- Are we being complacent with coronavirus (COVID-19)?
- Garmin's transition to being a device maker is showing good returns.
- Blue Apron is exploring avenues for a merger or going private.
- A closer look at Groupon in today's market.
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This video was recorded on Feb. 19, 2020.
Mac Greer: It's Wednesday, February 19th. Welcome to Market Foolery. I'm Mac Greer, and I am joined in studio by Motley Fool analyst Bill Mann and Emily Flippen. Welcome! How are we doing?
Emily Flippen: Doing all right.
Bill Mann: I'm doing OK. I'm not sure if I'm supposed to be nervous or not, though?
Greer: You should never be nervous, never be nervous. And remember, it's a free show.
Mann: [laughs] That's right, it's true.
Greer: So anytime we fumble, you know, I just remind listeners of that.
Well, we've got lots to talk about. Blue Apron, woof! may be looking for a suitor. Blue Apron has all sorts of problems. I was going to say that Blue Apron is having problems putting food on the table, but I'm better than that, so I'm not going to say that. Garmin, on the other hand, Garmin shares up big, and we'll talk about that as well. And Groupon, well, Groupon 42% cheaper today.
Mann: Group off.
Greer: Yes, group off. But Bill Mann, I want to begin with a -- well, the market: It's an incredible almost 11 years old, this bull market we have. S&P hitting another all-time high today. And that was reflected in a Wall Street Journal headline that I know caught your attention. So I just want to present you with this Wall Street Journal headline, "The Market's Real Worry Is Lack of Worry."
Mann: It's like the opposite of Churchillian logic. Like, yeah, you should be afraid of the fact that you're not afraid. It is interesting to me. I mean, a lot of people have pointed to the coronavirus and said, "This is destabilizing the global economy, and why are we hitting all-time high after all-time high?" I really wonder, though, not so much about the virus itself but the fact that so many industries are literally right now shut down because they can't get product from China, there's no flights going into or out of China.
It is amazing, when you think back 15 years ago and civil unrest in Nigeria would cause the market to drop. And now China is basically shut down and we're like, "Well, it's OK, I guess. I guess it's OK."
Greer: So is it OK, though? Are we getting complacent? Are you worried? Or what do you feel about that?
Mann: I don't know, what am I worried about? Apparently, I'm not worried, I don't -- Emily, I don't know what to think. Like, I really don't.
Flippen: Yeah, I kind of agree with you in the fact that...
Mann: That I don't know what to think. [laughs]
Flippen: ...that you don't know what to think. [laughs] I wonder about what next quarter is going to look like for a lot of these companies. They've already readjusted their estimates. So we know quarters, for a lot of the biggest companies here in the U.S., like Apple, like Starbucks. They're probably not going to be great. And that it's going to trickle down to a lot of smaller companies that you wouldn't think of, too, because so many companies are getting supply out of China. Long term, again -- and I said this before; I'll say it again -- I wonder if there are really any long-term effects from this? And I wonder if -- this is a silly thing to say -- but if the market is taking a long-term approach to -- like, companies like Apple are still going to be great companies. They're going to have to work out their supply chain, we're going to have to work out how to control coronavirus, but it's still going to be Apple at the end of the day.
Mann: 150 million trips Chinese people took out of China last year, and right now, it is functionally 0. And that's just -- it's crazy to think about the fact that we are assuming that there's no impact.
Flippen: We'll see it reflect in the market sooner or later.
Greer: Okay. Well, we will keep an eye on that.
Let's move on to a good day for Garmin. Shares of Garmin up more than 7% on earnings at the time of our taping. The stock is hitting a 12-year high. Now, Garmin, all about GPS technology. Bill, back in the day, I thought of Garmin as basically your car or your boat.
Mann: Or somebody's boat, not our boat.
Greer: Yeah. But now I see it characterized as much more of a fitness device maker. What do you make of Garmin?
Mann: Well, so when you think about Garmin, you really have thought of it as being auto and boat, GPS, avionics. They really are becoming more and more of a fitness company: 34% growth in their fitness division. They're really firing on all cylinders, except for auto, which is dropping and becoming a smaller and smaller part of the business. So really, really doing well.
Flippen: I'm having a good chuckle right now, because when I was prepping the story, I had the opposite read. I was like, "You might think of Garmin as just a fitness tracker company, but did you know that they have auto and marine and aviation devices too?" [laughs] That's hilarious. So maybe there's a generational divide there, but I agree, I think Garmin has done a really great job of -- [laughs]
The fitness market has been great for them. I would just caveat all of this great earnings, revenues nearly at $4 billion. So it's a bigger company than you might assume. I will just say, it's a naturally lumpy business. We see a lot of excitement over new devices and new products, especially in the fitness category. So really good year, really good quarter for fitness devices for Garmin. There's no reason to think that that will stop, but there's also no reason to assume that it will continue forever.
Mann: You know, you make an interesting point. It really does feel like we're doing 2006's Market Foolery today with the companies that we're talking about here.
Greer: Well, this is more of maybe 1999-2000 Market Foolery for our next company. Blue Apron. Woof!
Mann: Black Apron!
Greer: Yes! The meal-delivery business, shares down more than 20% on earnings. Emily, this has been just a dog of a stock, and that's not fair to dogs. This has not been a great stock. Blue Apron now says it's exploring strategic options, which could include a merger or selling the company outright. What do you think of Blue Apron's latest?
Flippen: Well, we're talking about going back into the past. Let's flash back into the past when Blue Apron was initially listing as a public company. The value proposition was, this is going to change the way that we all eat. Not to throw Stitch Fix underneath the car again, but the same thing with Stitch Fix, it's going to change the way that we get clothes. And ultimately, when push comes to shove with a company like Blue Apron is, it's a niche market, it's a hard market to make work. I mean, shipping food products is not easy, it's a very low-margin business, and ultimately, they didn't have the scale and the ability to get as many consumers as they would need to be a feasible publicly traded company. It's simply not a big enough business.
So while as terrible as Blue Apron has been, I think it was kind of a foregone conclusion that they would eventually be taken private one way or another to focus on a small group of consumers that are willing to pay up for a better experience.
Mann: When companies talk about exploring strategic options, it literally means that they're running out of options. Because option four for them is bankruptcy. And it has been done in the past. I mean, Emily is exactly right, it has been done in the past. The companies have said, "Okay, we're going to focus on our core customers." Tiffany has done it. Tiffany doesn't go out and try and get everyone to buy Tiffany's stuff. Tiffany also has incredibly high margin. So yeah, this company is probably not viable as a public-traded company because it just -- I mean, the market has spoken. We're talking about a $45 million company at this point.
Greer: Okay. So when we think of potential suitors, is there a company that comes to mind, that you think, "You know what, Blue Apron would make sense for [blank]."
Flippen: You're going to love this one, Costco (NASDAQ:COST). So back in the day, probably 2018, Blue Apron got a little bit of flak because they had this initiative setup with Costco where they were selling their prepackaged meals inside Costco for a pretty big discount. Costco ended up actually cutting them during the holiday season and never bringing them back -- I don't think they sold as well as Costco expected. But a lot of the major grocers right now have their own versions of some sort of food-delivery/meal-service business. It's typically a loss leading business for them. So they don't make a lot of money on it. But a company like Costco could potentially drive more members -- and they get that up-front subscription fee -- by offering Blue Apron, which has a somewhat loyal customer base. And they would be the exclusive providers of Blue Apron meal kits. I don't know if that would make a lot of sense for them, but when I think about the companies that could potentially go after it, Costco, to me, is kind of up there.
Greer: As a Costco shareholder, I'm not sure how I feel about that. I don't know.
Mann: Let me say these words again [...] for Costco, now $200-billion-market-cap company, this is literally change from the couch for Costco to try this. This would take absolutely no risk from Costco. I'm not sure that there's value in it for Costco, but I mean, that's a reasonable place to look for a merger partner. In fact, that's better than I came up with.
Flippen: What was yours?
Mann: I thought that Grubhub or -- you know, they're all in the midst of a consolidation, a potential consolidation.
Flippen: Nothing like being acquired for being unprofitable by another company that's horribly unprofitable. [laughs]
Mann: Oh, yeah. [laughs]
Flippen: [laughs] When in doubt, combine, scale.
Mann: Well, that's the death hog, I think. [laughs]
Greer: [laughs] That's a good segue to Groupon. Shares of Groupon down more than 40% on earnings. It's just really hard to believe what has happened to this company. Groupon's market cap --
Mann: No, it isn't. Do you think it's hard to imagine -- [laughs]
Greer: Let me finish. I don't think it's that hard to imagine, but I think, here's where I am going with this. Groupon has a market cap of around $1 billion, give or take a few hundred million, right now.
Mann: Yeah, give it a minute. [laughs]
Greer: Now, this is the same Groupon that back in 2010 turned down an offer, a buyout offer from Google for $5.75 billion. So that's what I mean by all that. I mean, they could have taken the money back in 2010. Obviously, they thought that that was not doing them justice, they thought they were worth more than that, but where did it all go wrong?
Mann: By not taking the money. I mean, that may have been the moment. If you recall, at the time, people were so excited to get that email from Groupon, like, what's the local today? I mean, it was a cultural experience. So they weren't wrong to think that they had caught on to something, but like a lot of Silly Bandz or whatever other cultural experience.
Greer: Silly Bandz, a strong reference.
Mann: Thank you. They've made a comeback in my house, so they're front of line. It's just it was one of those things where they were wrong about the staying power of their cultural significance.
Flippen: I think they lacked a little bit of vision, to be honest with you. I think they rested on their laurels. And I still think there's a way for Groupon to turn this around. I'm kind of having flashbacks to, you know, John Legere, he's leaving T-Mobile, right, after that merger. What business is he going to disrupt next? Maybe he needs to come in to Groupon and give this a culture overhaul, not just within the company but within the perception of consumer's minds. I think Groupon has kind of ruined its impression. Like you mentioned, it was the hot commodity for a while. They have a lot of leverage, I think, if they're able to actually roll out what they call their Groupon Select program. It's a membership, you get subscriptions, you get discounts on things like movie tickets. And the focus now, they're cutting their retail business to focus on experiences and things to do that are local. I think that should be their bread and butter, that should be where they're focusing all their attention. I'm not going to Groupon to buy a pair of leggings; I'm going to Groupon to --
Mann: I am. [laughs]
Flippen: [laughs] Well, I mean, for instance, I used Groupon to buy my skydiving tickets last year. And they had a great deal on it.
Greer: Well, hold on, hold on. You went, like, indoor skydiving or like the real --
Mann: Oh, wait, wait, wait, you're getting discount skydiving?
Flippen: On Groupon, I got discounted skydiving.
Greer: Oh, my gosh, Emily!
Flippen: [laughs] Is that not safe?
Mann: No, that's up there with, like, discount eyeball surgery, like, there's no way I'm paying --
Flippen: But Groupon, it was fine, I did not die. Nobody in my group died, so I figure that's already an achievement. [laughs]
Mann: [laughs] Baseline: nobody died.
Greer: Oh, my gosh! Was it tandem jumping or --
Flippen: Oh, tandem. You can't go by yourself unless you're trained.
Mann: [laughs] Baseline: no one died, and I saved some money. Buy Groupon. [laughs]
Flippen: [laughs] It was like $100, it was not a little bit of money I saved, it was significantly cheaper than everywhere else.
Greer: So do you think is there hope for Groupon as a stand-alone company, or ultimately do they get acquired? And please don't say Costco if they do.
Flippen: [laughs] I think Costco would be really interested in this one. No, I do think there's hope for them as a stand-alone company. I think right now they're trading for about 1 times sales, so the expectations are still relatively low for this company. I think they need to make a concerted effort in turning around their business. So they need to put more money and more effort into things like advertising and exposure and just making Groupon the go-to place, because right now they're losing out to apps, like, Honey, for instance, which doesn't do exactly the same thing but Honey has a really successful Chrome extension download that has just recently been purchased for, I think, $5 billion around there. I mean, ridiculous, right?
And when I checked Groupon's Chrome app extension -- and I don't know if this number is correct -- but the number it said on the website, it was 411 downloads. That's not 411,000, that's not 411 million; 411 downloads. Not a lot at all.
Mann: For me, I think, Groupon basically is -- one of the things that they said today is that they're shutting down Groupon Goods, which was a way they were selling phone chargers and literally like the vape shop on the internet. Like, they have an opportunity, I think, to offer premium services, premium experiences. And that's kind of where they were going when they started, but people got so wrapped up in the discount part of it that they ended up pushing themselves farther and farther, farther down the value chain. And so I think that there actually is opportunity for them to rebrand. That's one of the things that they're trying to do.
Flippen: And premium skydiving.
Greer: Yes, I was going to ask that. Would discount skydiving -- where does that fit in? Wow! [laughs]
Flippen: Hopefully it does somewhere.
Mann: [laughs] I have a question and a follow-up question.
Greer: I'm just glad you lived to talk about it. I am envisioning a World War II prop plane. Is that correct?
Flippen: Actually, you're not far off. We saw the plane, and there was a moment of fear, but I'd already put the $100 into it, so I thought, "I'm jumping out of this plane."
Mann: I see the movie Fandango in my mind. [laughs] The scene where he drops laundry instead of --
Greer: [laughs] Wow! Okay, so the desert island question. You're on a desert island and you have to buy one of these stocks and own it for the next five years. What are you going with, Garmin, Blue Apron or Groupon?
Mann: You know, the thing I love about this question is that none of these three products are useful on a desert island. [laughs] "Hey, I've got meal delivery." That's some way to get rescued. For me, I think you have to go [with] Garmin.
Flippen: I mean, Groupon didn't kill me. And I feel like I need to throw them a bone here, because I came back from that trip alive. So I'm going to go with Groupon. I think there's a turnaround story here somewhere.
Greer: That is a low bar. [laughs] "Groupon didn't kill me." It's a new approach to investing. [laughs]
Mann: 80% less death than our competitors. [laughs]
Greer: [laughs] Wow! Bill and Emily, thanks for joining me.
Flippen: Thanks for having us.
Mann: Thanks, Mac.
Greer: As always, people on the show may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy yourself stocks based solely on what you hear.
That's it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening, and we will see you tomorrow.