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Are Toys Dying? Moving With Times and Beyond Play

By Chris Hill - Updated Feb 26, 2020 at 4:47PM

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Industry veteran Chris Byrde takes us through some of the recent developments in the toy space.

In this episode of Motley Fool Money, Chris Hill, Jason Moser, Ron Gross, and Jeff Fischer delve into the latest headlines from Wall Street. Walmart's (WMT 0.86%) revenue didn't meet expectations. Dropbox (DBX 4.33%) announced a $600 million share buyback plan and aims to turn profitable this year. Texas Roadhouse's revenue didn't disappoint. (STMP) shares popped. They also discuss updates from Boston Beer (SAM 3.84%), Domino's (DPZ 3.57%), and many more.

As a bonus, Mac Greer chats with Chris Byrde, a toy industry veteran, about how the industry is moving with times and what's in store for the future.

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 Feb. 21, 2020.

Chris Hill: We begin with big retail, Walmart's fourth-quarter profits and revenue came in a little bit lower than expected this week. Holiday quarter, I don't know, Jeff, this is what we saw with Target's (TGT 0.81%) holiday quarter, in that, bizarrely, the video games and the toys, they didn't do that well.

Jeff Fischer: Big retail, not big excitement, though. Yeah, Chris, same-store sales were only up about 2% in the fourth quarter and basically for the whole year 2.8% same-store sales Walmart U.S. So, you're seeing this business, which is a giant -- I mean, Walmart has $520 billion in annual revenue -- they're able to grow revenue by low single digits year over year, that's their goal now, that's their hope. But as you said, Chris, retail toys didn't do that well over the holidays, and we can talk about why that might be. But groceries did well, e-commerce did well. And, overall, as long as same-store sales are in the green, Walmart is still a relevant business. [laughs]

Jason Moser: I think, it was neat to see the performance in grocery, because we talked before about how Walmart -- you know, I don't think a lot of people really make that immediate connection, right, I mean it really is -- I mean, grocery is responsible for more than half of all U.S. sales, and then on top of that, when you see Warren Buffett's recent big investment in Kroger, a lot of interest in the grocery space there as well. And when you've got Walmart and Kroger, which really are the two leaders in our domestic space, grocery-wise, anyway. For all of the weakness games and toys may have displayed over the holiday season, at least they've got grocery.

Fischer: Exactly.

Ron Gross: Yeah, I've been very impressed with what Walmart has done over the last few years, but also very impressed with what Target has done to turn their business. And I'm wondering: Do I want to own Walmart at 23 times or do I want to own Target at 17 times? I might lean toward Target in this environment.

Fischer: Well, I would agree with you, Ron, I think, because as you just said, Walmart trades at 22.9 times -- so, you rounded up to 23 -- or maybe the price changed while we're talking.

Gross: No, no, I rounded, Purposefully.

Fischer: 23 times forward estimates. And its 10-year average is 15.9 times. So, it's well above its 10-year average.

Hill: Shares of Dropbox, the online storage company, up more than 20% on Friday. Fourth-quarter revenue came in a little higher than expected. Jason, Dropbox says they're aiming to be profitable by the end of this year. What do you think?

Moser: If you ever want to get the market's attention, you do what management did in this call. The reaction, I think to the stock today, really is all about promises made, which is fine, but that means that they're going to have to keep them up. The biggest question I had in regard to Dropbox remains: How many people they're going to get to actually pay to use the service? I'm not saying it's a bad service, I think a lot of users out there are conditioned to just be able to use it for free, which is kind of nice.

But to your point in regard to profitability, they did on a call say that, "They now aim to be GAAP profitable by the end of this year." And that means just straight-up profitability, like a lot of these mature businesses that we love so much. They also raised their long-term operating margin target to a range of 28% to 30%. That's up from 20% to 22%. So, that's a pretty significant boost there as well. And they see hitting that by 2024. Again, a promise made, it's a promise they're going to have to keep.

Going back to the paid users, though. I mean, paying users are 14.3 million, up from 12.7 million a year ago. But they have 600-million-plus registered users, which is a lot. [laughs] Now that sounds like it could be a great opportunity. I mean, the flip side of that coin, though, is, that's a lot of people. And I'm wondering why that growth to paid users is still so slow. I think part of it is, they're still trying to figure out their product landscape and pricing and that's played out a little bit on the business model thus far. Top-line growth of 20% is OK, but I don't know that is anything to really write home about. So, I'm kind of on the fence with these guys.

Tim Beyers, he likes this company a lot. And whenever Tim talks, I definitely listen. Just still not quite sold on the future here, though.

Hill: They also announced a $600 million share buyback plan. That surprised me, because this is not a profitable company, it is not the biggest company; it's like $9 billion to $10 billion in market cap. I'm just wondering, why allocate the money toward share buybacks when for an unprofitable growth company maybe they could spend the money elsewhere?

Moser: Yeah, but I mean, to that point, being such a young company, new to the public markets, I think a lot of times they'll set that money aside in order to more or less be able to help offset dilution that comes from stock-based compensation and what not. So, I don't think we would see any material impact to the shares outstanding, so to speak, other than to offset compensation.

Gross: Yeah, and also, it's just an authorization, it doesn't mean they'll actually execute, and they could do it over a long period of time as well. I don't think you'll go in and see a $600 million open-market purchase anytime soon.

Fischer: It is interesting to watch. So, you have 600 million active users and you're only monetizing a fraction of them, it indicates you gave away something free of charge that has decent value and now you're trying to unlock it with actual revenue per customer, and that's the tricky part.

Moser: Yeah, it is. And to that point, they're adding a new key metric for investors to follow going forward, an annual recurring revenue, which is great. I mean, a lot of these companies do base their models on this recurring revenue; it is nice to get that clarity. I think that probably helps steer that conversation a little bit further away from the actual number of paying users and more toward just their ability to monetize, maybe upsell, maybe exercise some pricing power. So, we'll follow that metric going forward, and that'll certainly give us a better idea as to the health of the business and how much they're actually able to grow.

Hill: Another strong report from Texas Roadhouse. Fourth-quarter profits came in higher than expected. And just for you, Ron, Texas Roadhouse raised the dividend 20%.

Gross: Yeah, I was going to mention that, it was just for me. [laughs] Strong report -- comp sales up 4.4% at company restaurants, up 3.4% at domestic franchise restaurants. You saw margins widening on a restaurant basis, and that's despite labor and food cost pressures, which all restaurants are seeing. Earnings per share up 45%, but important to mention, it does include an extra week, there were 53 weeks in that year. They continue to open stores -- opened up 11 company restaurants, including two Bubba's 33, which we keep saying we've got to make a road trip to one of these days. And also, they mentioned a strong start to 2020, with comp restaurant sales growth of 6.4% for the first seven weeks of the year. That's a really strong number, actually, and they're targeting another 30 stores to open during the course of this year. As you mentioned, increased the dividend -- the seventh consecutive year of double-digit growth in that dividend, which now stands at 1.9%.

Hill: So, Texas Roadhouse is a restaurant chain that we followed for a bunch of years. Among other things, I think Kent Taylor and his team have done a really good job with the restaurant count. They never really seem to get out ahead of themselves, they just methodically open a couple of dozen new locations every year.

Gross: Yeah, it's measured growth and it's consistent comp store sales growth, too. That's how you generate revenue growth, right there, and they do it well.

Hill: So, you brought some math to the equation on Walmart and Target and how relatively pricey both of those stocks are, what about Texas Roadhouse? This is a company that's performed really well for a long time.

Gross: Yeah, the last year, not as strong as really in the past, maybe up only about 13% over the last year. Stock trades about 24 times forward earnings. If you look at the average of restaurants, it's about 25 times, so in line. But folks like Domino's and Chipotle actually increased that average. If you look at the median, it's more like 21 times, indicating maybe a little bit pricey.

Hill: Before we get back to the news, quick request, I'd like to ask a small favor of the dozens of listeners. We have a brief listener's survey. It would be great if you could take a couple of minutes and help us out. It'll help us learn a little bit more about you. It's anonymous, it is quick. And whether you just started listening or you've been one of the dozens for years, we'd really appreciate if you could help us out. You can find the listener survey link right in the description of this episode, so just click on that and help us out. We'd really appreciate it.

Fourth-quarter results for were better than expected. How much better? So good that shares of were up 65% on Thursday. What is this Jeff?

Fischer: has been one of the most volatile stocks in the past 12 months. Exactly 12 months ago, they announced that they were ending their exclusive partnership with the U.S. Postal Service, which sounds great but it actually --

Hill:, it didn't.

Fischer: [laughs] I mean it sounds great that, "Hey, we have an exclusive partnership," but what that meant is that they couldn't form partnerships with Amazon or FedEx or so forth. And so, they knew, thinking long-term we can't be just working with one partner, we need others. So, they shut that down. The stock lost about three-quarters (75%) of its value last year and it fell all the way to the $30s and now it's jumped all the way back up to $160. If that doesn't hurt everyone listening who hasn't bought it: argh! That hurts. So, what a great recovery, but it's still just getting back to where it was prior. So, short story is that the results are better than were feared. And they still have a relationship with the U.S. Postal Service, it's just no longer exclusive.

Hill: How much of this pop was short-sellers, sort of, covering their short? I have to assume it was some percentage, because I know that one of my thoughts last year when they announced, "We're breaking up with the U.S. Postal Service," one of my thoughts was, "There's a chance, I'm not betting on it, but there's a chance they completely go out of business."

Fischer: There was a chance, and I think that's why the stock was so volatile and that's why it's responding so much to the upside now. They signed a relationship, a new partnership with UPS in November. And the reason, I think, the stock popped so much -- 65% -- is the earnings per share they reported for the quarter was $2.12 and that was against a $0.93 estimate, so more than double the estimate. So, everyone has to adjust their models going forward. They also said they expect revenue to grow this year a little bit, but that's so much better than was feared. So, that also said, Chris, now that the stock has run back up -- it's at 36 times expected earnings -- so, it's no longer cheap-looking.

Hill: Boston Beer sold $1.25 billion worth of liquid in the fourth quarter, but earnings came in lower than expected. Shares of Boston Beer down a little bit. Jason, we've seen the -- maybe "struggle" is too strong a word, but I'm going to use it anyway -- we've seen the struggles with Sam Adams -- sort of, the best-known brand that Boston Beer has. But over the past year or so they've really done well with hard seltzer.

Moser: Yeah, I mean this really does feel like, Boston Beer is becoming less and less a beer company. And maybe that's not such a bad thing, because this quarter's results were not thanks to Boston Beer. I mean, it was not thanks to Samuel Adams, it was thanks to seltzer primarily, and that's OK. But if you look at depletions, that represents the sales from distributors to retailers, you remember, just a few years ago we were talking about these depletions of -8%. They couldn't get out of the wrong way. Depletions this quarter were up 25%. If you exclude the Dogfish Head acquisition that they just closed, they were still up 19%. Now, the reason is because of seltzer, it was not because Samuel Adams beer and that could be a problem. Gross margin took a big hit down to 47.4% from almost 52% a year ago. And the main reason for that is because of seltzer. They're essentially having to completely reshape their supply chain to account for this massive pivot in what the business really is.

So, you know I think, the good thing for investors and for this company, it is a very long-term-oriented business. Jim Koch, the founder, is still helping lead the way here and he does have that long-term-focus mentality. But they still need to figure out a way to rekindle that Samuel Adams brand; it is really losing share quickly. And I think part of that was because he was so slow to the draw on developing a good IPA catalog, and IPA has really taken over the craft beer market. The upside is, he was very quick to make those investments in seltzer. So, you've got earnings growth here. You got earnings for the full year targeted at $11.20 at the mid-range, that puts shares today at around 35 times full-year estimates. I don't know that it's necessarily what I would call cheap, but I think it's also for a reason, because the company has shown the ability to pivot and adjust in challenging times, I guess. And so, I don't know that I would look at this as an ideal opportunity today, and most of that comes from the weakness in beer. But kudos to them for the performances in seltzer, because it's making a big difference.

Hill: Shares of Domino's Pizza hitting an all-time high this week after strong fourth-quarter results. Ron, Domino's has grown their same-store sales every quarter for nearly nine years.

Gross: Yeah, it's pretty impressive. U.S. comp sales, up 3.4% and international up 1.7%. That was a little bit light, but it's 104th consecutive quarter of international same-store sales growth and, as you said, 35 consecutive quarters for U.S. same-store sales growth. So, really impressive. And they continue to open stores: 141 U.S. stores, 351 international during the quarter. The big story here is that, companies like Domino's have to compete nowadays with folks like Uber Eats and Grubhub, and they're actually doing a better job now. They're adding new menu items, they're being promotional when appropriate. They're focusing on faster delivery to more locations. They've now got a loyalty program with more than 40 million people enrolled. So, things are going quite well.

As I said with Texas Roadhouse, pressure from higher food and labor costs, that's just the way it is, but you saw earnings per share up 19%. That's partly because of 2 million share buyback as part of a recapitalization, but still very strong results.

Hill: So, we were talking in our production meeting. One of the companies we expect to see go public later this year is DoorDash. I look at results like this from Domino's and it makes me think that companies like DoorDash, that are just competing against Domino's, I don't know, it makes me scared for them, it makes me scared for them and the shareholders who buy into the IPO.

Gross: Domino's has been doing delivery for a long, long time and DoorDash is new to it and the model is more fragmented and they don't control it as much as Domino's controls it. And they can make adjustments and pivots, and so it's going to be tough, but it is interesting, because as we said before, it's not just Chinese and pizza that you can get delivered anymore. And that's got to take a bite out of the business.

Fischer: Well, I mean, it's just a matter of financials, if Domino's can get the right contracts with DoorDash and Uber Eats and so forth, why not just go multichannel and then when people are checking out Uber Eats and they see this brand they obviously know well, they're like, "Oh, we'll get Domino's tonight."

Gross: Right. Yeah, they've resisted. They've resisted going to the other folks, they want to retain that control, they think it's best for the franchisees to retain that control. We'll see what the future brings; the landscape is definitely changing.

Hill: Bath & Body Works has put up good quarterly sales numbers, fueled in part by their line of scented candles. And you know who's been paying attention? McDonald's, because this week McDonald's unveiled some limited-edition swag for their Quarter Pounder Fan Club, which is a club that apparently exists. Included in the swag: A T-shirt, a bumper sticker and a set of scented candles that smell like the ingredients of a Quarter Pounder. So, Ron, you've got a little scented pickle candle. One for onions, catchup, sesame seeds and, yes, a little candle that is supposed to smell like 100% fresh beef.

Gross: As long as it's not a Filet-O-Fish candle. [laughs] I can maybe deal with the burger, but that's pretty disgusting.

Hill: Give Kempczinski and his team some credit, there's not a Filet-O-Fish fan club, there's a Quarter Pounder Fan Club.

Gross: [laughs] I haven't had a Quarter Pounder 20 years, it's got to be.

Moser: So, does McDonald's now qualify as a lifestyle -- I mean, I know last week we were talking about -- as Emily had a pretty hot take in the difference between maybe -- what was it? -- Taco Bell and KFC, right. And KFC was clearly a lifestyle, whereas maybe Taco Bell was not. I mean, what is McDonald's?

Fischer: I mean, is White Castle a lifestyle? They have scented candles. [laughs]

Gross: It's something, I don't know, if I'd call it a -- [laughs]

Fischer: They've been selling hamburger-scented candles for at least a decade at White Castle, so.

Hill: And, you know, the cult classic movie Harold & Kumar Go to White Castle, I mean, McDonald's, for all their success, they can't claim that. Let's go to our man behind the glass, Dan Boyd. Dan, I'm not saying you're a member of the Quarter Pounder Fan Club, but if these candles were given to you as a gift, which one are you lighting first?

Dan Boyd: OK. So, here's the issue with that, two things: 1., The McDonald's Quarter Pounder -- and I try not to eat McDonald's that much, but it is one of the most delicious things on the planet, I absolutely love it. 2., I would put all of them up going at the same time to get that full QPC experience and then my wife would leave me.

Hill: [laughs] We talked earlier in the show about Walmart and Target and their respective toy sales being less than robust. This weekend, the American International Toy Fair is being held in New York City, so earlier this week, producer Mac Greer checked in with Chris Byrne. He's been following the toy industry for more than 30 years. Mac kicked off the conversation by asking Chris Byrne about the big event in New York.

Mac Greer: What is your headline?

Chris Byrne: Help! [laughs] No, my headline is, there's a lot of uncertainty, people are optimistic but there's a lot of uncertainty going into the year.

Greer: And where does that uncertainty come from? Is it the coronavirus, is it just the weakness in toy sales in general, where is that uncertainty coming from?

Byrne: It's coming from a lot of places. Last year, of course, the threat of tariffs was causing all kinds of havoc in the fourth quarter. With the early orders for spring 2020, that seems to be resolved for now. But then the coronavirus is having a significant impact on production. I've heard stories that people can't even get their samples for Toy Fair out of China. We're going to be delaying manufacturing for at least three weeks, which isn't the end of the world, but when you consider all the manufacturing and then all the shipping and everything that has to happen, it's going to push tight deadlines even further. So, there's a lot of concern about that.

I've also heard about toys that were slated for 2020 but simply cannot be produced now and are now on the docket for 2021. So, there's a lot of uncertainty about that. The Chinese delegation, that's been a mainstay at Toy Fair here in New York for years, is not coming. There's a lot of uncertainty.

Greer: And do we expect any Baby Yoda sightings?

Byrne: [laughs] Well, Baby Yoda is one of those phenomenon that came along, and, yes, Funko has already got the Baby Yoda out on the market, it's their best-selling figure ever. We've got stuff coming from, both, Hasbro (HAS -0.65%) and Mattel with Baby Yoda. Those people who've been clamoring for it will find themselves satisfied midyear, probably.

Greer: And, Chris, were you surprised that Baby Yoda wasn't ready to go for the holidays?

Byrne: I actually was. And I think it really speaks to a change in how people consume entertainment. We are all eager to know about whatever rumors we hear about the iPhone a year in advance, and people are leaking stuff. And to Disney's credit, they do a great job of keeping the surprises together, you know keeping the surprises under wraps. But, I think, in this changing market that somebody might have said, "Hey, maybe we should tease Baby Yoda and be ready to go." But, again, it's a fad and no one can predict a fad. So, it's just one of those things that happened and I think it'll keep going, so that by midyear people will really have their Baby Yodas.

Greer: A big-picture question here, are toys dying?

Byrne: Whoa! No! [laughs]

Greer: No, hold on. Because the reason I ask that is, obviously, electronics and video games are becoming more and more popular, so it seems like that window where a kid is playing with a traditional or a physical toy is getting shorter and shorter. So, yeah, are toys dying?

Byrne: No, toys are definitely not dying. Fortunately, the species does not evolve as quickly as technology does. Kids still love the tactile play. You look at the success of things like slime and other compounds, you look at LEGO's continued success, you look at the ways in which kids are playing games with one another. So, there's still room for traditional toys. The challenge is that people are buying less stuff overall, and not just in the toy industry. So, there is somewhat of a decline. The other trend we're seeing is that there's been a big boom in less-expensive toys, whether it's collectibles from companies like MGA or YULU or Moose or any of those people who are making great low-price collectible toys, people are spending actually less money. And we saw that with 4% decline in the U.S. and 3% decline overall globally in the toy industry last year.

Greer: And let's talk about that, because you mentioned that decline. Target and Walmart, a couple of retailers that cited weak toy sales over the holiday quarter. When you look at the retail landscape in toys, what jumps out at you?

Byrne: Well, I think, even though it's been over a year since Toys R Us left the marketplace, I think we are just now beginning to feel the full effect of that. Toys R Us was a phenomenal place for people to go and encounter toys and buy things they might not have seen otherwise. Walmart and Target, just by the nature of their companies and their structures, cannot carry as many products as a Toys R Us did. So, there are fewer products in those high-traffic retailers. And the challenge is also one of marketing, is getting kids to want the toys and ask for them.

And secondarily, with the rise of online sales, we're losing those incremental sales. Mom and Dad are not walking through Target and saying, "Hey, we love that game, let's throw that in the cart as well." So, you're really seeing a confluence of factors that are causing overall sales to decline.

Greer: And, Chris, I want to talk more about trends and the big picture. At what age do kids shift to playing with electronics as their primary mode of play versus traditional physical, tactile toys?

Byrne: Typically, the, sort of, sweet spot for mass-market or highly promoted toys is about 4 to 8. We are seeing some trends in what we call "fandom," which are older kids buying things. I mean, that's really what made Funko do so well. Certainly, Hasbro with their action figures. These are toys that are sold to an older consumer who is staying connected to the entertainment properties they love and using them as part of being part of a community. We see it cosplay, we see it in Comic Con, we see it as engagement with these characters and the related toys.

Greer: Let's talk classic toys. In terms of the classic toys, what's holding up well?

Byrne: We see a lot of classic toys doing very well. Etch A Sketch is still around. Games -- Monopoly still does very well. Stuffed animals do very well. Barbie, of course, had a great year last year, so did Hot Wheels. Barbie just celebrated 60 years. Hot Wheels is something like 53 this year. So, these classic play patterns are still things that kids love and gravitate to.

Greer: Chris, you mentioned Barbie, and I was struck by just the varieties of different Barbies these days.

Byrne: Well, I think one of the things that Barbie has always done has been to move with the times. You can't be a toy and not move with the times and be around for 60 years. And I think one of the cool things about Barbie now is that she reflects the diversity of the culture more than ever before. And we see body styles, hairstyles, skin tones, all of these things that make Barbie look like the world children see around them. It was one thing in 1959 when everybody dreamed of being a blonde Malibu beach girl, but today we want something a little bit more reflective of the world kids see.

Greer: And along those lines, how about giving Ken a bit of a beer gut, are we going to get there or --?

Byrne: [laughs] Really that would be what the kids are seeing, right, a little more. But I think that Ken's still kind of in the background, you know. I don't know, 60 years with no commitment, I'd be a little concerned too.

Greer: Yeah, very commitment averse. Let's talk about the two big toy makers. When you look at Hasbro and you look at Mattel, who do you think is better positioned going forward?

Byrne: Well, I think they're both in a good position. Mattel is coming off a better-than-expected year and is well positioned with some great new products going into 2020. Hasbro has done very well in diversifying into a children's entertainment company. The acquisition of eOne has been very good for them with properties like Peppa Pig. And if you don't know Peppa Pig, she's a wonderful character and generates, from what I've heard, approximately $1 billion a year in merchandise sales. So, that's a huge international property. They've got other entertainment brands out there through eOne. So, I think it's something Hasbro does really well. And their ability to diversify into experiential marketing as well. There was a Nerf event that toured around last year. It was very popular. So, kids got to come in and play actively with Nerf products; not necessarily buy them, but you could when you were leaving, if you wanted to.

Greer: As we wrap up here, the New York Toy Fair playing out this weekend. It's only February, but is this when we start to see what the next hot holiday toys might be?

Byrne: Well, certainly that's what the manufacturers hope for. And I'll tell you one that I see that I think is going to be huge, and it's one that I saw in Hong Kong and it had tons of people around all the time. It's called Go Go Bird, it's a remote-control flying bird, it looks like a parrot. It's going to be under $40, it's got artificial intelligence. And it really is, sort of, the perfect marriage of electronics technology and classic play. And I think it's coming out -- a company called Zing has acquired it for distribution. And I think it's going to be the ones you're going to be seeing a lot of this year.

Greer: Chris, we're a show for investors. So, what are a few names that investors should be looking at as they look at the toy industry here?

Byrne: I definitely think you should be looking at Hasbro and Mattel and how they are able to diversify into entertainment to continue to grow their businesses, whether through acquisition or new initiatives, I think that's definitely important to look for. I think it's important to look for some of the smaller companies that might be acquisition targets as they grow, small companies like PlayMonster which is doing some really great stuff and they're fairly quiet. So, it's sort of looking at what's selling, looking at what kids are interested in and looking for the products that go against those and seem fairly forward-looking and at the same time being classic. And, of course, you've got huge companies like MGA, which is a private company but they are leading the charge with a lot of the creativity. So, looking for the creativity, looking for the innovation and how to expand beyond just basic play.

Hill: If you want to shake up your work place a little, check out Chris Byrne's book, it's entitled Funny Business: Harnessing the Power of Play to Give Your Company a Competitive Advantage.

Our email address is, you can also hit us up on Twitter @MotleyFoolMoney. Question from Ted, who asked, "What do you think of Virgin Galactic and the wild ride the stock has taken lately?"

Yeah, I mean for all the talk -- and it is warranted about Tesla [laughs] and the rise of Tesla -- you look at shares, Jason, of Virgin Galactic, I think that's up five times since last December.

Moser: It has moved very quickly in a short period of time --

Hill: ...for a space company that isn't really, you know --

Moser: That doesn't have anything yet, that doesn't really, yeah, I mean that's kind of the thing here is: For me, personally, Virgin Galactic, I love the concept. I hope to go to space one day. Seriously, I'm not kidding. But let's separate personal aspirations from reality here. And the reality is that, this is a brand-new company in the public markets, they -- for all intents and purposes -- make no money at all. I'm talking about Dropbox and promises made or promises that need to be kept, that's essentially what this company is right now is, promises that have been made in the form of space flights.

And so middle of last year, as they were getting ready to go public, they had talked about having booked more than 600 tourist customers backed by over $80 million in deposits. And that is all fine and dandy, I mean, that's wonderful. But we have to remember, they need to deliver on that promise. And then furthermore, you have to wonder, "OK, what is it beyond space tourism?" I mean, space tourism is cool, but that's going to be a very limited swathe of the population. And I don't know how many repeat purchases that's going to garner. So, for me, when I think about this business, I think about, "What are they going to do beyond that?" For me the question is: What do they do with this technology and this capability? That's where I think it could get really interesting, because the competitive advantage here is in the form of barriers to entry, the know-how and the finances involved with building up this business and the capability.

So, I think it's a fascinating business, it's one that I'm going to continue to follow, but I see no reason to rush into this. If you're a stockholder today and you're loving these gains, please remember that these gains are the product of speculation and not business performance.

Gross: Yeah, speaking to your question, Jason, I think what has some investors excited is a report out of Morgan Stanley that they see the commercial space-based travel industry as potentially being worth $800 billion, and not just from rich people taking trips into space but because it could disrupt the airline business. And that would be something. That's years off, years off.

Moser: It is. And I like that thinking in the market. I mean, I will go back to that interview that we had with Christian Davenport here a little while back. Remember he wrote that book The Space Barons. And I asked him that question, I said, "Hey, listen, I'm 47 years old, am I going to be able to go to space in my lifetime? Will I be able to go to the moon?" And he wasn't 100%, he thinks that probably could happen. But I say this just to give people an idea of what kind of timeline we're talking about here. This is something that's going to take a lot of years to play out. So, I think it's OK to be patient with this one.

Fischer: Sure, Jason. But if you go to, it's a really cool website. Rockets look amazing and terrifying, too; it's just amazing technology. But what they do have going for this business, what it has going for it is it's the only pure-play stock out there. So, like Beyond Meat for a long time, Tesla, if people want to invest in the space, this is how they can do it. And "invest" is maybe too strong of a word, but if you want to speculate in the space this is your one way to -- like you said, it's complete speculation.

Moser: You got SpaceX and Blue Origin out there doing the same kind of thing, but you're right, this is the only real investable option today and I'm sure that attracts a lot of interest.

Hill: Question from Cameron Howe, New York City, who asked, "Would you be comfortable holding Amazon, if Jeff Bezos suddenly stopped running the company for some reason, with no transition? I feel great with Amazon making up 15% of my portfolio because of the businesses and Jeff Bezos. Is there a Tim Cook equivalent waiting in the wings?"

Obviously, a reference to Steve Jobs and his passing, and Tim Cook the longtime operator waiting in the wings. I own Amazon, I don't know who's waiting in the wings.

Gross: There's no named successor and the stock would certainly get smacked if all of a sudden Bezos left suddenly. So, that would be bad. There are some very talented people at Amazon, obviously, there are CEOs that are head of the Amazon Web Service business and the Worldwide Consumer business, respectively. You could see potentially -- if there was a day were Bezos left -- where the company would be broken into two pieces and each of those CEOs would run the respective business unit. I think that would be a perfectly fine solution to what would be a pretty big deal.

Fischer: Yeah, I think that you want to own businesses that are so simple that almost anyone could run them. And Amazon, I don't know that it is so simple. $280 billion in revenue all around the world with AWS and all the different retail arms, advertising now, etc. I agree with, Ron, you need to have the different heads of the current department stay in their places, then try to find someone who can tie it all together and be what Bezos is, but Bezos is -- what is he, one in a -- well, let's not even go there --

Gross: in trillion.

Fischer: Yeah. To find someone that driven and who has some sort of vision that you can't really put your finger on it, but he's got it and he seems to still have it. Yeah, it would be rocky for the stock for a while, I'm sure.

Hill: Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Ron Gross, you're up first, what are you looking at this week?

Gross: I'm going to circle back around to Hasbro, and I'm doing some work on Hasbro to understand how the coronavirus will impact 2020 results and how big a deal this will be, since they do source a significant percentage of toys from China. The stock has underperformed recently, both on tariff concerns and coronavirus concerns. Interesting news on Friday, they did announce that they'll retain the master toy licenses for Disney's Star Wars and Marvel brands. Disney relationship is a really important one for them, partner brand revenue rose 24% in the last year. Frozen II, Avengers, Spider-Man, Star Wars all getting it done for them.

Hill: Dan, question about Hasbro?

Boyd: Certainly, Chris. So, I was born in the mid-80s and the Hasbro IP that is the biggest for me is Transformers. So, Ron, a quick question for you, what's your favorite Transformer?

Gross: [laughs] Oh, that is mean to do to me. I've neither seen the movies, nor owned a Transformer. They have interesting, like, Cornelius-type names, don't they?

Boyd: Investors Prime.

Gross: [laughs] That's Planet of the Apes, I think.

Fischer: Ron, you could have said like, 240 volts.

Hill: Jason Moser, what are you looking at?

Moser: Yeah, digging more into Synaptics (SYNA -3.38%), ticker SYNA, for augmented reality service. Synaptics makes its money by selling their technology in chips and firmware and software to some of the world's largest OEMs or original equipment manufacturers for things like mobile products, PCs, and even those voice-controlled products that we speak to every day. But they also make technology for those head-mounted displays that are taking up more and more share as augmented and virtual reality pick up steam.

Big question to me as far as some revenue decline from a year ago, trying to figure out exactly how big a problem that's going to be? But definitely an interesting business.

Hill: Dan, question about Synaptics?

Boyd: Certainly. So, AR/VR, that's all cool, but what I'm interested in is bionics. And, Jason, if there's one part of you that you're going to improve through the use of bionic technology, what are we talking?

Moser: Man, that's a good one. I will probably go with my eyes. I think it's just really nice to be able to see and my vision is leaving me.

Hill: Jeff Fischer, what do you got?

Fischer: Pinterest (PINS 3.03%), ticker is PINS. Social media site with 320 million monthly users, up 9% in 2019. $1.1 billion in revenue compared to Facebook at $70 billion. They're just starting to monetize their traffic. Dan?

Boyd: Jeff, how do I make Pinterest show my wife less-expensive things?

Fischer: Oh, Pinterest is very good at getting users to buy products there. People go there to find ideas to then purchase, that's part of its power.

Hill: What do you got, Dan?

Boyd: I'm actually with Ron on this one. I'm breaking my streak with the Disney and Marvel, going for Hasbro.

Hill: All right. We're out of time. Thanks for being here, guys, thanks to everyone for listening. We'll see you next week.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$122.63 (0.86%) $1.05
Target Corporation Stock Quote
Target Corporation
$142.38 (0.81%) $1.15
Hasbro, Inc. Stock Quote
Hasbro, Inc.
$81.35 (-0.65%) $0.53 Inc. Stock Quote Inc.
The Boston Beer Company, Inc. Stock Quote
The Boston Beer Company, Inc.
$314.59 (3.84%) $11.62
Synaptics Incorporated Stock Quote
Synaptics Incorporated
$114.06 (-3.38%) $-3.99
Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
$403.61 (3.57%) $13.90
Dropbox Stock Quote
$21.90 (4.33%) $0.91
Pinterest Stock Quote
$18.71 (3.03%) $0.55

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