In this episode of MarketFoolery, Chris Hill talks with senior Fool analyst Jason Moser about some recent market news. First, Jason explains what the new deal between PayPal (PYPL 2.81%) and MercadoLibre (MELI 2.78%) will mean for both companies, what this means for consumers, and why MercadoLibre still has plenty of room to grow. Then, the guys look at the partnership between SmileDirectClub (SDC +0.00%) and Walmart (WMT +1.61%), and why it sent SmileDirect's shares popping 17%. And a quick dive into The Wall Street Journal's reporting on some culture issues at McDonald's (MCD +0.82%), along with some hot takes on the Golden Globes, animated film studios, and the most recent Star Wars movie.
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This video was recorded on Jan. 6, 2020.
Chris Hill: It's Monday, Jan. 6. Welcome to MarketFoolery! I'm Chris Hill. With me in studio, the one and only Jason Moser. Thanks for being here!
Jason Moser: Hey, happy to be here!
Hill: Happy New Year!
Moser: Happy New Year to you! And man, I tell you, I heard the other day the MarketFoolery with Andy Cross, and I saw on Twitter, I mean, we're beginning our 10th year here on this show.
Hill: This is Year 10, yeah. We're starting Year 10. It's a little crazy.
Moser: That is pretty awesome. I mean, I'm getting ready to hit my 10th year here at the company in February. And it strikes me, I was very lucky. I sort of Kramered this one, like Seinfeld Kramer, just fell [...] backwards into it. For whatever reason, Mac asked me to join one day for this MarketFoolery test, and 10 years later, here we are.
Hill: It was like, "Hey, we're going to try this. We're gonna try it for a couple weeks. See if it works."
Moser: It's one of my favorite parts of the job. Always happy to be here.
Hill: Well, that's all the time we have. No, we've got news. We've got a deal, the deal of the day. We've got we've got the curtain being pulled back on one of the biggest brand names out there. We'll get to those. But one of the things that happens when the calendar falls the way it does -- basically, we haven't been off for two weeks, but we haven't been as news-focused because we haven't been here every day. And news continues to happen in the business world. I wanted to start with that. It's a deal involving PayPal and MercadoLibre. I'm hoping you can unpack this for me, because I've given it a quick glance, and I'm not sure exactly what this deal entails. Some listeners may recall that earlier in 2019, PayPal made an investment in MercadoLibre. Very late December, like Dec. 30, PayPal announced sort of a deepening of the relationship, a deeper partnership. What does that actually entail for PayPal and for MercadoLibre?
Moser: Yeah, I mean, I was reading through the LinkedIn posts that PayPal CEO Dan Schulman actually put up here. So I mean, first things first. I mean, this is the kind of news you like to hear if you're an investor in either one of these companies. MercadoLibre, we've always thought of it as an e-commerce company, sort of the Amazon of the Latin America. But if you follow this company, you go through their earnings reports, it really starts to feel more and more like a payments company as time goes on, particularly with its mobile point-of-sales growth.
And, I mean, another point to note from MercadoLibre's most recent quarter, for the first time ever, actual total payment volume away from MercadoLibre's marketplaces surpassed the total payment volume on their marketplaces. And so, this clearly is becoming more and more a payments company.
And so then, you look at companies like PayPal and MercadoLibre and you want to see them leverage their core competency and then grow their networks. And this does both for both, ultimately. It gives PayPal more exposure to what I would say is one of the up and coming economies, certainly in Brazil, and Brazil is the lion's share of MercadoLibre's business today. It gives MercadoLibre access to that 300 million-plus active user base that PayPal boasts today. So it is another payment option for both networks. And ultimately, that's what you want to see. I mean, it is about growing your network and giving consumers more options. And this does, really, both for both companies, and that ultimately is a good thing.
Hill: A little surprising just from the standpoint of, we have seen in the past, and we saw just a couple of weeks ago, companies put out material news around the holidays. And more often than not, I would argue that companies do that to sort of dampen the blow of what is bad news. Most recently, Boeing pushing their CEO out the door 36 hours before Christmas, that kind of thing. So it was interesting, just the timing of this. And I'm not suggesting anything nefarious going on, but it was just one of those like, "Well, wait a minute, why aren't you waiting until there's more of a spotlight on this?" But that's just my own musings.
Am I the only one in this room who's surprised that MercadoLibre is only a $30 billion company?
Moser: I guess that depends on your perspective.
Hill: I guess I thought it would be bigger. I look at it as a company not without challenges, but a company that, because it's a $30 billion company, it maybe has more room to run than I would have previously guessed.
Moser: Well, I mean, it has certainly been on fire these past several years. It's been a wonderfully performing investment. And if you follow the business, I mean, you look at the numbers, you can see why. And I think that when you see a business like MercadoLibre that is up and coming in an economy that is up and coming with a growing middle class, and you see them partner up with a company like PayPal, I mean, this is far more than just PayPal being accepted on MercadoLibre platforms. I mean, Mercado Pago, which is MercadoLibre's a payments solution, that's going to be accepted as a method of payment at PayPal merchants all around the world. And I mean, there are more than 48 million Mercado Pago users in Brazil and Mexico alone.
And then, remember, PayPal bought the remittance company Xoom a little while back, and they've done a good job of incorporating Xoom into their business, and that's going to be something that ties up with MercadoLibre here as it will allow Mercado Pago users to receive remittances into their Mercado Pago wallet via Xoom.
I mean, you see companies like Mastercard and Visa making big investments in cross-border payments. This is very similar, in PayPal opening up the cross-border opportunity with their business and MercadoLibre benefiting from that as well. So it's an investment that has done very well over the past several years. And so, for people who remember this business when it was a $2 billion company, I mean, it's been just a wonderful time. At the size it is today, I think that your point is spot on. It still has a lot of room to run when you consider the market that it plays in. Not only just its core competency in being that retail network, but now, clearly, as a payments company as well. Just a lot of different ways for a company like this to win.
And don't forget, too, I mean, PayPal made that big Honey acquisition just a little while back, which to me, I'm not as familiar with Honey as a user. That acquisition sort of left me with some questions. It does look a little bit more interesting now that you can see them expanding their network even more, because now you can see them actually bringing that product to more consumers around the world. So maybe this acquisition starts to make a little bit more sense from that perspective as well. I just think these are two businesses that, for 2020, and many years beyond, stand a great opportunity to grow considerably.
Hill: Shares of SmileDirectClub up 17% this morning. SmileDirect is launching a line of oral care products that are going to be available exclusively at a little retailer we like to call Walmart. That's why the stock's up 17%.
Moser: Well, and that makes sense. I mean, we talked about companies utilizing their core competencies, leveraging that into new avenues of growth. This definitely fits that bill. I mean, I think for the potential that maybe SmileDirectClub has, or had, or maybe we think it could have, it did seem somewhat limited when it IPO-ed. I think that's being reflected in the stock price today. But I think that this is a sensible move, and it is something that is right in line with their wheelhouse, what they know.
I mean, good oral health is something that's pretty easy to get behind, right? I mean, it makes a big difference in a lot of people's lives. It's something that everybody needs. I mean, we've seen companies -- our advertising partner, for example, Quip. That stuff is really taking off. And so I think, from the perspective of SmileDirectClub, I mean, it is really all about distribution and figuring out a way to take this business to the next level, and doing something like this makes perfect sense. And obviously, Walmart, just a tremendous presence all over the world. A lot of potential here.
Hill: Absolutely. You have to believe the terms that Walmart got were probably pretty good, too. Like, if you're a Walmart shareholder, this seems like a nice little added bonus.
Moser: SmileDirect needs Walmart way more than the other way around. But it is interesting, too, to see, with companies like CVS, for example, and how they're trying to take their big installed brick-and-mortar stores and turn those into something more than just a retail location, turn them into healthcare facilities ... Walmart is looking to try to do that as well. And this could be one step in that direction. You bring more of a SmileDirect presence in there beyond just those retainers -- I mean, now you're talking about oral health in general. I mean, a lot of different ways you can go with that. And obviously, they've already got the bricks and mortar presence there. I like the move. I don't know that it makes me any more bullish on SmileDirect in the near term, but I think this is definitely a good sign of management thinking forward.
Hill: The Wall Street Journal came out with a story on Sunday that peels back the curtain a little bit on McDonald's new CEO, Chris Kempczinski, and his drive to instill a more professional culture at McDonald's. The story's about Kempczinski; it's also about former CEO Steve Easterbrook, who left under a bit of a cloud, shall we say, in terms of an inappropriate personal relationship with an employee. And you and I were talking this morning; it should have set off a little bit of an alarm bell -- the day after Easterbrook left, it was announced that the chief people officer at McDonald's was leaving as well. And the Journal story goes into a partying type of culture among senior management. Good for Kempczinski for taking the approach that he's taking. To think about it just from a cold stock perspective, if he can improve the culture even further, then God only knows what the stock can do. Because it was already doing pretty well.
Moser: Yeah, it felt like it was. You know, you think you know someone, and then you start to peel back the layers a little bit, you realize maybe things weren't as hunky dory as we'd hoped they might have been. I mean, this is one of those situations, I think, where maybe the business performance and the stock performance led most of us to believe that everything was just OK. And clearly, everything wasn't just OK. I mean, I don't want to hold any anything against Easterbrook here in what he did with this business. I mean, he clearly helped bring this business to a new level at a time where it was sorely needed. But it does sound like there was some potential for real people from down the road.
And so, I think that when you look at what Steve Easterbrook did, I don't want to make light of what he did, but I think he had the easier part of the job, if this is really what was going on. Recognizing operational issues and figuring out ways to make a business more efficient, those are fairly easy things to recognize, and if you can come up with a good plan, you can fix them. But building a culture that stands the test of time is hard. That's why not everybody has done it. I think that it's becoming more and more of a point of focus here for companies as we go into 2020 and beyond.
But this reminds me a lot of that old Buffett quote, where it takes 20 years to build a reputation and five minutes to ruin it. And if you think about that, you'll do things differently. I mean, there was a real potential here, if Easterbrook had stayed on, and this type of behavior kept going, I mean, that reputation could have really gone down the toilet quickly.
So, I mean, it was surprising to see some of the stories. But, by the same token, totally believable. I think it goes back to showing that being a CEO is really hard. We talk a lot about CEO compensation and how a lot of these CEOs are probably overpaid. I think probably a lot of them are. But it's also worth looking at the other side of the coin, recognizing that a CEO is ultimately responsible for a lot of employees. And so, when you find CEOs who are doing a great job, I think it's worth recognizing. I think they're earning every penny. It's just, they're not all doing a great job.
Hill: Well, and the culture issues aside, I think if you're a McDonald's shareholder, you look at this story, you have to be heartened by the fact that Kempczinski is essentially doing something that Easterbrook did when he took over as CEO, which is spend the first couple of months just meeting with franchisees, going on a listening tour, essentially, and finding out what's on their mind, what are their pain points, how can he be helpful? You think back to when Easterbrook took over, and he said, "Look, I'm going to spend the first few months listening, and then I'm going to come out with my plan." Kempczinski's not following that playbook to the letter, but he is following it in sort of broad strokes. And I think that, at least initially, this seems to bode well for McDonald's.
Moser: Yeah. And I mean, I don't think he has to go in there and really flip operational things upside down, either. I mean, I think that a lot of that lifting has been done. I mean, now he can go in there and focus a little bit more on building a company that has a culture that he and everyone else can be proud of. I mean, that's something that definitely takes time. He seems to talk the talk pretty well. Now, you got to be able to walk the walk, right? I mean, he's setting the table there, now you've got to get everybody to sit down and buy in. And there's no reason to believe they can't do that.
It's just fascinating to read into this McDonald's culture. I mean, I was reading about how about romantic relationships within the executive ranks were fairly common. I mean, people who got married after meeting at McDonald's, they were said to have McMarriages. I'm not kidding, either. McMarriages. I mean, I don't know how you get past that alone, right? That might be enough to say, "You know what? Maybe we should just take it slow," because I don't want a McMarriage. Because then the jokes never end. You have a couple of McNuggets, and who knows where they take this. It's just very interesting to read the culture of what's been going on at the company.
And it goes to show the dangers of leadership trying to be one of the guys, right? I mean, you really can't do that. You have to hold yourself more accountable, and you have to hold yourself to a little bit of a higher standard and recognize this is no longer about being friends with the people you work with; it's about leading them. Those are two very, very different things.
Hill: Can you imagine getting a wedding invitation that actually has the word "McMarriage" on it?
Moser: I truly can't.
Hill: I think you have to boycott that wedding. "Sorry, I can't get behind that."
Real quick before we wrap up. The Golden Globes were last night. The one investing takeaway I had from watching the Golden Globes -- and I watched the whole thing -- was David Gardner's line about how winners tend to keep winning. When I was looking at the nominees -- you know, Meryl Streep getting her 30th nomination. The Best Supporting Actor category for films, the nominees were Tom Hanks, Anthony Hopkins, Al Pacino, Joe Pesci, and Brad Pitt. That is a murderer's row of acting talent.
Moser: It really is. It really is.
Hill: And maybe the biggest surprise of the night was that Disney did not win Best Animated Film. It's only the fourth time Disney has not won Best Animated Film.
Moser: It's funny, because yeah, I saw that they didn't, and then I saw whatever movie won, I don't recall ever even hearing of the movie. These award shows, I just don't care about them. I don't care about the awards or the nominations. I don't want to go too far in the movie critic thing. I just don't pay attention to them. I feel like I'm going to go watch a movie, and I'm going to like it, and it's going to be fine. I don't need a critic to tell me what to watch or not to watch. It was really weird, though, to see this. I had not heard of this movie, had you?
Hill: I'd heard of it. It's a movie called Missing Link. I haven't seen it, but there are two things I like about it. One is, in the Best Animated Film category, it was the only original film. The other four nominees were either sequels or remakes. Even as a Disney shareholder, I have to tip my cap to that.
The other thing is, I did a little digging this morning and found this part out -- Missing Link is a stop-motion animation style. It's made by a studio in the Pacific Northwest called Laika Studios. And one of the founders of Laika Studios is Phil Knight from Nike. And his son, Travis, is the CEO. And I thought, "OK, wait, did Phil Knight basically throw his money at the studio and install his son as CEO?" No. His son is a director, and a few years ago -- I don't know if you and your girls saw this, but there was a wonderful animated movie that came out a few years ago called Kubo and the Two Strings.
Moser: No.
Hill: Totally worth watching. It was one of those things that I thought, "All right, I'll watch it." No, it was a wonderful movie. And Travis Knight directed that and he's now the CEO. Anyway, a little bit of a movie nerd/business dive.
Moser: Those movies to me are the ones where I go into them, and it's like, "Yeah, we're going to watch it, it's a family movie, the kids will love it and whatnot," and I walk out of the overwhelming majority of those movies just loving them. I mean, they are good. I mean, I appreciate your comment on either the sequel or the reboot, because I feel like we're at a point now where Hollywood has lost its creative skill. I mean, it feels like everything is a reboot at this point of something. I mean, it's hard to see as much on the original side coming out anymore.
So I appreciate the fact that they would give an award to something that was new and fresh and original and different. I think you see all of those nominations going to Netflix and HBO and Amazon. It sounds like they all did really well and won their fair share of awards, which makes a lot of sense.
You know, we did go see, over the break, I went and saw the last Star Wars movie.
Hill: As did I.
Moser: Here's the thing, man. And I saw a lot of stuff on Twitter about it. But I avoided all the spoilers.
Hill: You're not about to drop a spoiler, are you?
Moser: No, no, I'm not going to drop any spoilers. But it just seemed to me that a lot of people got really worked up about this thing. To the point of offended. Listen, man, I'm just trying to go to a movie and have a good time and watch it. There's some good eye candy there with explosions and spaceships and whatnot. That's awesome. Man, I was just surprised at some of these people, they get so worked up over this stuff, and they're, like, poking holes in plots. It's not an investment thesis, guys; it's a movie. Just go sit down and enjoy it, right?
Hill: Yes, there was clearly some angst among some of the more hardcore Star Wars fans. But our colleague Roger Friedman reminded me of this this morning, because we were chatting about it, he also went with his family over the break to see it. And he said, "You know, this movie wasn't just wrapping up a trilogy. It was really wrapping up nine movies." So when you think about the creative bar that this movie had to clear, that's a pretty high bar. And yeah, I felt the same way. Very much enjoyed the movie. Was happy to have gone. I'm not going to quibble with it. But unfortunately, there are other people to do that.
Moser: You know what? I will say, No. 1, we walked out of there feeling like there's totally the opportunity to have a Star Wars 10. I'm not convinced this thing is wrapped up. But the other thing I was thinking is, we're taking The Mandalorian slowly. We're enjoying it. The Mandalorian is really, really good. I'm really enjoying it.
Hill: Yeah, and they've already said Season 2 is coming. Thanks for being here!
Moser: Thank you!
Hill: As always, people on the program may have interests in the stocks they talk about, and on The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition on MarketFoolery. The show's mixed by Austin Morgan. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.
