Earningspalooza Begins: Q1 2020

In this week's episode of Motley Fool Money, Fool analysts Ron Gross, Jason Moser, and Andy Cross hit on some of the biggest market news. Starbucks (SBUX -0.35%) shares fall despite good profits, probably because of coronavirus-induced uncertainty. Apple (AAPL 0.64%) grows bigger than ever on its report, and that's pretty darn big. IBM (IBM 0.16%) shares pop on news that a CEO change is in the works. Atari branches out into some less traditional venues. Amazon.com (AMZN 1.30%) has its best day in over a year on a fantastic report. Plus, updates from Microsoft (MSFT 1.65%), Facebook (META 2.98%), Tesla (TSLA 1.85%), Visa (V 0.65%), Colgate-Palmolive (NYSE: CL), McCormick (MKC 0.44%), PayPal Holdings (PYPL 1.96%), McDonald's (MCD 0.47%), and more. And, as always, the analysts share some stocks on their radar this week.

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 Jan. 31, 2020.

Chris Hill: It is Earningspalooza. We have so many earnings stories, we don't even have a guest this week.

Ron Gross: What?

Hill: Sorry, Ron. But as always, we do have a few stocks on our radar. We're going to begin with Amazon getting back into Club Trillion. Amazon's fourth-quarter profits blew away Wall Street's expectations. On Friday, Amazon's stock had its best day in over a year, pushing the company over the trillion-dollar market cap, Jason.

Jason Moser: Yeah, I mean, a very impressive holiday quarter. Not surprising. We could certainly sit here and riff on concerns regarding shipping and costs, as bears like to do. We are not going to do that though, Chris, because I think they are valid concerns but take a back seat to all the positives that the company continues to bring.

We talk a lot about Amazon Web Services and the importance of that side of the business. And just so that listeners understand why we harp on that every quarter, if you look at the actual quarter results, Amazon's North American segment generated $1.9 billion in operating profit on $53.7 billion in sales. The AWS segment generated $2.6 billion in operating profit on just $10 billion dollars in sales. So you can see how profitable that side of the business is, why it's so important, and why we continue to focus on it. Those are really great results.

Now, not that it's nothing but roses here, because we can certainly flip it over and look at their operating margin there -- it was down more than 3% from a year ago. That is investing into that infrastructure. That makes perfect sense. But they continue to grow the customer base there. Fascinating to see that they now have more than 150 million paid Prime members globally. That's what we've been talking about for so many years, right? That's that pot of gold at the end of the rainbow. You just keep growing that membership base, and they can do all sorts of things with this business.

And international is coming along. That will click into profitability at some point down the road. But given the success in North America and AWS, we're not going to worry about that too much right now.

Gross: AWS, clearly the market leader. I love this company. I love the stock's performance. I don't think AWS increases market share going forward, though. I think competition is there, and if anything, they're going to lose market share. So just something to keep an eye on.

Moser: I think it's a fair point, especially given what we've seen with Microsoft results. We'll talk about those later. Alphabet, obviously, very strong competitor in this space.

Gross: And IBM coming up on the outside!

Moser: [laughs] I'll let you talk about that.

Andy Cross: And it's nice to see them back above the $1 million mark. I felt like we were missing something when they would dip back below that. Now we have those big behemoths in there, too. But what I'm really interested in with Amazon continues to be watching the advertising business take off. They are probably now the third largest one when it comes to competing against Facebook and Google. Those are still the big giants. But this is an evolving opportunity for Amazon, they're continuing to grow that business. It's one of their faster-growing businesses, I think, based on what some analysts are saying. So that's a real exciting evolution of the Amazon ecosystem. And I think it'll be a nice growth angle for them going forward.

Hill: If Amazon did not have the quarter it did, we would probably be leading the show with Apple, because all Apple did in its first quarter was sell $56 billion worth of iPhones, pushing Apple's stock to another all-time high, Andy.

Cross: That's an awesome number, Chris. It was up 7.6%. It's really nice to see, because there's been a lot of concerns about the iPhone business and the sales and will that continue to be a growth angle for the business. And clearly, this quarter was a really nice one, especially when thinking about where they were a year ago, when the iPhone sales were just kind of struggling. So, iPhone continuing to be a really nice part of the business, a big driver of why they now have 1.5 billion Apple devices in circulation. That was up 7% from a year ago. Wearables, home, and accessories continued to be a really nice growth part of the Apple story. That's now $10 billion. That was up 37% in the quarter, so that's a really nice area. And can't forget about services, too. You think about App Store, Arcade, iCloud. That was up 17% in the quarter. So, Apple really getting it done across all the divisions.

Gross: My family, I purchased four pairs of AirPods in January. That's because they're each $30 off. And I'm wondering, A, are they being forced to be promotional because things are not selling as they would like at full price? Or, are they cleaning out inventory because there's next generations that have come online? Have they said anything about pricing?

Cross: I didn't see that there. The wearables business just by itself was up 44%. So you contributed to that last quarter.

Gross: [laughs] Right, in January.

Cross: I didn't see any kind of conversation around that. I think the wearables is really an exciting part of where that business is going. The Mac and the iPad continue to struggle. And those continue not to be the growth angles to it. So it's really pushing to those other devices as well as the Services section.

Moser: Yeah, I mean, I think you're seeing also with Apple, I mean, especially in the wearables, they're tinkering with pricing a little bit because they're still relatively new markets. We've certainly seen with the Watch, I mean, that price has come down considerably over earlier versions.

Gross: Which you always expect to see.

Moser: Yeah, I would imagine. I mean, Apple has been a bit insulated from that because of that brand cachet and their pricing power. But, yeah, I mean, they've even had to tinker with the pricing on the phone, right? I mean, that you can't price those things to the moon. At some point, consumers start pushing back a little bit. Maybe they're running into a little bit of that.

Cross: Well, I will say that gross margin for the products I was up a little bit, up to 34.2%. That was up slightly from a year ago. Nice growth in the gross margin side.

Hill: Microsoft's second quarter profits came in much higher than expected. Maybe not $56 billion but Ron, can I interest you in $37 billion in revenue in the quarter?

Gross: And $1.3 trillion in market cap? I love this report. Beat both revenue and expectations, profit expectations. Revenue up 14%. That's the 10th straight quarter of double-digit sales growth. Azure up 62%. As we talked about that AWS market share being pressured, Microsoft coming on strong. Office 365 sales up 27%. That's sales to businesses. Personal computing, as you might expect, a little lackluster. That's the Windows, Surface, and Xbox business. Only up 2%, but still up.

What was really nice to see is that cloud gross margin. As that business scales, the gross margin increases. That really brings dollars down to the bottom line. You saw operating income for the entire company up 35%, and earnings per share up 40%. These are phenomenal growth rates that this company is putting up. Returned $8.5 billion to shareholders in share repurchases and dividends. The company is continuing to really execute under Satya Nadella.

Hill: When you look at what Microsoft and Apple have done over the past year, in terms of their stock performance, it really flies in the face of something we've been told over and over for years about the law of big numbers. I'm wondering, to what extent are you surprised by the fact that Microsoft is up 60% in the past year?

Gross: Very surprised, I would say. And when they hit a trillion, I'm like, "Well, they're not going to get to $2 trillion anytime soon." We're already a third of the way there! It's unbelievable, the numbers, and how these numbers compound. The billions of dollars of cash flow generation is so impressive. I'd love to see stocks go up on billions of dollars of cash flow generation, rather than seeing stocks go up when they're not even profitable.

Cross: Well Apple also, the stock has had a lot of multiple expansion. It was really cheap like 18 months ago. Microsoft has been executing on the earnings side, not just the revenue side, on the earnings side. So now, we're starting to see a little bit of that come from Apple. But most of the stock was really from multiple expansion over the past 18 months.

Gross: Now we're on 30 times forward earnings from Microsoft. Not cheap, but if they continue to put up earnings per share numbers of 40% increases, maybe reasonable.

Moser: And then they're picking up that share in cloud, like you're talking about with Azure. I mean, that's very sticky, right? The switching costs with that kind of stuff, they get higher as those relationships continue, which, I think, you can't discount that when you look at these companies like Alphabet and Google or Apple and Microsoft. I mean, there just really is a lot of opportunity there beyond what they've run those businesses on to this point.

Hill: Well, not every big tech company had a good week. Facebook shares down despite the fact that fourth-quarter profits and revenue both came in higher than expected. Jason, as Mark Zuckerberg has said for a couple of years now, they are actually spending a lot more money.

Moser: They are. I mean, they do I have 99 problems, but I'll tell you, Chris, users ain't one of them. They're closing in on 3 billion using one of their four big platforms on a monthly basis. 2.3 billion daily. Now, I mean, they still can't monetize WhatsApp. And we could sit here and make fun of them for that and criticize them for that. But ultimately, it doesn't matter, because that deal was mostly stock anyway. So ultimately, really, shareholders paid for it, not Facebook. And the stock is up 180% over the last five years. So it just doesn't really matter.

I mean, what we're seeing is that the core business, the core Facebook platform, is still performing very well. And I know there are concerns out there regarding the family average revenue per user being lower than the core app average revenue per user. Again, I just don't think that matters as much, because you have to look beyond, I think, the person-to-person connections on Facebook. Think about the businesses that are relying on Facebook's platform to get out there and grow. There are 140 million small businesses that use Facebook today. They are inextricably tied to Facebook, and the longer they use it, the more dependent they become on it.

Now, it's not to say Facebook is the only game in town. You have businesses out there like Shopify that are changing the e-commerce space on their own. But I think that Facebook is going to continue to be an important part of the value chain for the foreseeable future. I mean, I'm not the biggest fan of leadership there. I think they could do things a lot better. But the business is still, Ron, firing on all cylinders. And even though the expenses are bumping up a little bit, that's still OK, because this business can handle it.

Cross: And I talked about the advertising business earlier with Amazon. The advertising impressions, the amount of ads and Facebook serves up, continues to grow, I think it was up more than 30% during the quarter. The average price per ad was down a little bit. So maybe some pricing pressure from some of the competitive players that they're seeing in the space.

Moser: And no surprise, Oculus and Portal really are immaterial.

Gross: Growth is slowing. They've been upfront about that. Expenses are increasing. They've been upfront about that. So then, that just says, what do you pay for a stock, then, that still generates billions and billions and billions of cash flow? It's only 22 times forward earnings for a company like Facebook. So, you're not paying these 50, 60 times multiples. So even for a company who's a little bit more mature, that still might be a fine price to pay.

Cross: Yeah. And you said billions. I mean, it was $16 billion in free cash flow per year they generate.

Hill: Jason, real quick. Where are we with Libra? Because it seems like Facebook's initiative into the payments space really has had not just a bit of a stumble. It's had several stumbles in terms of sort of high-profile partners backing out.

Moser: That's the old bababooey. Yeah, I think, to me, I mean, I've been a critic of Libra ever since they announced it. I think they need to bag it. I think it's something that is taking away from the attention they should be paying on the core platform, privacy, users, making their platforms safer, more engaging. To me, Libra is, I still just don't understand why they fully want to pursue it. But clearly --

Hill: Well, money is probably why they want to pursue it.

Moser: [laughs] It certainly doesn't sound like they figured out how to make money with it. It certainly seems that partners who once considered it are dropping left and right, too.

Hill: Shares of Tesla up 18% this week after fourth quarter profits and revenue came in higher than expected. Andy, you look at this stock -- for a few years, Tesla shares really weren't moving one way or the other. Since late August, it's tripled.

Cross: If there's a person who's had a better few months than Elon Musk, I'm not sure if I know who that is. Now, Tesla is worth more than $100 billion in market cap. The stock's up, gosh, some 160% in the last few months. A great quarter, continuing on building on what we've seen over the last quarter or two, really ever since that slowdown, like you said, Chris, in the summer. Deliveries for the fourth quarter were up at 112,000, up around 20%, 25%. But for the full year, they did 368,000 deliveries, and that's up 50%. Really the Model 3 continues to be the growth there.

The thing that I found really encouraging with Tesla continued to be how the enthusiasm around what they are guiding for going forward. For 2020, deliveries they said comfortably exceed 500,000. It's a little higher than what analysts were estimating. So, you look at the stock, it's had this fantastic performance after really the 2019, like you said, Chris, you know, the first half, three quarters of the year, really struggled just after a lot of some of the situation, almost of a circus around Elon Musk. That now seems to be a lot behind them, I think. They've become a real company that can show that it can manufacture some cars. The stock has had this amazing run, and it is awfully expensive when you look at what investors are expecting. But they've been able to show, and Elon Musk has been able to show, that they can deliver.

Moser: Yeah, I'm not going to justify the stock valuation today. Make of it what you will. But it does seem like there's a direct correlation to Musk's Twitter behavior and how this company is being received. I mean, it seems simple: tweet less, your stock price goes up. Just keep doing that. And so, I think if he can just keep focused and stay off of Twitter more, that's probably a good thing.

Cross: And they just got some real operational improvements they've seen over in the business and in the personnel. And you just see a lot of the other stories we were talking about so much in 2019, really after they introduced the truck and that whole situation -- but that truck, by the way, has had a really great reception. So you're just seeing them come up and grow into their own themselves as $100 billion business.

Hill: It was interesting on the conference call how you had some institutional investors essentially encouraging Elon Musk to go out and raise money, saying, "Look at how your stock is doing. Now's the time to raise money." But he basically said, "No, we're good."

Cross: He said, "We're good." He said, "We're good." The profitability and the free cash flow improving. So he is looking at the businesses and saying, "We at this point, we don't need to raise capital."

Hill: The headline for Visa's first-quarter report was a record $3.25 billion in profit, but shares of Visa down 4% on Friday despite that, Jason. Nitpicking? You tell me, you know this company better than I do. It really seems like they're doing well.

Moser: Oh, I absolutely think it's nitpicking. I think we're in the face of a very hot market. I mean, even good sometimes isn't good enough. But when you look at the numbers, I mean, you can tell this was another good quarter. For the first time in the company's history, total network volume for the quarter was over $3 trillion. Cross-border volume was 9%. They processed nearly 38 billion total transactions. That was up 11%. E-commerce grew 3 to 4 times faster than non-e-commerce, which I thought was pretty interesting. That drove a third of all consumer spend. So that mattered.

To me, I mean, this business is just doing everything it needs to do to keep being successful. Maybe there's a little skepticism out there regarding the Plaid acquisition. They did pay up for that. We got a little bit of clarity into Plaid. They didn't really go into it too terribly much on the call. But they did talk about Plaid's revenue model, that it is a usage-based model. So, again, if they can figure out how to plug this into Visa's network and execute, this could be meaningful for their business down the line. I mean, this is steady as she goes. If you own them, keep them. If you don't own them, you should have this company on your radar.

Hill: And he talked on the call about their marketing spend. It's a year for the Summer Olympics, and historically, they spend more on those years.

Moser: Historically they do. Now, I did not notice that. I'll have to go dig back down. But I suspect they will be bumping that up a little bit. For these big events, these big companies realize benefits of doing that.

Hill: Here's a business we haven't talked about in a while: Colgate-Palmolive. Shares of the consumer products company up 6% on Friday after fourth-quarter sales came in higher than expected. How much, toothpaste and soap are they selling over there, Ron?

Gross: A decent amount. Investors must be focused on the top line, because profits were kind of bleh. But it's the 5.5% increase in sales, I think, that's got people going. Global unit volume up also 5.5%. Pricing increased to 1.5%, so, that helped. And then there was the negative of foreign exchange, which deducted about 1.5%. That all boils down to a very healthy top line growth rate for a company as mature as Colgate. The recent acquisition of a skin health business contributed 2% to net sales and unit volume growth. So a little bit of non-organic growth there.

But organic sales just on its own was up 5%. Really nice to see. Sales growth was broad-based. Every operating division contributed to growth. Gross margins were up, but operating expenses were higher because advertising spend was up about 13%. That's why profits were kind of just blah, zero to down a bit depending on what you strip out as non-recurring.

Hill: I know it's not a packaged food company like Kraft Heinz, but I feel like anytime a large business in the consumer goods space does well, Warren Buffett just dies a little bit inside and just regrets that deal.

Gross: [laughs] It's been a tough road for a lot of these companies, but a lot have rebounded as well.

Hill: Not to get overly personal, but Colgate, is that your toothpaste of choice?

Gross: I use Sensodyne. And to be honest, I don't know who owns that. I just can't imagine they're standalone.

Hill: Jason?

Moser: Crest guy.

Cross: Tom's of Maine guy.

Hill: Oh, well, Colgate-Palmolive. There you go. Thanks for supporting my home state. I should support them, but I'm a Colgate guy.

McCormick's fourth-quarter results were too bland for Wall Street. The spice maker also served up guidance for 2020 that was on the mild side. That ends the pun portion of the show. Shares of McCormick down 4% this week, Jason.

Moser: Well, I mean, we don't have to end the puns there. I mean, I tell you, I've got a recipe for a really, really jambalaya, and I got the McCormick Cajun seasoning, and that stuff is spicy and delicious. So with that said, yeah, it wasn't the sexiest quarter in the world, but it's not the sexiest business in the world either, right? They just keep on doing what they do.

And this was one of those steady-as-she-goes quarters. The stock has had a great last 12 months, up over 35%. So seeing a little bit of a pullback on these results isn't surprising. Sales grew 2%. Earnings were down a little bit. Part of that was due to some tax issues. But the 34th consecutive year with a dividend increase. Full-year operating cash flow of $947 million, up 15%. Gross margin actually expanded a little bit more than 1% for the quarter. And 8% of sales in 2019 came from new products launched over the last three years.

So I know we talk about innovation in tech, but these guys, no kidding, really, they are pretty innovative. I mean, having seen their spice lab, it's like something out of a James Bond movie. Management continues to consider acquisitions as little bolt-on or substantial deals, but they don't see anything in the pipeline right now. So we'll keep an eye on that for the year. But I suspect it's going to be just the same old, same old for the rest of the year for this company. And that's not a bad thing for investors.

Hill: I'm probably going to focus on the wrong thing here, but when you say it's like a James Bond lab, are you talking about like Q? Like they have at MI-6? Like the good guys? Or like an evil lair kind of lab?

Moser: Well, I mean, I didn't see the evil side of it, so I'm focusing only on the good stuff. But it was just really impressive to see. Now, I will say, a little bit CIA-ish, right? They're keeping some of that stuff under wraps. They wouldn't let us know some of the things they were working on. But what we saw, I was really impressed.

Hill: Shares of Starbucks down a bit this week despite the fact that first-quarter profits came in higher than expected and global comps for Starbucks look pretty good, too, Andy.

Cross: Really nice quarter for Starbucks. Unfortunately, the coronavirus situation over in China is getting a lot of the headlines. And there were a lot of questions on the call about this. They have about 4,300 stores in China. That was up 16% for the quarter. But they announced that they closed more than half of them during this time. Some of that was because of the Chinese New Year. But obviously, the coronavirus situation in China, the quickly evolving situation there, they are watching it very closely, is affecting investor sentiment.

But the quarter was really nice. Revenues were up 7%. U.S. up 9%, driven by that comp growth, Chris, as you mentioned. Up 6% -- 3% from the pricing and 2% on the volume side, rounding about there. China up 3% on the comp growth. So really, Starbucks continuing to do really well, driving their mobile business, driving the mobile memberships, and the mobile ordering driving a lot of the growth for Starbucks. So, overall, the stock is down a little bit mostly on that news. We'll have to see how that all plays out. But the company itself getting it done.

Hill: Let's talk about this for a second, because Starbucks is not the only U.S. consumer brand over in China that is dealing with this. We saw similar reports out of companies like McDonald's, which we'll talk about in a second; Yum! Brands; Google; in terms of their employees, in terms of the potential customer base, that sort of thing. This really seems like one of those times where, as you said, Andy, it's a quickly evolving situation. But I think for us as investors, more so than usual, now is the time to pay attention to how our companies are communicating. As a Starbucks shareholder, I was happy about the way that they communicated the results here and also what's going on in China, even going so far as to say, "Look, as soon as we can update the guidance for the current quarter, we're going to do that. But at this point, we don't really have any more information than we've already shared."

Cross: That's a good point, Chris. They suspended their guidance. They were going to update it, and then they had said that they were expected to increase their operating margins a little bit and boost some of their EPS guidance, but they decided to withhold that until they learned more about what's going on with this situation. China, it's 10% to 13% of their overall sales, but on the margin, that's impactful. And obviously just the health concerns for the people who work there. So I like the way they communicated, and I'm glad they did that way.

Hill: Well, and also sales that they're not going to get back. This is not an auto dealership, where if you don't buy your car right now, but maybe you buy it next month, the sale of the car just gets delayed a little bit. Once the stores are reopened in the Wuhan province for Starbucks, it's not like people are going to be tripling up on the amount of coffee they buy.

Cross: Right, no, that's right. But hopefully, obviously, so much of the work they've done inside of China on the operating front and the brand they've built so powerful into China and with their consumers, will allow them to be able to, the stores, at least, return to some growth that they had before the virus hit.

Moser: They're really good about pulling those levers, though. I mean, the treat recipe, for example. You don't think they can get those sales back? They may not get them all back, but they can get some of them back with things like the treat receipt and whatnot. I mean, they just are very, very good about that, let's call it engagement, right? I mean, they just can stoke sales that they lost.

Hill: McDonald's doing a little bit better. Fourth quarter profits higher than expected. Shares of McDonald's up 3% this week, Ron.

Gross: Nice to see Mickey D's rebounding a bit. Rough second half of 2019. But since November, a bit of a rebound in the stock. They beat expectations here. Top line was strong. Global comparable sales up 5.9%. That's the highest in more than 10 years. Strength in both the international and the U.S. segment. Really good to see. McDonald's has been very, very focused on investing in technology, both consumer-facing and in the restaurants.

And let's face it -- they really had to. So they have self-ordering kiosks, mobile ordering, delivery partnership with Uber Eats, AI technology both in the stores and the drive-through to get people through quicker and upsell people into other products based on the time of the day, the weather. Really interesting things going on at McDonald's. So far, it appears to be bearing fruit. They've got to continue. It's not inexpensive to build all these things, but I like what they're doing.

Hill: Well, and give them credit, because in addition to everything else in the past quarter, they changed CEOs very suddenly.

Gross: They very suddenly had to. Obviously, Steve Easterbrook left quickly. Chris Kempinski, I believe it's pronounced, took the helm. All indications are that he will continue what Easterbrook had started in terms of technological investments. Hopefully we'll see sales continue to benefit from that.

Moser: Doubling down on that chicken sandwich.

Hill: Speaking of chicken sandwiches, Ron Gross, someone I enjoy following on Twitter for a number of reasons. One of which is, he doesn't tweet very often. But you did tweet a couple of weeks ago -- you tested the Popeyes chicken sandwich.

Gross: I did. Thank you for listening. [laughs]

Hill: It seems like you're not a fan of that.

Gross: It was crunchy. It was greasy. And it did not have a lot of flavor. Now, I don't like mayonnaise. So that could be the problem. But if the whole thing relies on mayonnaise, then bleh, because you know what? Chick-fil-A doesn't have any mayonnaise and it's still delicious.

Hill: So, should people on Twitter, like myself, expect a similar review of McDonald's chicken sandwich at some point?

Gross: If the hype is there? Yes. Otherwise, no.

Hill: The hype for your Twitter feed?

Gross: No, no, for Popeyes! The hype was so big, I had to see for myself.

Hill: A couple more earnings stories. PayPal's fourth-quarter profits came in higher than expected, but shares were flat this week. Jason, they're executing at PayPal, but you look at the money they're spending on acquisitions, and yeah, I get why that has an effect on their guidance.

Moser: Sure. It was interesting to see the market's reaction, because right after the release, the stock was down 7%, but it came back. Actually, I think it finished up positive on the day. One thing that's very clear after going through their call is the focus that this management team has on incorporating their solutions and networks all over the world with really big partners. And I think that matters a lot, particularly because mobile, which is now 44% of total payment volume. And mobile is a big part of why they're a value-add in a lot of these networks.

And when I talk about these networks, I mean, you talk about how the fact they're cozying up with China's UnionPay. I mean, there are 130 million cards alone issued outside of mainland China. And UnionPay is now accepted by over 28 million merchants across the globe. Saddling up with MercadoLibre. I mean, there's just a lot of partnerships that they're forming. Obviously, the Honey acquisition is a point of focus. They mentioned that quite a number of times in the call.

And this really is about jockeying for an earlier position in the life of the consumer's commerce transaction. And that's fine. That makes sense. I mean, PayPal, for all intents and purposes, to this point has just been a payments solution. They want to become more. They want to be a commerce solution. And so you're going to see them integrate that Honey technology into PayPal, into Venmo. I suspect that will, over time, boost the business. They're talking about, the Honey acquisition will be accretive to earnings in 2021.

So yeah, it's easy to be a little bit concerned, perhaps in the short run, but when you look at some of the numbers they're chalking up, I mean, total payment volume was up 22% for the quarter. Venmo volume was up 56% to $29 billion with $102 billion for the year going through that Venmo network. Now, I mean, this is a business doing a lot of really good things. I think you have to hang onto these shares.

Hill: Well, it's also a great example of what you can accomplish when you make things easy for people. When you think about PayPal itself and also Venmo, those are two platforms that are incredibly easy to use.

Moser: Chris, I'll tell you, I was driving my daughter to school Friday morning. She needed $6 for a PE thing. They're doing bowling. And I'm like, all right, six bucks. I'm scrounging around trying to find $6. I've got no cash, Chris! I've got no cash! And I'm like, is there not a PayPal? Is there not a Venmo I can send it to? No. I mean, God, people, get with the program! These platforms exist to make our lives easier, so use them!

Hill: On last week's show, we talked about IBM's latest earnings report. IBM back in the headlines this week with the news that CEO Ginni Rometty is stepping down. She will stay on as executive chairman through the end of the year, when Arvind Krishna becomes the new CEO. IBM's stock up 5% on this news, Ron. What do we know about this guy?

Gross: We know that last week, you asked me if the stock would benefit from Ginni leaving, and I wasn't so sure. But you were very correct in that regard.

Cross: Slash wrong.

Gross: Slash wrong. This does actually make perfect sense. It seems like it was time for her to go. It seems like it's time for new management. Arvind Krishna is the senior vice president for cloud and cognitive software. He was the principal architect of the company's acquisition of Red Hat, which is basically the future of IBM, or at least they're hoping it is the future of IBM. That's where all the growth is coming. That's their kind of pivot to the cloud. Very much like Microsoft did when Satya Nadella took the reins. It will be interesting to see if they can pull off a Microsoft kind of a turnaround.

James Whitehurst, the CEO of Red Hat, will step in and will take over as the IBM president. So you really see a doubling down here of management and investments in this cloud infrastructure business. Listen, the stock's 10X. If they can do anything even remotely close to what Microsoft did, the stock is extremely cheap. But I'm not so sure they can.

Cross: The interesting separation or the creation of that president title with Jim Whitehurst taking over, I think that's very interesting and a good sign for where they're going to put a lot of their emphasis, because they have to. I mean, sales are down over the past few years. The stock's clearly underperformed the likes of their other large-cap brethren. So, the invigoration of having this change at the leadership level and bringing in Jim as the president I think is a good sign for IBM shareholders.

Hill: So, we have a new CEO at IBM. We have a new CEO at Wells Fargo. The questions at the Berkshire Hathaway annual meeting are going to be particularly interesting this year.

Moser: And they just unloaded the newspapers. You saw that, right? That's another interesting point there with Berkshire. I mean, they're starting to kind of see some --

Gross: Some cracks?

Moser: Well, not cracks. Maybe they're just kind of shoring things up for the inevitable transition.

Cross: Slash more Apple buying.

Hill: Atari, known for its video games, announced this week it is getting into the hotel business. Atari announced a deal to build video game-themed hotels in eight cities across America, starting with Phoenix. Groundbreaking takes place later this year with an eye toward opening the first hotel in 2022. Am I the only one at this table who thinks this could actually work?

Gross: Maybe.

Moser: I think there's enough nostalgia here for it to work. I mean, I'm not a big gamer by today's standards, but these are the games that really resonate with me. I could actually see having fun with this.

Hill: And just to be clear for longtime listeners, this is not a situation like we talked about previously with Taco Bell having a Taco-Bell-themed hotel and resort for a couple of weeks. No, this is going to be a freestanding, ongoing business.

Gross: But it's not 1980s video game technology. They're going to have updated technology in their hotels, and it will appeal to people who are into gaming now. Folks younger than us don't even know what Atari is. The combination of that brand name and now new technologies ... I don't know.

Cross: Sounds like a lot of VR and AR stuff.

Moser: I was going to say. I think that I'd jump in for an AR or VR Donkey Kong. I mean, that'd be cool. Real quick, the article I read here by Christopher Livingston, he concluded with, "and remember, if your electronic room key doesn't work, try pulling it out and blowing on it." Now, if you read that really quick and you think, "What the hell is he talking about?" Do you guys remember? I got this. Remember the Atari machines?

Gross: Oh, the cartridges!

Cross: The cartridges!

Gross: You'd have to blow in them!

Moser: You'd have to get the dust out of them to get them to work. I was like, that's clever. Good job, Chris.

Hill: And just one more reason I think this could work -- this is from the Atari press release. Select hotels will also feature state-of-the-art venues and studios to accommodate e-sports events. They attract those s-sports gamers, I don't know, this could work for them.

Alright, let's get to the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week?

Gross: The company I'm looking at as a potential recommendation for our Total Income service. It's Walker & Dunlop (WD 1.77%), WD. Provider of commercial real estate financial services in the U.S. Primary focus on multifamily lending. One of the top originators of multifamily home mortgages. They also have a $90 billion mortgage servicing portfolio. Nine years since its IPO. Walker & Dunlop revenue has expanded at an annualized rate of 25%. Still led by members of the founding family that founded it 80 years ago. Willie Walker's the grandson of one of the founders, owns nearly 6% of the company. They started paying a dividend in 2018, and the yield sits at about 1.8%.

Hill: Steve, question about Walker & Dunlop?

Steve Broido: Isn't this just a total commodity play? I mean, everyone does mortgages. Why Walker & Dunlop?

Gross: Well, they have a great reputation. Size matters here. Scale matters in terms of profitability. But, you're right. Cushman & Wakefield, CBRE, Marcus & Millichap all very large companies as well, each competing for that mortgage.

Hill: Jason Moser, what are you looking at?

Moser: Well, we've covered Visa, we've covered PayPal. Square hasn't announced earnings yet. MasterCard (MA 1.33%) already did. But I'm going to stick with MasterCard, kind of keeping that war on cash theme here. Ticker is MA. Reported a good quarter recently. Gross dollar volume up 12%. Cross-border up 16%. Kind of throwing it to Visa there, I think. But really, this was a Reese's Peanut Butter Cup moment here recently for me. I mean, remember the commercials where the two collide, right? The chocolate falls into the peanut butter. Did you read recently that MasterCard is rolling out an augmented reality app for their benefits program? I mean, I immediately thought, "Oh, my word!" I actually had the opportunity to get MasterCard into the AR service here! My worlds are colliding, Chris!

Cross: A smart decision!

Moser: Going to be rolling out in Q2 on iOS. And then, a little bit further down the road for Android AND whatnot. I just think it was a clever, engaging play to bring people more into the benefits that they get from these cards. I wouldn't be surprised to see other card providers mimic this down the line. But I'm really excited to see how this looks.

Hill: In a couple of years, you know where you can use that card?

Moser: Where?

Hill: An Atari hotel. Steve, question about MasterCard?

Broido: Does MasterCard, or Visa, for that matter, need to do a better job providing me the tangible benefits? I don't feel like there's a benefit of owning a MasterCard versus a Visa credit card. What's the benefit?

Moser: I actually totally agree with you. I think they do need to do a better job of that. I think that is part of the point behind this app, is figuring out new ways to engage with card holders based on the tools that we have today. And obviously, the smartphone being the most obvious choice. Everyone has one. I do think this is going to be a way to create engagement, make you more aware of the benefits that you have, so that you can actually put them to good use.

Hill: Andy Cross, what are you looking at?

Cross: Chris, I'm looking at Pinterest (PINS 0.89%), PINS, a recent recommendation of both Tom and David Gardner -- $12 billion market cap company. Social media platform of users sharing inspirational things. Think of it like a virtual corkboard. Recipes, artwork, home decorations. More than 320 million active users. Two billion monthly searches. So I like where the growth is going. It's a big advertising platform, but still really just starting to monetize that user base. So, looking to see what they are saying more about the monetization of the platform.

Hill: Steve, question about Pinterest?

Broido: How long before there's a paid subscription tied to Pinterest, do you think, Andy?

Cross: I don't know. I think the advertising is just really starting. The average revenue per user is just about $1. And that's mostly driven by the U.S.; international is a bigger opportunity for them. So I don't see that. I think the advertising is going to be the future for Pinterest for a while.

Hill: You got stock you want to add to your watch list, Steve?

Broido: I think I'm adding Pinterest.

Hill: Andy Cross, Jason Moser, Ron Gross, guys, thanks for being here. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido. Producer Mac Greer is off, so if the show was terrible, that's why. I'm Chris Hill. Thanks for listening! We'll see you next week.