In this special year-in-review episode of Industry Focus, all the hosts get together for a look back at 2019, and a look at what lies in the decade ahead. Topics discussed include:
- CBD and marijuana legality struggles
- Bad-news IPOs and the WeWork awakening -- what it means for the future
- Why athleisure doesn't seem to be going anywhere in the next 10 years
- The humanization of pets
- Why food delivery companies will have to change in a big way to survive
- Companies asking governments for forgiveness instead of permission
- Why stock splits are dead
- Virtual, augmented, and mixed reality in the next decade -- where it'll actually show up, and why we haven't seen much come of it yet
...plus many others. Tune in to hear 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. 18, 2019.
Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's the holiday week here on IF and we are wrapping the year up with an all-host roundtable. I'm your host, Dylan Lewis, and I've got Shannon Jones, Nick Sciple, Jason Moser and Emily Flippen with me in the studio. What is going on, people?
We looked back at the past decade in our first part of the discussion. We're going to be looking back at 2019 a little bit in this discussion. Before we get into that, though, I want to know, what is on the holiday wish lists for people? We might have some people that are currently driving to their relative's house to celebrate the holidays, might need to stop somewhere and get a gift. Let's give them a couple ideas. Nick, what's on your list?
Nick Sciple: Oh, man, a bucket of money is always on the list. Let's see. I always like, for a stocking stuffer, a good multi-tool, like a good pocketknife one of those things.
Lewis: That's a great gift.
Sciple: You get good use out of it. It's one of those things. It's the right price, like $20, and I think anybody can get a good use out of something like that.
Shannon Jones: How old are you, Nick?
Sciple: Hey, I appreciate a good, useful gift.
Lewis: Nick, I'm going to come to your defense here. I asked for a Leatherman for Christmas last year.
Sciple: Boom, I asked for one this year. Damn.
Lewis: There it is.
Jason Moser: Did you get the Leatherman that you asked for?
Lewis: I did, because my mom and I have a tradition of being very specific for a couple gifts. We're just like, we're at the point where we can both buy the things that we want to buy.
Moser: Listen, man, I tell my kids that I'm 40 years old, I can get whatever I want at this point. It all kind of loses meaning. You have to start thinking a little bit outside the box.
Lewis: So, what's outside the box for you this year?
Moser: Oh, a big master bathroom renovation. That's what my wife and I gave ourselves. Thank God for a home equity line of credit, right? That is the big Christmas gift for this year and many, many, many years to come.
Jones: It's the gift that keeps on giving.
Moser: That's the idea. We moved into a new house a couple of years ago, and we had this vision of what we thought the bathroom could look like. And we decided to bite the bullet this year. We're almost there. Just maybe another week and it'll be done, and then we'll be able to enjoy that for the rest of our time in the home.
Lewis: Maybe not something that people could pick up on the way to their relative's.
Moser: No, probably not. But I do have an idea there. This goes back to the business world. I don't know if you guys heard, AC Moore, the arts and crafts store, is going out of business. That's a local provider here. I don't know if it's really big nationwide. But it's a really neat arts and crafts store. And as y'all probably know, I like to paint watercolors. If you have any artistic inclination, go out and buy some art supplies. And if you don't, or you know someone who doesn't, and you want to give them the gift of a new hobby or an interest, get them something like that. You never know unless you try. They can typically be pretty affordable gifts. Worst case, they're not interested. Best case, they get latched onto a new lifetime hobby.
Lewis: And this is coming from the watercolorist at The Motley Fool.
Moser: I don't know that I would say that. I definitely wouldn't say that.
Jones: He has been to a lot of paint and sip classrooms, that's where all of them come from.
Lewis: The pictures starts to get better the longer the night goes on at those paint and sips. Shannon, what's on the wish list for you this year?
Jones: All right, I'm very practical this year, and I hope my husband is listening to this because I have not told him this. I'm revealing it to all the listeners at the same time. But I want a Waterpik sonic fusion flossing toothbrush for Christmas. Now, this is a multi-prong tool. It's not a pocketknife. But what it is, it's a toothbrush, and it also flosses with water. For me -- because I'm always looking to cut down on healthcare costs, of course -- this is a way to basically get the same type of cleaning that you get at the dentist, but on your own. So, for me, it's pretty expensive, especially for a toothbrush, but I'm like, I can use this for years, and it's going to cut down on me having to get my teeth cleaned every six months.
Lewis: That's not unlike Jason's bathroom renovation. Your gift that keeps on giving.
Jones: It keeps on giving! It's an investment, it's not a cost!
Moser: Listen, I'm all for good oral health. I just went to the dentist last week. And I don't like going, but I tell you, I like when I leave, that clean feeling.
Jones: Yes, anything that keeps you out of the dentist's office is good!
Lewis: Emily, like Nick, I'm going to expect something wildly practical from you. [laughs]
Emily Flippen: You know what? I had something practical, and now I'm just sitting here thinking, "Gosh, what happened to the holidays that people are giving multi-tools and water picks?" I mean, this is depressing! You know, mine was going to be -- I don't think I'd like something like this -- a weighted blanket. Those things are all the rage right now. People apparently love them. It sounds horrible to me. But, you know what I'm going to say? If you have a kid, get them a Switch, a Nintendo Switch. If you haven't made that leap, it's a good gaming platform. The 2020 lineup in terms of games for the Switch is great, especially if you have kids. So, I say make the leap there.
Jones: Emily, I think you're spying on my household right now. I got one for the daughter for Christmas this year, and I just bought myself a weighted blanket. A 20-pounder, and let me tell you, I love it.
Lewis: What does it do?
Jones: It makes you feel secure and safe and go to sleep.
Moser: I guess it's kind of like when you have a baby, and you have to wrap that thing up like a burrito --
Jones: A swaddle.
Moser: Yeah, you learn how to swaddle. They, like, give you a class in wrapping a Chipotle burrito. The goal is to wrap this kid as tightly as you possibly can.
Lewis: [laughs] If you don't have kids in your life, the gift that I would recommend, my mom will generally ask, "What are you interested in?" I like getting restaurant gift cards for my local area. I think it's a nice, easy gift. You don't have to worry about someone getting something and never using it because it doesn't take up space. It's an excuse to go out. I think it's a nice little way to explore your area if you're in a city or an area with a lot of restaurants.
I'll add, though, that there is one other thing on my wish list, and that is ratings and reviews from our loyal listeners. And you know what? That one doesn't cost anything.
Jones: I thought you were going to say bed sheets this year, Dylan. Didn't we have this conversation last year?
Lewis: I don't use a sheet. I have a fitted sheet and a comforter.
Moser: We have that same thing going at home.
Flippen: Who likes extra blankets?
Jones: Me, with my weighted blanket.
Lewis: We have a majority over here, Shannon. But don't let that detract from, giving us ratings and reviews. We do love getting those, and it helps us out tremendously as we try to rise in the ranks and become one of the best business podcasts out there.
All right, so, in this one, we are looking back at the year that was. We covered the decade that was in our last one. Why don't we just start things off with Nick here? What was the major story for you in 2019?
Sciple: I would say, for my sector, energy and industrials, it has to be the Boeing 737 Max. This is a story, last October, we had the first plane crash. It was a tragic thing. Then we had a second crash come through in March, and it's really taken over the company's story ever since then. At first, they weren't going to halt production. They were going to keep on producing planes, store them, and we'd have the plan back up and running in no time. I think we just heard this week that they are contemplating fully stopping production on the 737 Max, when that's the vast majority of their backlog. You have a market like commercial air travel that is just so massive on a global basis. I think when you have the most important platform from one of the most important companies in one of the most important sectors globally, I think it's been a massive story.
Lewis: Yeah, it's been hard to escape that one this year. Shannon, what's going on in the healthcare space?
Jones: Yeah, so I think if 2018 was the year of marijuana, 2019 is the year of CBD. It's really been just true CBD mania this year. A lot of hype coming off of the signing of the Farm bill last year, which basically legalized hemp on the federal level. You've seen CBD exploding onto store shelves everywhere. It's your mom and pop shops, your dispensaries. It's your grocery stores. It's even pet stores now. But it's literally everywhere. I think 7-11 even though has CBD products.
But I think one of the more interesting things, for me at least, following the healthcare space, is of course just the potential of CBD as a therapeutic agent. It's one of a little over 100 different components within the plant. We know very little about that one, and we know even less about the 99-plus others. So I think this year is really about now kind of taking the handcuffs off of the CBD space. Now we can actually get into the research, see what this particular compound is about; also, how they interact with each other, something called the entourage effect. And so I think there's been a lot of hype coming into this year for CBD. And I think you've started to see a lot of that begin to wane toward the end of the year. But I still think there's a lot of promise and you're seeing a lot of your big pharma players now really starting to figure out, "Hey, is there really something to CBD potentially boosting the impacts of one drug if we combine it?"
So, it's been an interesting year in the marijuana space, but even more so for CBD.
Lewis: So, if 2019 was the year of CBD, will 2020 and the years that follow be the years where we get a better sense of exactly what's going on with CBD and how it impacts us?
Jones: I think that will be the start. I still think we're many years out from really, truly understanding what CBD can do, and also, too, just trying to get through all the players in the space. It seems like everybody and their mom and dad has some sort of CBD product on the market. But they're all not the same. And I think safety and quality is what we'll really start to see become a bigger factor in 2020, and really start to separate the wheat from the chaff.
Lewis: I know that you're generally going to be hosting the CG show, Emily, but I have to transition to you off of weed, because you and Shannon work together so closely on so much of that stuff. Is your 2019 immediate thing you think of also pot related? Or is it a different space?
Flippen: Well, when you spend the last year analyzing the cannabis industry, it does tend to do that. For what it's worth, I think cannabis is kind of the ultimate consumer product. In fact, most cannabis companies are positioning themselves as consumer packaged goods companies. So, there's a medical aspect to cannabis, for sure, like Shannon mentioned, with CBD especially, but you also have Epidiolex, which is the first FDA approved drug containing CBD, used for treating rare forms of epilepsy. There's lots of medicinal purposes. But there's also lots of consumer, recreational purposes there as well. It's been a bad year for that side of the business as we've seen oversupply in Canada, numerous regulations making it really hard to access the cannabis market here in the U.S. I do think that 2020 is going to continue to be a little bit rough, but there's going to be a silver lining in Canada. We have derivatives legalization. So, cannabis 2.0, as they put it, which will allow people in that market to gain access to food and beverages containing cannabis, which opens up an entire new market for consumers in Canada, at least.
Lewis: What we've seen with marijuana over the last year and a half to me isn't really all that different than what we saw with blockchain over maybe the last three years. People got really excited about something. Everyone was talking about how they were going to use it and integrate it into their products or their services to make their business more efficient. All of that hype led to expectations that were maybe a little out of step with what was capable or what reality really looked like. And now we're settling into, here are the true winners, in some sense. I mean, the crypto side of things, let's just put that on the shelf for now and talk about the excitement of blockchain itself. But I think that it's only natural for us to go through some of those cycles with these hype industries.
Jones: Yeah. And I think you have to remember; these are companies being built as the infrastructure is also being built. We've seen a lot of, to be honest, dumb mistakes that a lot of these companies have had, as you have executives that are inexperienced and are trying to build a multi-billion-dollar company, and you don't even have the infrastructure from a regulatory perspective in place. In some cases, even legally. So, I think a lot of the hype we saw -- and I expected, and Emily and I talked about this earlier last year, like, things are going to get rough at the end of the year, and that's exactly what we're seeing. But I also think it creates a lot of opportunity, too, because there are some really well-run companies that are out there. We'll continue to see that now as derivatives are coming online, and these are higher-margin products as well. I think there's a lot to look forward to heading into 2020.
Sciple: Just a follow-up question there. Talking about this being the year of CBD, and I guess what's made that really possible is, the Farm bill lifted some regulatory restrictions on that area of the business. To what extent would you say that the business is still kind of being driven by these regulatory changes? And to what extent are these businesses now kind of free from regulation and able to drive the bus themselves?
Jones: Yeah, I think it's really still the lack of regulations, especially on the CBD front. We've seen the FDA right now, they've tried to put out some guidance even recently to try to regulate, what is really a prescription CBD product versus something that's really a dietary supplement? The problem is, it's still gray and it's still unclear. So right now, they're still very much at the mercy of whatever the FDA regulators want to do.
I do think, though, on a state level, states like Illinois that are creating a solid infrastructure, you know exactly how you're operating in the space, I think companies set up in those specific states do really well. But, again, they're still at the mercy of not just on the state level, but also on the federal level, too.
Flippen: And to be clear, the Farm Bill hasn't even fully gone into effect yet. In November of 2020 is when states are going to have to put in their own regulations as they apply to CBD. The FDA has made it very clear, they requested earlier this year to get research about CBD, and they didn't get it. And instead, what they got was really shoddily done research relating to rats. And that's what they've been basing their guidance off of! I mean, human guidance off of these really shoddy research studies! Because cannabis is still a schedule one narcotic following the government's rules there. So, the idea of having access to research-grade cannabis is hard within itself. It's a really, really hard process. I think 2020 is going to continue to see that process extended as states now have to make their own regulations as they apply to CBD.
Lewis: One of the best social recommendations that I've gotten from Shannon Jones was the must-follow account -- is it In Mice?
Jones: justsaysinmice. Absolutely a must-follow.
Lewis: The idea there is, there's research, and we see the headline, and it's, "This reduces rate of this by this amount," and the asterisk that almost always needs to be there is: in mice.
Jones: And it's never there. So, this Twitter account literally compiles all of those ridiculous headlines -- something that's supposed to cure cancer? No, that's just in mice, and that is not applicable to actual human models. So, yes, I highly recommend that Twitter account as a huge follow.
Lewis: Jason, when we were doing our 10-year look-back in the last episode, you talked about how one of the major themes that you were focused on was how fees slowly evaporated. Is that the story for 2019 for you? Because we saw a lot of that happening?
Moser: Well, I mean, it certainly could be. At the risk of being redundant, I'm going to go in a little bit of a different direction. Because I think one story we've talked a lot about this year -- honestly, I think we probably thought this was going to be wrapped up by this point -- was this China trade deal. I mean, it is just every week, something else. We get requests to talk about this. And it's been interesting to follow just from the perspective of, the world continues to get smaller thanks to technology. We're all more connected, it's easier to just get halfway around the world, so to speak, than ever before, because you just click a button, and you're there at this point. There are a lot of political forces to play, I think, trying to drag this out and make it a 2020 issue, which is why we haven't seen real resolution to it yet. But I think it's interesting to look at all the different types of companies that are affected by it. We see tech companies, for example.
Let's look at Apple just as an easy example of a tech company that should be affected by this in a big way. But Tim Cook, I think, saw around that corner a little bit. He's probably not on the same page with the politics of the current White House administration, but he's been very diplomatic about his relationship with them. And consequently, Apple's gotten some freebies from the White House. They're not necessarily as tied to these tariffs that could go into effect at any given point in time. So, Apple, I think, has seen some good fortune from that.
Companies that go into making these devices that Apple makes. The top performer in our AR portfolio this year is not Apple, it's not Microsoft, it's not Alphabet, it's Lumentum. I don't know how many people actually out there know about Lumentum or what it does. It's just a little small-cap chipmaker that makes this vertical cavity surface emitting laser technology that enables 3D sensing, which is imperative for this mixed reality future that we're headed toward. And because Apple is kind of getting freebies, then you see these component companies getting a little bit of a pass as well. And so while it's not necessarily a straight line up, Lumentum has had a pretty darn good year because they've kind of been in that same boat as Apple.
You flip that coin over, you look at a company like Wayfair -- I mean, it's kind of a tech company, but it's a retail company at the end of the day. Their earnings report just a couple of weeks ago. The stock fell like 20% on earnings. And if you look at the metrics of the business, it was a great quarter. But there was a passage in the call -- and I want to read this to you. This is from the CFO, Michael Fleisher. He said, and I quote, "Since the beginning of the year, more than 90% of our suppliers that were subject to China tariffs have raised wholesale prices, which have resulted in higher retail prices. As retail prices on the site fluctuate, we observe that our customer's consideration cycle gets disrupted and is effectively lengthened." His point was that all of this uncertainty is leading to an uncertain consumer, and we're not making those purchases we might have been ready to make even just a month ago or a year ago.
And so you're seeing these headlines playing out on a number of different companies, a number of different ways. I just have to believe that these management teams are beside themselves, trying to figure out how to diversify themselves away from a China-based supply chain. But it's a lot easier said than done, right? I mean, like with Boeing, you can't just stop producing planes. I mean, you have to unwind your situation there. A lot of these retailers seem to be faced with that same dilemma right now.
Lewis: Yeah. We talk about it a lot when there's something scary going on in the big macro picture. The markets generally don't like uncertainty. Management teams generally don't like uncertainty. And for better or worse -- I think probably worse -- there's been a lot of uncertainty with people making a lot of those supply chain decisions and a lot of those procurement decisions, particularly for those big multinationals, because it's just been hard to anticipate where costs are going to go.
Sciple: When you look at a company like iRobot, they make the Roomba vacuums, that's a company that already was facing a lot of issues when it comes to competitors coming on the lower end of the market, taking some margin away from them. And then, you've layered over this China trade war, which has required them to remake their entire supply chain, move some of that out of China, in addition to, they've got ongoing issues with IP litigation and those sorts of things -- it makes what is a complicated problem for a lot of businesses, fixing their supply chain, even more so when you layer on all these other issues on top.
Lewis: Jason, you just said Wayfair is kind of a tech company. And I think my theme of the year is "kind of tech companies." I'm delighted that I get to bring up the end of this discussion without WeWork having been mentioned yet. I think that it was really hard to escape that story for the last couple months. There are a lot of elements that I think it speaks to. I think we fell into this cult of CEO worship and founder worship over the last 10 or 15 years, and it's clear that a lot of that praise and a lot of that love wasn't necessarily deserved. There are investors in the private markets that have different ideas of what success looks like than investors in the public markets We've seen a lot of businesses thrive on venture capital money for a really long time, and I think we've seen a lot of companies pitching themselves as tech companies, but maybe not really having the nice, scalable elements of a true tech business. And unfortunately for WeWork, they were the one who everyone kind of woke up to all of these different things that were going on and said, "You know, this doesn't seem quite right." And Adam Neumann was the one who kind of became the face of a lot of trends that I think have been bubbling up for quite some time.
Sciple: Yeah. I think people talk about sometimes when something becomes common knowledge. So, I think the issue that you point out of these kind of not-a-tech-company, long-term unprofitable businesses, CEOs that maybe have some conflicts with shareholders to too large of an extent for us to be happy with that. I think the WeWork IPO really made a lot of those concerns that had been simmering for a long time common knowledge, and has really changed the way we view -- I mean, we've seen so many IPOs delayed now. You layer that in with earlier in the year, Uber, Lyft, those companies that had a lot of skepticism around them, and then the WeWork story kind of hammers home some of those concerns.
Jones: I think there is now healthy skepticism in the market. I kind of welcome what has happened with WeWork -- granted, not for the people that are involved, but really just to bring a sense of normalcy back to the market. I mean, the IPO market is pretty cyclical. We see companies go public that obviously should not go public. But also, at the same time, though, I think this kind of "growth at any cost" mentality is starting to get some real scrutiny. And personally, for me as an investor, I see this as an opportunity.
Moser: Yeah, I agree with you totally. I think a byproduct of that is this enthusiasm to dig into the S-1s now, right? I mean, it seems like people are more excited to dig into an S-1 and they're like, "Nerds!" But it's actually pretty fun because you can learn so much about a business just by reading that one document. I'm sure this is probably just because we're a little that Twitter echo chamber, where everybody's excited to read that stuff, but it just does seem like the enthusiasm is there now more than ever to really learn about these businesses and come up with an educated opinion that you feel like you can stand behind because you've done a little bit of digging into it.
Sciple: Yeah, that is another thing that blows my mind about this story, when you talk about the S-1, how quickly that S-1 went from dropping to just being absolutely eviscerated by everybody on Twitter, and it became immediately, like I said, common knowledge. Everyone knew. "Can you believe they spent $5 million to buy the IP for The We Company?" These tiny little footnotes were common knowledge instantly as soon as that S-1 dropped, which is unprecedented.
Jones: It's almost like albums dropping now. [laughs] When the S-1 drops, everybody flies to Twitter to talk about it. I mean, just the speed of just sharing that information, and really getting a very quick pulse on what investors are thinking. I mean, Twitter, thankfully, has opened that up.
Lewis: I think a big part of the reason why that's happened is because so many of these names have been private for so long and been consumer-facing. I mean, I remember when Uber, Lyft, Spotify, Snap went public, I had tons of friends that were asking me, "Are you buying the stock? Are you going to buy in on the IPO?" I'm relieved a little bit that the scrutiny of the financial media halted the brakes on WeWork, because I think it prevented a lot of early investors from making a really big mistake and getting bitten in one of their early investing decisions. It's unfortunate that so many people also had their shares get kneecapped, and it's created a lot of problems and layoffs for the company. But those were probably going to come one way or the other.
Jones: And I think, too, it makes you step back and really examine, why is this company going public? Are they going public because they actually need the cash, or is that really inconsequential? Are they just looking for some liquidity? I think right now, it's more so than, this is an event that is happening in their history and it's really now taking that next level. Okay, but why are they going public? And I think that's the type of scrutiny that I like to see come back into the markets, and I think will make for just a healthier investing environment overall.
Lewis: Yeah. And not to totally shun IPOs. There have been some really great companies that have gone public in 2019 and 2018, put up some monster results in the process. I think it's just unfortunate that some of the big names haven't performed particularly well because of a lot of stuff we've talked about already.
All right, we are going to talk about trends of the last 10 years, whether they are sticking around or going away. Before that discussion, though, we've got another listener stock pitch read by Jason Moser.
Moser: All right, and this one's from Mike. Mike says, "The last stock I bought, which was influenced by your recent chat on REITs," so, there you go, Matt Frankel; he's our resident REIT expert, "was Global Self Storage, ticker SELF. It's a micro-cap," and micro-cap indeed, it's about a $33 million market cap, so it's a tiny company, "focused on self-storage units. They're growing through acquisition, strong PPO and overall growth potential. The self-storage unit is also potentially recession-proof and poised for good dividend growth, but I could consider it a good income plus growth play." All right, Mike. Be careful with those micro-caps. They can be a little bit tough sometimes, especially sub-$100 million market cap. But I don't disagree with you on the storage units. That's a big market that just seems to be quite resilient.
Lewis: Yeah, that's a killer tailwind, I think, over the next five to 10 years. I've read so many articles about, as the baby boom generation is retiring, and starting to downsize, that a lot of the stuff that was in the home where they raised their children, maybe were originally set up, is finding its way into storage units. And I have to think that's going to continue. People love stuff.
Moser: Quit hoarding! Throw stuff away, people! Come on.
Lewis: Don't kneecap his pitch!
Moser: [groans] For the betterment of society, throw some stuff away.
Lewis: [laughs] All right. For the back half of the discussion, we're going to talk about trends of the last 10 years and whether they are sticking around or going away. I'm going to kick this one off, because I haven't gotten to go first, yet.
For me, I think athleisure is here to stay. I think that this is a trend that people are excited about, if for no other reason, it's finally socially acceptable to be comfortable. If you're walking around an airport, you see people in athleisure left and right. And I think the airport is a good little proxy for how people tend to dress, how people tend to carry themselves, and I see it everywhere when I fly. I don't think it's going away. I think wellness is going to become an increasingly large part of people's lifestyles. And I think aspirational wellness, which is kind of what athleisure is, is probably going to stick around, too.
Moser: It makes you look like you're at least trying, right?
Lewis: [laughs] Yeah, exactly.
Moser: I mean, this would be athleisure, wouldn't it? My little Under Armour quarter zip?
Moser: But I'm not working out. Every once in a while on a treadmill, a little Pilates here and there. but that's about it.
Flippen: Here's what I will say about athleisure. I think in the U.S., I agree with you. But the moment you go to a foreign country, and you're wearing athleisure, man, do you stand out like a sore thumb. They're like, "Wow, did you just roll out of bed? What are you doing? Why are you eating lunch in leggings?" It's weird outside of the U.S. But I couldn't agree more. I mean, I'm doing this podcast in leggings right now.
Jones: I'm just amazed that it's called athleisure because when I was in college, it was just going to class, right? You just put on some comfortable clothes, you went to class. To give it a name is just kind of funny to me. But at the same time, though, I just read an article last week where women were talking about, basically, is it appropriate to wear leggings into the workplace? And I was shocked at how many women said no. For me, I'm all about a good pair of leggings. It's comfortable. But there's still some stigma that we've got to get past to really make it truly comfortable. I don't know that everybody is there yet, but it's just really fascinating to watch this space.
Lewis: That might be one of those situations where The Fool office is not necessarily representative of the general corporate environment in the United States.
Sciple: One thing I do think about here with athleisure, I think it's been a big trend recently, everybody talks about the investment banker Patagonia fleece vest. It's kind of infiltrating work to a certain extent. The thing I think about from an athleisure point of view is, as it's becoming more acceptable to wear things like jeans and fleece vests and those sorts of things in the workplace, you think the athleisure trend is going to continue, where do you think formal wear goes? Suits, ties, dresses?
Flippen: Hopefully down the toilet.
Jones: I mean, even in your most sacred places, like places of worship, churches now, are becoming more and more casual. I think that's a great question, Nick. I don't know where it goes.
Lewis: I think the suit is always going to have a place. I mean, I think for things like weddings, bar mitzvahs, those types of things, I think they're going to exist.
Moser: Emily's shaking her head.
Flippen: The reason why I'm saying that is because I was just invited to a wedding next year and I'm going through that process of being like, "Oh gosh, what do I wear?" The last wedding I went to said, "Anything goes! Wear something nice! Wear jeans if you're comfortable in that, it works!" This wedding is like black tie wedding, as in, I don't know guy's fashion, but I'm having to learn for this wedding. Something like, you literally have to put on a white shirt with a black vest underneath, with a tuxedo jacket, which apparently is not the same thing as a suit jacket, over it with a black -- I mean, this is ridiculous! To me, there's a difference between wearing leggings and looking semi-presentable. In my opinion, weddings and funerals and church, those things are going the way of semi-presentable.
Lewis: I would love to see an athleisure wedding.
Jones: Dylan? That's your wedding right there, I'm calling it.
Lewis: I don't think Jess is going for that, and I don't think she's going to listen to this episode. [laughs]
Nick, what do you think is sticking around over the next 10 years?
Sciple: Well, the one that I picked was athleisure.
Jones: Is it really that big? [laughs] Both of you?
Lewis: The reality is, Nick and I have desks right next to each other and talk to each other for a good portion of the day.
Sciple: Yeah. So, my backup trend is the direct-to-consumer trend. I think we've seen that change really in a significant way. One area you think about is pushing more into private label. The idea that, when I was growing up, if you bought the store brand, it was looked down upon more so than today. I mean, we're fine with buying private label. But then, when you look at other brands like Warby Parker, one that folks talk about a lot, or Casper, it's just becoming easier than ever with YouTube, social media, to really stand up a brand from zero and to really build it up. The other one that that folks think about a lot is Kylie Jenner. You build a billion-dollar company up from almost nothing using social media marketing. I think that trend is really going to continue. We're seeing that grow even more so. Earlier this year, Nike pulled their products off of Amazon, choosing to go through their own shop platform. I think direct-to-consumer is really going to continue to grow over time. Social media has changed the game when it comes to the ability to market and stand up a brand from zero. I think that's going to continue.
Lewis: Sorry, Shannon, you were looking at the mic like you were going to hop in?
Jones: I was, but he said it so eloquently. There's nothing else for me to add to that. Kudos to you, Nick.
Lewis: What do you think is sticking around, Shannon?
Jones: On the healthcare front, I think what's sticking around is the rise in the use of personalized medicine, specifically precision medicine. The Human Genome Project, which was basically mapping out the human genetic code, was completed in 2003. It was about a 13-year undertaking. That has really unlocked a lot of valuable information that a lot of companies, especially in the cancer front, are using to their advantage. There are basically companies now that can identify, based on your genetic makeup, this is not only the best treatment, but this is the right time to give you this treatment. And even before that, we can actually tell you what you're going to be diagnosed with. I think with healthcare, personalized medicine, precision medicine, getting the right treatment to the right patient at the right time, is only going to continue.
Looking back 10 years ago, for a lot of these big biopharma companies, it was always about the big indication. It was always about the blockbuster cardiovascular space, heart medications, the one-size-fits-all. That is now changing. Now you're seeing them do studies and patient populations of maybe 1,000. And now, you see the FDA incentivizing a lot of these companies to go after these rare unmet-need areas. And so, not only can they command a higher price tag, but you can actually now target and get to the root of the disease rather than just treating the symptom.
I think that's a trend that is here and will only continue to get better.
Lewis: It seems like personalized medicine isn't just going to be limited to treatment, it's also going to extend to the relationships that people have with their physicians. I mean, I know Teladoc is a stock that a lot of folks have on their radar or own in their brokerage accounts, a Fool favorite. That one's kind of getting a little bit personalized, but in a different way. It's a little bit more on the patient's terms with how they experience their doctor visits.
Jones: That's exactly right. And I know, Jason, you have a lot of thoughts on Teladoc. But I think how we're interacting with healthcare companies, being in control, and also, too, just being able to take a medical record and actually share that with multiple providers, and not have to fill out that darn patient form every time you go to the doctor. That's huge. So, I think across this entire space, you're just seeing the face of the delivery of healthcare transform.
Lewis: Was it hard for you to bite your tongue while we were talking about Teladoc, Jason?
Moser: I've learned to stay quiet. I think I've said all I have to say. I've made my case.
Lewis: [laughs] What do you think will be here 10 years from now?
Moser: I probably should be talking something financial related here, but it's totally the opposite direction here. For me, I look at augmented reality, virtual reality, mixed reality, I think we are now at the very forefront of where this stuff is getting ready to start taking off in meaningful ways. I think one of the interesting things about this technology is, for so long, we were all waiting for it to affect us on the consumer side. You saw the movie that showed how you could be in this different world, or how it could change your life because of this different perspective and whatnot. And the consumer implications just have not materialized as quickly. But when you look into other verticals, such as healthcare, engineering -- entertainment to a degree, sure -- you're seeing where augmented reality and virtual reality and mixed reality are really starting to play a big role. Companies like Microsoft and Apple and Alphabet, the usual suspects, making big investments. We saw a lot more clarity this year on Apple and their headset aspirations. You've got other smaller private companies like Magic Leap building their solutions as well.
It's a market where in 2017, augmented reality alone was valued at about $4 billion. It's projected to reach $60 billion by 2023. We're seeing a lot of different applications as far as this technology goes, beyond just the consumer and into the workforce, to manufacturing, engineering, and stuff like that. It's just a really exciting time to be alive, and you're seeing a lot of these companies, they've been making a lot of these big investments for a long time. It didn't just happen overnight. But now, we're starting to see a little bit of the fruit from these investments, and it's pretty cool stuff.
Lewis: We did our decade recap on consumer tech a week or two ago with Dan Kline for the Friday Tech show. And we were talking about all these major categories -- smartphones, all these smart home products. And we were saying, VR is one of those spaces where we felt like it was going to take off, especially with that acquisition that Facebook made, buying Oculus a couple years ago. And on the consumer side, you're 100% right, it hasn't. I think the combination of the price point, the limited use cases, and the specialty hardware that you need for some of the computers, has made it a little tougher. I think the commercial side is probably going to see a lot of that stuff.
Moser: Yeah, I mean, you see some pretty cool headsets coming out. Microsoft has the HoloLens 2, which, fingers crossed, we should be getting one of those here eventually so we can all fiddle around with it and test it out. But, we were talking about Apple earlier and Lumentum, and how they're incorporating this technology into these phones now. You look at something like Pokémon Go, which was just a success by virtually every metric. That was, I think, one of the first points in time where you could see how this technology just incorporated into your phone. It was easy to use because you weren't having to put your phone into some headset and put the headset on. You could actually just look at your phone and see the world through a different set of eyes. Retail companies, whether it's Home Depot or Wayfair, they're figuring out ways to actually put those products in your room so you can decide right there on the spot whether it's something you want to buy or not. And in a lot of cases, they are converting more sales with that technology.
So, a lot of different applications. To me, it's going to be really exciting to watch it develop over the next 10 years.
Jones: It's always fascinating to me to see groups of Poke people standing around on corners, [laughs] people that you know would never get together, but they're here for this one moment, this one Pokémon. But, yeah, Jason, I totally agree. On the healthcare front, you're talking about companies like Intuitive Surgical who are utilizing AR, VR, just within the robotic tools that they use and how they're training doctors. It's incredible.
Moser: Johnson & Johnson, too. A company that probably most people would think it's just some dumb blue chip. What do they have anything to do with tech? They're making those big investments, too. You just have to dig a little bit to learn about it. But healthcare to me is probably the most exciting market where this technology is playing out, because when you watch demonstrations of what these physicians are doing with these headsets, they're performing surgeries before they ever have to perform the surgery. The success rate is so high now because they have it all mapped out before they ever make one incision. Or, the technology is helping blind people see, it's helping deaf people hear. There's life-changing implications there. It's just fascinating to see.
Lewis: So, Jason brought us life-changing implications. Emily --
Flippen: This is not priming up what I have to say very well at all.
Lewis: [laughs] How are you going to follow that one up?
Flippen: [laughs] Well, Dylan, I have a cat. And I'm also going out of town next week. I am one of the many people that is playing into the trend that is pet humanization. I am getting myself a cat sitter. So, yes, this is a low point for me. But it is a big trend that we have seen over the past 10 years, and I think we're going to continue to see over the next 10 years -- that is, people treating their pets like members of the family. And that's not to say that they ever weren't members of the family. That's how much into this trend I am. I am upset at myself for ever implying that my cat was not a member of the family. But, people are willing to spend a lot of money on their pets, willing to take care of their pets as if they are humans. I see that trend playing out really strongly for a lot of different businesses. It's one of those markets that has historically proven to be recession-proof as well. Even when times are hard, I am still paying that person on Rover to come check in on my very needy cat. And, yeah, that's a trend that's not life-changing. I'm not sure it's going to make deaf people hear again. But, it is going to make my cat pretty happy.
Moser: I would say, as the owner of three dogs, it's totally life-changing. I mean, the unconditional love you get from a pet -- there's a reason why you treat that pet like it's irreplaceable, because it is.
Lewis: Data backs that up -- pet ownership is generally good for you, as long as you're not allergic to the pet.
Moser: [laughs] I say get the pet and deal with the allergies. Eventually, you'll get over it.
Lewis: All right, switching over to the things that we think will go away. This is going to piggyback a little bit on what Emily teed up in our last conversation.
I think that people are going to become much more aware of their data and their privacy. We've had this social contract with a lot of providers of content and social media over the past 15 years, where you give it to me for free, I don't really think about it too much, but I'm the product, and you're serving me up to advertisers. I think, based on all the blowback over the last five to 10 years, we're going to be rethinking that contract a little bit. I think we're going to be pushing more and more on some of those platforms to be more transparent. We're starting to see that already. I wouldn't be surprised to see someone kind of step in and make more efforts to say, "We're not monetizing your content," and maybe using that as a competitive advantage out there in the marketplace.
No thoughts on that one? All right, heading over to Nick! [laughs] Nick, what do you think is going away, man?
Sciple: My trend that I think is going to go away is food delivery. I think it's one of those things where they just don't make any money. The basics of the business it's all the worst things about ride-sharing, with the low profits of the restaurant industry, combined together. We saw earlier this year, with their most recent earnings report, Grubhub come out and basically say, "We don't know." I mean, that was the gist of management's comments. They described the customer being more promiscuous than they expected. That kind of describes my experience with these food delivery apps. Whichever one's giving me free delivery at time X is the one that I'm going to usually order, from whichever one has a promotion going on.
I think, after years and years and years of struggling to make profits in a very competitive industry with low margins basically everywhere that the business touches, over the long term, it's going to go away. I'm not saying that you won't have access to food delivery, but I think the costs these businesses will have to charge will just make the total addressable market of this sector much, much, much smaller than it is today.
Lewis: I'm curious with a market like that. It's something where consumers clearly like it. They like not having to go out to pick up stuff from the takeout spot, or maybe even a place that doesn't normally do takeout, but it's decided to start doing it because they don't have to do it themselves. What happens in a market like that? We have so many businesses now where it's undeniably great for the consumer. I think Spotify is an example of that, right? Losing a ton of money, but people love paying a flat fee and accessing any song they want. People love being able to ride hail with Uber and Lyft. I'm not really sure what the future looks like for these markets where people clearly enjoy it, but we haven't really figured out how to make those businesses profitable.
Sciple: That's a good question. I think for Spotify, I can see the path to it, it makes much more sense. You own the licenses to the music, and you can see how I have one license and I can sell to 10 million people off of that license over time. But when you look at food delivery or ride-sharing, at the end of the day, you need a person in there driving that vehicle. Maybe autonomous driving gets you there. If you talk to experts in that field, it could be over a decade before we see that, particularly the level five autonomous driving you would need where I can go anywhere, no geo fence, that sort of thing. I just think that the core economics of the business really make it difficult.
Lewis: Yeah. I think that we will not have autonomous cars in our driveways by the end of next decade.
Sciple: I don't think you'll ever have an autonomous car in your driveway. I think when full autonomy takes over, it will be all fleet.
Lewis: It'll be all fleet? That might make the numbers work for delivery food. All right, Shannon, what is going away for you?
Jones: All right, I think what is going away is this start-up "growth by any and literally all means possible" type of culture. We've talked a little bit about just start-ups in general, especially with all of these IPOs. But I think even more so the toxic start-up culture that we've seen a lot of these IPOs go through. I'm talking about Uber, Lyft, WeWork, and even more recently, Away, which is private. But when you see story after story with management teams that are truly trying to grow the business -- and I don't fault them for wanting to do any and everything to try to grow the business, but I think what's going to go away is overlooking the people side of it, and overlooking the culture that is required to sustain that growth over time. I happened to read through the Away piece recently and was just blown away at how normalized it was for people working at a company like this to be talked down to, or talked to like that. I just feel like there's enough scrutiny at this point, especially with what we've seen with WeWork, that I think the toxic start-up culture will ultimately go away.
Lewis: And it's not even the culture internally. I mean, it's something that affected users and competitors as well. I think Uber pretty famously did some pretty, if you're being charitable, gray hat things -- I think a lot of people would call them black hat things -- as they were trying to understand the ride-hailing marketplace and try to get legs up on their competitors. It doesn't bode well for them as a publicly traded company, especially when you have accusations of stealing IP, or aqui-hiring people that are bringing IP over with them, and your biggest, deepest-pocketed competitor is the one that you stole from. I think that's going to create some problems for you.
Jones: Oh, yeah. And I would even add to that, I think even as you look at kind of the regulatory side, you saw companies like Uber go ahead and move forward into markets where there was literally no sort of regulatory infrastructure, and just say, "You know what? We're going to do it, and we'll deal with this on the back half." I think that's going to change, too. Granted, I don't fault them for doing that. There was a great book that I read that was talking about regulatory growth hacking. There's a way to do it in a system that makes sense. But I think you're going to start to see regulators really start to step up even more to try to get ahead of some of these things before.
Lewis: Yeah, it seems like a lot of businesses over the last decade have decided, "We're going to ask for forgiveness. We're not going to ask for permission." And I'd kind of like to see some more businesses ask for permission, especially going back to what I was saying before about the data and the privacy side of things.
Jamo, what do you see going by the wayside?
Moser: I feel like we're already seeing this trend materializing, but stock splits to me just are becoming more and more obsolete. They're more and more unnecessary. I think a lot of times, management teams maybe think a stock split is something that helps open them up to a new investor base if that share price has gotten a little bit too high. But clearly now, we're seeing, as commissions go to zero and more and more brokerages are going the way of fractional shares, they're opening up an entire world of investing for new investors that didn't exist before. I think you have your isolated incidents where it's something like a Dow, which is a price-weighted index. Apple, I think, split to be able to get onto the Dow, for example. You maybe have one or two of those examples every once in a while. But I think you're just going to see less and less pressure for something like an Amazon or an Alphabet or a booking.com to split their stock because now they really don't have to. And honestly, it just costs money. I mean, it can open you up to an investor base that might not have been able to afford that share before, but with fractional shares, you can afford those shares now, just a little piece of it, and you can build those positions over time. So, I just think the case for splitting stocks is becoming less compelling than ever.
Lewis: I am with you, so long as the places that offer fractional shares make it very clear how those fractional shares work. I think there are probably going to be people who have access to fractional shares with their brokerage and still look at Amazon and say, "That's $1,700, how can I buy that? That doesn't make any sense." I think the education part of those brokerage platforms is going to be really big for getting adoption there.
Moser: I agree.
Sciple: To your point on stock splits, the funny thing I always think about now that there's fractional shares, everybody can say they own Berkshire A.
Lewis: [laughs] That used to really be something.
Lewis: Emily, what's going away for you from the last 10 years?
Flippen: I got a lot of flak for expressing this opinion of MarketFoolery. It was probably well-deserved. When in doubt, double down, and that's I'm going to do now. I think gaming consoles are going away. Google's Stadia launch was not the best received, to put it nicely. People were not happy with their attempt at cloud gaming. And there were so many kinks that still need to be worked out. To be clear, I'm a little bit bullish on Stadia in general. Do I think they're going to be without competition? No, I think Microsoft could definitely give them a run for their money. But when I look forward 10 years from now, I think the decades of having five different gaming consoles in your house -- and I already told you to buy the Switch earlier; I know that, I still like it. But I think that moving forward, the future of gaming is going to be cloud-based gaming, where you're streaming from data centers, you don't have to download anything, you don't have to buy any physical hardware, at least not as it applies to an actual gaming console. You just download the game, you have a remote, you play with it, on whatever device that you have, that you want to. And I think that is idealistic right now, but 10 years is a long time. When you go back 10 years ago, like we talked about in previous episodes, the world in technology was a completely different place. So, there's no reason to think that 10 years from now, we can't fix issues like a little bit of lag.
Lewis: Yeah, I think going back to what we were talking about with VR and AR, the dynamics will probably be pretty similar. I can see that trend playing out exactly how you're talking about it. It likely starts with people who have performance computers already, and are able to handle that kind of thing. And then, it probably works its way down to the masses. Maybe at some point in the next 10 years, maybe further out. Or not! [laughs]
Moser: We were talking about this earlier, before taping, Emily and I were, about 5G. I think the enemy of cloud gaming, of AR, VR, it's latency, right? It is that lag. And that will go away as 5G rolls out -- I mean, they're already working on 6G, I'm telling you, and then it's going to be 7G, and we'll get all the way up to 10G.
Lewis: They're going to do what they did with the iPhone. They're going to change the naming convention at some point.
Moser: That lag, that latency will go away. And I think once you can provide a seamless experience, that changes the conversation in a meaningful way. And that's just going to take time. So, it fits in really nicely with the decade-long prediction. I'm not giving any flak for it!
Flippen: I appreciate that, Jason! Tell the people on Twitter!
Lewis: Yeah, you just got a pass. I think MarketFoolery is a little harsher than we are. We're pretty open to ideas.
Flippen: I think I was a little more bullish on Stadia in that MarketFoolery episode than I was in this one. I've learned my lesson.
Lewis: But I could see that being a really valuable value prop to users, too, to be able to tell people --
Flippen: It's so funny you say that, because the pushback Stadia got was that it's fixing a problem that does not exist. And I was like, "What are you talking about?!" I think the idea of having to buy physical console to play games is a problem that exists today. It might not exist for a lot of people, because they haven't been in a world where they haven't needed to do that before. I don't know.
Moser: We've probably got a world full of gamers that don't even know they'd really enjoy it. They're never going to try it because they don't want to go buy the console. But now you can say, "Hey, try this. You don't need a console." Maybe now I've discovered an interest that I didn't really know I had.
Sciple: People have talked about this with the new Microsoft Xbox Series X, that it's basically not a console. It's a high-end gaming PC that we put the Xbox logo on. I think, to your point, there's always going to be, among the super hardcore gamers, because latency is so important, demand on the super high end for the latest and greatest hardware. But for the average gamer, I think cloud gaming over the next 10 years will be the way you access. Why would you buy a special piece of hardware if you're a regular, everyday casual gamer if you can get access just through your browser?
Flippen: I feel so vindicated. [laughs]
Jones: You should, Emily. As a parent who just paid nearly $300 for a Nintendo Switch, I welcome that idea.
Lewis: To throw something that I don't think he's going anywhere onto you saying consoles are going away -- we've talked for five minutes about gaming; I have to throw e-sports in here at some point. This is a trend that over the last 10 years has exploded. You look at the purses from some of the biggest e-sports competitions, they're incredible and they're getting a lot of press. I have friends that have gone and watched e-sports live. It baffles me. I have to be honest. I don't get it. They love it. I think they look at it the same way that I look at going to an NFL game. It's clear that the audience is there. It's probably been there for a really long time, but now they're finally being recognized, and they're being given a platform to play and do all this stuff. You can kind of couple that right in with e-sports as well.
Jones: It's a whole profession, which is amazing to me.
Moser: They have scholarships for it.
Sciple: You talk about going to see an e-sports event. The things that are happening in-game now are to the point you don't even have to leave your house. I think it was just this past week, there was the Star Wars event in Fortnite, where you had JJ Abrams in there literally doing an interview, and they premiered a trailer literally in the game. There's no reason that can't continue to play out over time.
Lewis: Somewhere, there is an eight-year-old in the backseat on his way to some relative's house saying, "See, Mom? See, Dad? I told you. I'm going to become a professional gamer." Sorry, parents everywhere, for just giving your children another point in that argument.
I think we're going to wrap up this part of our roundtable discussion. We've got one more segment coming, and that'll come out tomorrow. But that'll do it for this one and this episode of Industry Focus. If you have any questions or you want to reach out and say hey, you can shoot us an email over at email@example.com, or tweet us @MFIndustryFocus.
As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for all his work behind the glass. For the entire IF team, I'm Dylan Lewis, thanks for listening and Fool on!