Postmates and the Bad Timing Blues

In this episode of MarketFoolery, Chris Hill chats with MFAM Funds' Bill Barker about some of today's business news. Alphabet (GOOG 1.25%) (GOOGL 1.27%) pops on some C-suite shifts. Maybe new leadership will focus less on the unprofitable "other bets" segment and more on things like buybacks and revenue. Postmates seems to have missed their window to go public, and the future doesn't look great for the No. 4 in meal delivery. Expedia's (EXPE 2.61%) CEO and CFO resign after butting heads with Chairman Barry Diller. Constellation Brands (STZ 0.74%) sells off Ballast Point -- they won't say for how much, but it's probably nowhere close to the $4 billion they paid for it. Also, Bill drafts a "lightly fictionalized" Hallmark movie plot about Chris' life. Tune in for 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 Dec. 4, 2019.

Chris Hill: It's Wednesday, December 4th. Welcome to MarketFoolery! I'm Chris Hill. With me in studio, Bill Barker. Thanks for being here!

Bill Barker: Thanks for having me!

Hill: We've got delivery news. We have a surprising deal in the beer industry. We're going to start with the revolving door in the C-suite at a couple of companies. Let's start with Alphabet. Co-founder Larry Page is stepping down as CEO. He's going to be replaced by Sundar Pichai, who is the CEO of Alphabet's Google division, also known as overwhelmingly the most important division to Alphabet. Sergey Brin, the other co-founder, is giving up his title of president. Both Brin and Page are going to remain on the board. Shares of Alphabet are up to about 2%. That feels right to me, just because Pichai has been more involved in the day-to-day operations of the business than Larry Page has been, and this is about as smooth a CEO transition as someone could hope for.

Barker: Yeah. In the world of major companies announcing CEO and president departures in one day, and founders, from the operating side of the business, I'd say this is the smallest piece of news you could probably have, in that, as you say, Pichai has been there for years, basically doing the job that he's now going to get the more official title for, running Google, which includes the YouTube operations, is 99% of the revenue of the company. The Other Bets, which seems to have been more interesting to the founders' time, but not really interesting to investors' results, maybe that's still going to be where Page and/or Brin spend a little bit of time, if they do. But, 20 years, that's about, actually, what Gates spent, head of Microsoft. You've got a full life ahead of you to do amazing things without having to keep doing the operations of something you've been a success at for a couple of decades.

Hill: And, obviously, Ruth Porat, the CFO who's been there for a little over four years, she is still there. So, in terms of, again, the running of the business, the execution of the quarterly conference calls, all that sort of thing, you've got, arguably, the two most important people, who have been the two most important people for a couple of years now. I get that, from an investing standpoint, the most important thing, quarter after quarter is, how is Google doing? How is YouTube doing? What is the cost per click? All of that. I get that. That's the most important thing. But I do think, with this transition, the most interesting thing about Alphabet becomes the Other Bets division. Because Ruth Porat in particular has demonstrated in the past, she is willing to throw a little bit of shade at parts of the business that aren't doing well. I'm not expecting Pichai to come in there and say, "Alright, we're going to start slashing the Other Bets division," but it will be interesting to see, in six to 12 months, if investments get pared back, if entire projects get abandoned, or if some of these bets start to take off.

Barker: Yeah, I think that it comes down to capital allocation and investor communication. Google has not been outstanding in breaking out the results of the Other Bets. They've been a little bit shy on putting numbers on certain things. So, there is at least some speculation out there in the market -- and this may be why the stock is up 2% -- that you're going to get a little bit more disclosure from management, a little bit more granularity, on some of these things. If so, then that increases, I guess, the pressure from the outside, the available pressure that investors can bring on the company to allocate capital toward things like buybacks instead of Other Bets, which may be pet projects that aren't really as investor-oriented as founder-oriented.

Hill: I've always assumed that the lack of granularity on the Other Bets was for two basic reasons. One, we don't have to. We don't have to give you this information. And two, probably more importantly, we're protecting the people involved in these projects. Because if the results were amazing, or things actually were taking off, then they probably would be sharing that stuff.

Barker: Yeah, quite possibly. And if this is not something that new management has to protect -- this is speculation, that there will be more disclosure, or at least a possibility of more disclosure. It was, at least, accepted at this point that we were not going to get much disclosure on the rest of the operations. So, more information would be better for investors. They might value the company at the margins slightly higher with more ability to make predictions on the company. And, of course, they've got plenty of cash available to buy back shares. They haven't fulfilled their current buyback authorization. They have bought back a significantly higher amount this year than last year, but still, they're lagging what they could be doing, and there is at least some argument that that's a better way to allocate capital than to fill in the blank on the Other Bets.

Hill: Expedia is also looking for new management because CEO Mark Okerstrom and chief financial officer Alan Pickerill, have resigned. Chairman Barry Diller is basically going to be helping to run things on an interim basis. And I think this is as simple as a clash between Diller and his CEO and CFO, and essentially, they were shown the door -- which is, as I was saying to you earlier today, oddly refreshing to me. I realize that probably may sound cavalier, but for the number of times I've had to come into the studio and talk about a CEO who's leaving under some type of scandal or cloud ... In this case, it appears to be the chairman saying, "I don't like how you're running this company, and you can either run it the way I want you to run it or you can go." And add Okerstrom and Pickerill to the list of people who have gone up against Barry Diller and lost.

Barker: Yeah, I think that that's accurate, in terms of who is the power in the company and has been and will continue to be, and who has the ear of the board. Even though CEO Okerstrom was on the board -- and, I don't know, might still be. I don't know, I didn't see that part of the announcement. It's Diller's board. He's the one who's chosen who's on the board. It's an interesting board. They are beholden to him, not to the CEO.

Hill: Expedia's stock is up about 7% this morning. It had dropped about 30% in the last couple of months off of bad results, bad guidance. Is this a job someone should want?

Barker: Interesting question. I think it depends on if, probably, they have a past relationship with Diller -- and many do, and there have been a lot of successful alliances with Diller. I think that that will be on his shopping list, is the people that he knows and trusts, and see his vision, which is one more of growth than what Expedia was indicating, which was one more of efficiency. I think they're getting increased competition from Google. The SEO expenses were something that they pointed to as an increasing headwind. It's a competitive space. They've got many of the names that you associate with online hotels. So, I think that there's plenty of opportunity still there, but you definitely want to be part of Diller's growth vision if you're going to take the job. And you're not going to be offered the job if you're not on board.

Hill: Postmates, the food delivery start-up, had filed paperwork earlier this year to go public.

Barker: Too late.

Hill: No one should hold their breath waiting for that IPO. [laughs] Postmates announced it is closing its office in Mexico City and laying off dozens of employees. This is ... thanks, WeWork! [laughs] For anyone who was wondering what ripple effects, if any, existed for the implosion of WeWork over the last few months, this is on the list, isn't it?

Barker: Yeah. I mean, it's not just WeWork, but the Uber, Lyft, a business plan which is, "We can lose lots of money fast while growing fast, and we'll figure it out down the road." Postmates is a distant fourth, I guess, behind Grubhub, Uber Eats, and DoorDash. And growing. The whole category is growing, but none of it is profitable yet. And the appetite to fund that kind of growth with no clear profitability in the near term future evaporated. And, as you say, WeWork -- which really doesn't seem to have a business plan that could survive without vast amounts of capital. I think maybe there's more of an opportunity here. But, look, they're putting themselves up for sale right now. That is, not WeWork, although that might be up for sale as well.

Hill: Postmates?

Barker: Postmates, yeah.

Hill: I find it interesting. You've got Bastian Lehmann, who's the CEO of Postmates, saying, like, "Look, this industry is not a winner-take-all market." And I get that, and I'm not suggesting --

Barker: When you're No. 4, yeah, that's a good line to try to sell.

Hill: [laughs] Yeah. And I think he's right, but I also think, maybe it's not a zero sum game where there's only one winner, but there's probably only a couple of winners. And it looks like Postmates increasingly is not going to be one of them.

Barker: No. They've got a long way to go. But it's a consolidating industry. A lot of the growth of Grubhub and DoorDash has been acquiring smaller players. There's that possibility. For Grubhub in particular, if they could scrounge up the money to regain some market share -- which they have been shedding quite rapidly to DoorDash. But, I don't know that they've got the cash. The public markets are not going to fund this. Private equity, I don't see it being attractive there. So, not a great time to sell yourself. Had they been able to get in there in the first half of the year, I'm sure they would still be sitting on some of the cash that they would have raised at that time. At this point, the clock is ticking pretty loud. They have responded by shutting down some of their operations, and I would imagine that shutting down more is on the horizon as well.

Hill: I'm glad you mentioned private equity, because this is a little in the weeds, but it is worth pointing out, I think, that that is yet another ripple effect of what we've seen in 2019 with some of these IPOs not really working out well, the implosion of WeWork. So, increasingly, you have private equity firms less likely to extend themselves to the Postmates of the world.

Barker: Yeah, especially when the business model is one which doesn't look like it's going to be appealing to the public markets anytime soon. Private equity is happy to get in there, throw some cash in, and then get out in a public offering. That is not the path going forward here.

Hill: It was four years ago this month that Constellation Brands bought Ballast Point Brewing Company for $1 billion. Today comes the news that Constellation has sold Ballast Point Brewing to another brewing company. Is it Anheuser Busch? Molson Coors? No, it's Kings & Convicts. "What is that?" you may ask. Well, it's a tiny brewery in the suburbs of Chicago that started two years ago. Speaking of protecting people -- as we were earlier, about protecting the Other Bets divisions at Alphabet -- probably protecting the people at Constellation Brands that part of this agreement to sell Ballast Point to this tiny brewery is that the price is not disclosed. Is there any way it's over $100 million? That can't possibly be the case, can it?

Barker: Yes?!

Hill: [laughs] OK, yes it could be.

Barker: Yes, it could be.

Hill: In that case, Constellation only had to write off 88% of what they spent on Ballast Point.

Barker: I think it could be more than that. In 2016, Ballast Point was doing 430,000 barrels a year. It's doing about 200,000 for 2019. So, actual business is a little bit less than half. Let's say you overpaid at a billion. Obviously, you're pricing in some growth. What the price was here is a good question. But, it is interesting that a company as small as this -- now, it's backed by somebody with money. The company Kings & Convicts -- by the way, nice name.

Hill: That's a good name.

Barker: That's a good name.

Hill: Oh, yeah. Well done.

But the craft brewing industry runs into the difficult math equation that, you buy something, you expect to grow it a lot. Well, the bigger a craft and brewery grows, the less attractive it is to a large percentage of the people who like to point out that they're drinking something that you haven't heard of. The beer industry is contracting, and not growing, and the craft industry can only grow so much, any individual brand, before it becomes too big to be trendy to a large chunk of those beer drinkers. I don't know how you solve that math equation. Boston Beer has done a reasonably good job of it, but they've run into problems at times. You've seen them lose two-thirds, three-quarters of their market value. They're back, I think, to an all-time high. The previous all-time high was 2015, which is when this sale originally happened. Everything was going straight up and to the right on any chart for any craft brewer in 2015. You saw a big contraction in valuations in 2017. 2018, certainly Boston Beer, back to getting things done pretty well this year. So, I don't know that they're selling at the bottom here. Kings & Convicts, it'll be interesting. They're now on the map.

Hill: They are. But, you mentioned Boston Beer. You're right. It's absolutely has had its struggles over the past decade. But over the past two years, it's doubled. Maybe the valuation is out of whack. I don't know. I think, if you're someone who's looking to possibly add a beer stock to your portfolio, I don't see how you put Constellation Brands on your watch list, not after what this company has done over the last couple of years, the investment they made in Canopy Growth. There's no way you can look at the Ballast Point acquisition as anything other than a huge financial mistake. And you just have to wonder what management is doing, because Constellation Brands had grown to the point where they were known for doing this type of thing, but doing it well. It's like, "We've got this portfolio of brands. We'll help expand the audience. And once you come into our network, we're going to grow your business and grow our own profits." And this is the exact opposite. The price is going to come out at some point. I've got a trip to Starbucks that says it's under $100 million.

Barker: Constellation Brands is still about a $35 billion company. Let's call it a complete failure, a billion-dollar mistake, that's awful. That's 3% of the business. It's meaningful, I think, that the other investments are more problematic, some of the more recent ones. So, yes, not a good day for Constellation Brands, but they've got a lot of much more stable brands in house that are much more mass-market. Maybe that's where they should continue to focus, on the larger, mass-market brands that they have.

Hill: I agree. That's why I thought it was so baffling that they invested $4 billion in Canopy Growth.

Barker: Yes. That's the next the next thing on the list of "things for which they need to answer."

Hill: If any listeners in the Greater Chicago area want to drop us an email, [email protected], would love to get any color on Kings & Convicts.

Also -- I meant to mention this the other day -- any listeners in the Houston area or Knoxville, Tennessee, if you want to test out that McDonald's crispy chicken sandwich and give us your boots-on-the-ground research, we'd appreciate it. Email us, [email protected].

Real quick before we wrap up. We were talking yesterday with our colleague Maria Gallagher about Christmas movies, the Hallmark Channel, that sort of thing. I spent a little time this morning on the Hallmark Channel website, trying to think -- because I'd mentioned, sort of in an offhand way, without really doing any research or thinking through what I was saying. Longtime listeners are not surprised. I was like, "Yeah, maybe I'll watch a hallmark Christmas movie, and live tweet that." Having spent a little time on the website and looking at the offerings, [laughs] I don't think I can do that.

Barker: [laughs] No?

Hill: No! They look ...

Barker: Untweetable?

Hill: It's not that they're untweetable, I just think it would be really painful to sit through those movies and watch. I just don't think I could do it.

Barker: Let us admit ahead that we don't really know what we're talking about, because we haven't seen any of these movies, and they're beloved by many people.

Hill: They are.

Barker: Who are we to mock what other people love? I mean, I won't. You might. It sounds like that's where you're going. Don't get defensive about that. I say go straight forward. Stick with it. Don't apologize. Question other people's choices.

Hill: [laughs] I was saying the other day, radio stations that flip to the holiday format in early November, I don't begrudge them that. That makes money for them. That's smart. I don't want to listen to it, and that's why we have our campaign every December to broaden the horizons of holiday music tastes out there.

Barker: Right now -- this is where you often chime in that listeners who came here for the business news can tune out, because there won't be any more.

Hill: Yeah, we're done.

Barker: This is sort of a preview of Apropos of Nothing at this point. But what I was thinking of, rather than doing any research on it, was, what would it lightly fictionalized version of, say, you and your life in one of these movies look like? I think it lends itself spectacularly. I see you as being in a small town in Maine. Your own hometown, probably. A lightly fictionalized version of your wife shows up. Very attractive and intelligent. And she's been thrown some sort of a curveball by the big city, and finds herself in your small town in Maine, where you are, I think, a podcast host. And also, probably run some sort of gazebo repair shop.

Hill: Yeah, I was just going to say, I'm thinking, the last time I was in my hometown, I don't recall seeing a gazebo anywhere.

Barker: Was it snowing?

Hill: No, it was not snowing. It was warmer weather.

Barker: Doesn't sound like a good movie at all. What if we throw a little snow into this picture?

Hill: I mean, if it's going to be a holiday picture, you'll need some snow.

Barker: I think you're also the high school basketball coach, and maybe doing a little stand up at the local comedy club as well.

Hill: How can I do that when I've got my gazebo repair shop?

Barker: [laughs] What is a podcast? That's like an hour a week. Something like that.

Hill: Yeah, basically.

Barker: [laughs] And the gazebo repair shop's little bit seasonal. No, I think you have time to do all this stuff.

Hill: I will say this, though -- and you mentioned this yesterday when we were chatting with Maria -- the Hallmark Channel does seem to attract name actors. Just clicking through the site, the one that leapt out to me, where I was like, OK, if I've got to watch something, this Sunday, there's a movie called Christmas at Dollywood, and Dolly Parton is in it. She's in the Hall of Fame. So, alright, I would watch that.

Let's go to our man behind the glass, Dan Boyd, who probably has some thoughts on this.

Dan Boyd: Listening to Bill's description of this film about Chris's life -- one, you got it on the nose for how terrible and contrived all of these movies, and how formulaic they are.

Hill: Oh, you have experience?

Boyd: I just want to add one thing that I think would make this movie watchable. Because it's set in Maine, if Stephen King wrote it, then I'd be like, OK, I'd give that one a shot.

Hill: [laughs] Yeah! How great would that be, if the Hallmark Channel just went to Stephen King and said, "Look, man, carte blanche."

Boyd: "Whatever you want to do."

Hill: "Whatever you want to write, we will produce it exactly the way you write it." That would be a genius move.

Barker: What I would look for here from listeners, the one or two of them that might still be listening at this point, is, A, who plays Chris in the movie? I think your name is probably Christopher Hall or something. Some lightly tweaked version. And also, what's the name?

Boyd: I don't know, Bill. As far as generic names go, Chris Hill is near the top of the list.

Barker: No, it has to be close, but not exact, because it's lightly fictionalized. He has to be recognizable, but not an exact copy. For instance, you are not currently coaching basketball, but you could coach the high school basketball team.

Hill: Here's the thing, just to bring it back to business for one second -- if they're using my exact name, Hallmark has to cut me a check, and they don't want to do that.

Boyd: OK, but who plays Chris in this movie?

Barker: You could be Christopher Hallmark.

Hill: There you go.

Barker: The name of it, there has to be something cute with some sort of tweak on both Christmas, obviously, or the season, or Mary, or whatever, and some sort of podcasting reference, in the title. I think.

Hill: It's possible we'll get suggestions.

Boyd: William H. Macy. [laughs]

Hill: Thank you!

Barker: No, has to be a little younger, I think. We're playing you at 28, 35. What's the demographic for the Hallmark viewers? They're not looking to have William H. Macy.

Hill: They would be thrilled to have --

Boyd: What are you talking about? He's a fantastic actor!

Barker: He is! But, as the romantic lead? I bet, if you turn on the Hallmark Channel right now and see who the romantic male lead is, it's somebody 25 years younger than William Macy. That's all I'm saying. I think that's the way you play those things.

Boyd: I hope William Macy isn't listening to this podcast, because you're just completely dumpstering him right now.

Barker: Not at all! I'm a big fan! I just think we're looking for somebody slightly more leading man than character actor for this role. I see it.

Hill: Here's the reward for people who have hung in and are actually listening.

Barker: What's the prize going to be all the winner?

Hill: All four of you. No prizes.

Barker: MFAM will throw something in. We've got a mug or something.

Hill: It's Dan Boyd's selection of holiday music.

Barker: You know what your podcast could be about? It could be a review of aromatic candles, such as one might buy at Bath & Body Works.

Boyd: I feel like this movie might actually kill people with boredom if that's the case.

Hill: [laughs] Between the gazebo repair shop and the aromatic candle podcast, yeah, I think you're right.

Let's get out of here. Bill Barker, thanks for being here!

Barker: Thanks!

Hill: As always, people on the program may have interests 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's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.