive wines, because there are more millionaires in China than the rest of the world, you start to think it's a pretty attractive market to sell premium reputation products, the ones you want to be seen consuming. Whiskey is one of those, of course. Wine is another one. Some of the best French, American, and particularly Australian wines into China, I think, is a huge, huge long-term opportunity.
Bumps along the way, absolutely. Trade wars, trade embargoes. There'll be issues around importation. That'll come and go. For a relatively safe, normal, average, food consumption stock, it'll be bumpy because of those issues. But the long-term trends are fantastic. So, Treasury Wine Estates. If you're on the ASX, the code is TWE. Those are the international brokerage accounts. Treasury, I think, is going to be a really good long-term play.
Hill: Historically, when you have come to Fool headquarters here in Virginia, from Sydney, you've been kind enough to make the trip with a couple of boxes of Tim Tams. Delicious cookie. Any chance you brought a little something from Treasury Wine Estates along with you this time?
Phillips: I didn't, Chris, but I can. Although, later on this afternoon, we are going to open a new bag of things called Tim Tam Bites. You want to be there for that.
Hill: I will be there for that! Check out the Motley Fool Money Australia podcast. I'm going to include a couple of links in the description of this show. It's a fabulous show. It is on my regular list every week. I love listening to you and Anirban! Thanks, I appreciate you making the trip! I know you're busy as can be when you're here, so I appreciate you coming in the studio.
Phillips: It's my pleasure! Thank you for having me!
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That'll do it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you on Monday!
