Panera’s Disruptive $9/Month Subscription

In today's Market Foolery podcast, Chris Hill and Bill Barker talk about some restaurant stocks, Etsy (ETSY 3.08%), and telemedicine company Teladoc (TDOC 5.11%). We find out what's driving the recent surge in Teledoc's stock and what's up with Panera's new rewards program.

The guys also answer some listener questions, such as "Is the casino industry just a bad business overall?"

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. 27, 2020.

Chris Hill: It's Thursday, February 27. Welcome to Market Foolery. I'm Chris Hill. With me in studio, it's Bill Barker. Thanks for being here.

Bill Barker: Thanks for having me.

Hill: We've got earnings. We're going to dip into The Fool mailbag. We've got a couple of innovations in the fast-casual industry, but we're going to start with the stock of the day, and that is Teladoc. Somewhere, Jason Moser is smiling, because shares of Teladoc are up about 20% after fourth-quarter revenue came in higher than expected. The loss was smaller than expected. And it's hard -- for all of the enthusiasm around the business of Teladoc -- it's hard for me to look at this and not think at least a little bit of the rise that we're seeing today with a telemedicine business is tied to coronavirus.

Barker: Possibly. It's hard to ask the market what percent of the enthusiasm is about the results just reported and what part is about things to do with the headlines. Although the guidance is good and really the company, kind of, avoided on the call giving any specific numbers about how coronavirus might affect the business. But in a world where more people are staying indoors, staying at home, looking for medical advice and prescriptions and help, but not wanting to be out in public, not wanting to spend time in a hospital, in a doctor's office, the Teladoc model becomes that much more attractive.

Hill: I think that's smart of management not to really give specifics on that, because just as we want and expect the leaders of the companies that we own shares of to talk about the downside of coronavirus and say, "Well, this is what we think the impact is going to be and we're going to update guidance accordingly, as we feel like we have material information," I don't think any of us, no matter how enthusiastic we are about any given business, I don't think any of us want management to come out and rub their hands in glee and say, "Holy cow, this coronavirus, this thing that could be a pandemic. God! the upside potential for us is amazing here."

Barker: Yeah, they're not doing that.

Hill: This came along at the right time.

Barker: They're not doing that. And frankly, things are going so well anyway in terms of the growth, in terms of surpassing the expectations for the company and in terms of growing, not just organically, which they're coming around 25%, 26%, something like that, organic, but they've also got an acquisition, which will finalize in the second quarter, InTouch, which expands their network and makes the growth numbers even higher, so. And then you throw in that X-factor of coronavirus. This being a company that actually might be making more money and attracting more customers, which is not the case for just about everything else out there. Check your portfolio. [laughs] If you question me, just check your portfolio at this very moment and you'll see the market is less than enthusiastic about everything.

Hill: You know, I checked my portfolio on Tuesday and I really haven't checked it again since.

Barker: Bad idea. [laughs]

Hill: Let's move on to Etsy. Fourth-quarter revenue was up 35%. Profits came in higher than expected. Shares of Etsy up about 14% today. This is a really nice way for Etsy to round out the fiscal year.

Barker: Yeah, it's interesting just how many different places the stock has visited during a time when, if you just look at the numbers over a long period of time, the growth has been reasonably consistent somewhere around 25%, 30% a year in most of the last several years, and yet the stock, which came public at about $25 or did when it was $27; got down to $8, then it got back up a couple of years later to $70, then down to $41. Anyway, $55 today. Still, over the long term, pretty good about double what it came public at five years ago, which is not spectacular but is a smoother story than looking at all the points in between.

Hill: I think anybody who, in 2019, bought shares at the IPO of Uber or Lyft, would be thrilled if they could get a promise that it would double over the next four years. But back to Etsy, it was interesting to me, Rachel Glaser, who's the CFO, talked a little bit about the investments that they've made. And you look at a company like Etsy, if you're looking at Etsy as a consumer, you're really just looking at it through the lens of stuff you may be interested in buying, but if you're looking at Etsy as an investor, then you want to look not just at what is the experience like for consumers but it's also, what is the experience like for sellers? Because if Etsy is going to succeed as a business, it needs to work for both those groups of people, and the investments that they've made appear to be paying off.

Barker: Yeah. And there have been a couple of hiccups. Some of the investments, particularly the ad buys and the different structures about going in different directions with that, advertising on the different platforms that they do and charging the people selling a certain amount for that. The advertising fee, sellers pay 12% to 15% for the ads Etsy is buying. And anybody making, I think, over $10,000 in gross merchandise sales is paying up on that. So they're advertising heavily in the places you'd expect -- Google, Facebook, Instagram, Pinterest. And now, some of these things may be competitors sooner or later with Etsy, or an acquirer, perhaps some day, who knows? But it's one of those interesting situations where today they're getting along with people that they're paying money to, and tomorrow they might be in the crosshairs. [laughs]

Hill: [laughs] Our email address is Market [email protected]. Question from John Pichola in Fishtown. A Philly guy just like you.

Barker: Sure.

Hill: John asked, "Is the casino industry just a bad business overall? If so, what are their main issues? Is it competition, regulatory, overhead? Looking at the companies in the space, they have lost to the overall market, but it seems like mobile sports gaming is only going to grow in the future. Would love your take on what opportunities, if any, are out there for the Foolish investor."

You've been to a casino once or twice in your life.

Barker: Hard to recall, it's been so long.

Hill: [laughs] Well, to his first question, do you think it's a bad business overall?

Barker: Yeah. If I'm throwing a dart at a selection of casino stocks and betting on that versus the rest of the market, I think the lion's share of the evidence would be that you're going to underperform over a lot of periods of time. One of the reasons for that is the volatility of the stocks. So right now, things are largely down for a lot of the companies, especially the ones that have exposure to Macau, and that can be an opportunity. I mean, the returns of something like Wynn Resorts, one of the better-known players, are so volatile based on things outside of the control of the company, notwithstanding something that was very much within the control of the company, that being its CEO and the problems that he delivered to the company ultimately.

But Macau regulatory issues, you know, the degree to which you can expand your business is dependent on winning licenses in places and, of course, a certain presumption on the part of investors that there are perhaps shady things that go on in some jurisdictions regarding the opportunities to participate in those businesses. Who's to know? I'm not accusing anybody of anything. I'm saying, other people are accusing everybody in the industry of certain things.

Hill: So sports gaming and, in particular, mobile sports gaming, it really does seem like it could be a good opportunity. You and I and a couple of our colleagues were across the river at the MGM Resorts earlier this week, and --

Barker: We were researching this email which we received today.

Hill: [laughs] Look, the degree to which we have control over time travel, we're not going to speculate on that. Yeah, we were doing a little boots-on-the-ground research at the MGM Resort. And I'll just say parenthetically to anyone listening who owns shares of MGM, "You're welcome. You're welcome for the money that I lost at the gaming tables."

Barker: And I apologize for taking some of your money away.

Hill: [laughs] One of the things I learned was that, even though sports gambling is not legal in Maryland, the MGM Resort in National Harbor in Maryland has a sports book ready to go, it's just got drywall covering it up. So when they're building this thing, when they were even just designing this thing years ago, they're like, "Oh, yeah, let's absolutely have a sports book ready to go, because at some point, sports gambling is going to be legal, and we don't want to then be in the process of designing and building and renovating and it's going to take us a year. No. When sports gambling is ready to go in the state of Maryland, we want to be able to rip down the drywall, plug in the TVs, and we'll be good to go in about 24 hours."

Barker: Yeah. And that's a good opportunity to expand the business. And I think every place, probably, where it's legal to have table games, it's going to eventually allow sports gambling, if they can't now. They're going to look at the numbers and determine that that's a pile of money that they want.

Hill: Do you think that -- because mobile sports gaming, pretty nascent right now and until you get legalization across the board, I don't want to say it's a moot point, but it's certainly less of an opportunity. Do you think this is going to be one of those situations that we've seen play out in other industries, where larger established players -- whether it's MGM, Las Vegas, and whoever -- they don't need to innovate, necessarily, when it comes to mobile sports gambling, because they've got the brand-name recognition and they can swoop in at some point and finance a deal to buy a smaller player.

Barker: Yeah, I think that marrying the known brands and the things that have been around for decades and they are known to the older clientele with the deeper pockets, buying one of the kids, you know, that are less well known to people over the age of, I don't know, something older than us, those are the people who're [laughs] accusing of not being hip. Yes, it's a good marriage of the known brand, the trust that you're going to be able to drop a lot of money with this thing and get it back if you win. So I don't think we're going to see a lot of them developing their own mobile capabilities.

Hill: One of the things John mentioned in his email was he just started listening to Market Foolery about a year and a half ago. He's relatively new to investing. And if, like John, you too are new to investing or you know someone who's new to investing, we want to help, we've got a free investing starter kit. It's a 15-page report. It covers everything from saving money to 401(k)s to buying your first stock. And it includes five stocks that were selected by our investing team, and it's free. And you can find it by going to fool.com/starterkit; that's fool.com/starterkit. The link will be in the description of the show. And just give us your email address, we'll send you the report, it's that easy.

Barker: Can I just back up to a couple of stories ago?

Hill: To my losing money at the casino?

Barker: No, but go ahead.

Hill: [laughs] No, no, no, by all means, keep going.

Barker: Something I asked you before the show, which was a term that I came across in looking at Etsy's results was their results for Cyber 5.

Hill: Yes. And you said, "Hey, if you've heard of Cyber -- "

Barker: Which sounds like a supervillain.

Hill: Or a band. Like a 21^st-century boy band.

Barker: But apparently, it's a term that we should know. And do you know what it refers to?

Hill: No. You know I don't know what it refers to, and that's because, right before the show you said, "Hey, have you ever heard of Cyber 5, and I said no."

Barker: And how long does it take to google something?

Hill: What is Cyber 5?

Barker: It is the five days starting with Thanksgiving through Cyber Monday. And this is when you should be doing all of your cybering.

Hill: Wait a minute! The grand council decided that Cyber Monday is no longer a thing and Black Friday is no longer a thing and we're just going with Cyber 5?

Barker: The grand council didn't need your permission to determine this. And so it's Thanksgiving, which still gets to call itself Thanksgiving rather than Cyber Turkey or whatever. Black Friday, a classic. And then there is Cyber Saturday, Cyber Sunday, and Cyber Monday.

Hill: They don't need my permission. Just give me a heads-up, grand council, that's all I'm asking.

Barker: Look, it's not for us to question the wisdom of the grand council. So from now on, for the rest of your life, when you hear about Cyber 5, which you'll start noticing now, that's a thing. Like, if you're waiting until Cyber Monday, everything might be gone through cyberspace. You better move quickly earlier.

Hill: Well, then apparently some people did and spent some money on Etsy, and that helped drive this quarter.

Barker: They did, yeah, they had a good holiday season and, you know, they're looking forward to next Cyber 5.

Hill: I bet they are.

Panera Bread was once a public company. It is now part of JAB Holding, which is a private company that owns -- it's a private company that appears to be run by people who are even more addicted to coffee than we are, because within JAB Holding, you've got Panera, you've got Peet's Coffee, Krispy Kreme, Caribou Coffee, Insomnia Cookies -- which are fabulous, by the way -- Keurig Dr Pepper.

Anyway, Panera announced that they are launching a monthly coffee subscription. So for $9 a month -- if you're a member of the MyPanera group, that's their app, that's their rewards program -- $9 a month, unlimited coffee and tea at Panera. And I'm not saying this is a game changer for everyone, but this is quite possibly a game changer for you and me and everyone who works in this building, because we've got a Panera right across the street.

Barker: Yeah, I think Panera is mis-underestimating our ability to go across the street and drink all of their coffee daily for only $9 a month. I mean, it's not a fair fight. I understand, for those that have to make a special trip to Panera, Panera might be making a little money off of this, but they're -- if this is real, this is a money loser regarding us and perhaps a few others in the audience for Panera. Although, here we are giving them a lot of free advertising. So you know, they've tricked us again. They seduced us with $9-a-month coffee to promote their business plan. Well done, Panera.

Hill: So this will be interesting to see for a couple of different reasons. All kidding aside, I think clearly the bet here is that people like you and me, who drink coffee and don't necessarily go to Panera all that much for breakfast, the bet is, these two schmos, they're going to pay the $9 a month, we're going to lose money on the coffee, because they'll be in here at least twice a day, 20 days a month. But they're going to buy some food, because unlike Starbucks, we make delicious food here at Panera. And these guys are going to buy more breakfast then they would have otherwise. So that's one reason to watch this.

Another reason is, to what extent, if any, do other coffee companies start to roll out some sort of similar program? I think you and I are in agreement that Starbucks may look at this and say, at least right off the bat, "We're not doing that, our entire business is coffee." Panera, their business is really more of a lunch thing. Like, yes, they do breakfast, but it's lunch and dinner, it's soup, it's sandwiches, the warm grain bowls, that sort of thing. So we're not doing this. But it will be interesting to see if Dunkin' or -- for that matter, another JAB Holding company -- Krispy Kreme rolls something like this out.

Barker: Yeah, if it's successful at Panera, under whatever metric they are going to be measuring this by, then it would be easy enough to expand through the JAB lineup, where there is similar synergies between the other things for sale. Like, Caribou, I don't think there's all that much beyond the coffee, is there?

Hill: Not really.

Barker: And you know, differing amounts, Krispy Kreme could make sense, something like that. I don't know how much coffee they're delivering there.

Hill: Well, and the last thing, I think, will be interesting to watch is, we saw reports at the end of 2019 that JAB Holding was thinking about spinning off Peet's Coffee. Spinning it off in an IPO. And Panera Bread, I mean, I would love to see their numbers right now relative to what their numbers were before they went private. Because it wouldn't surprise me at all -- and I'm not saying this is going to be the thing, this is going to be the domino that sets it in motion, but it's going to be interesting to see if whether they spin out Peet's or if the success of Panera is such that they say, "You know what, this is a better business now than when it was last a public company, and we're going to spin this off."

Barker: Yeah, it would be interesting to see. I think that Panera has just been consistently improving its operations for many of the last years. I mean, it is an experience that a lot of us use to order online then pick something up, because we are so close and they are pretty reliable on delivering what you ordered within the time that it's promised. And so it's very convenient for those of us that have walking access to Panera. And I think it's one of the major introductions in the food services that I've read about today.

Hill: Right. And the second is another one that I think will be interesting to see how it succeeds and the extent to which another business, and I'm thinking primarily of McDonald's and Burger King, they decide to go with their own version of this. And that is Dunkin' is rolling out a new food item called Snackin' Bacon. And it's pretty much what you would think it is: it's eight half-strips of bacon wrapped up in a sleeve. It's just bacon. Yes, they made some headlines last year when they came out with their Beyond Meat breakfast sandwich, which could stand some improvement; just my two cents. But eight strips of bacon or half-strips of bacon, yes, please.

Barker: Yeah. If you like bacon, we're selling bacon. [laughs] As simple as that.

Hill: We're not selling bacon-infused soup or bacon as part of a larger sandwich, we're selling that. But you know what else we have? We just have the straight-up bacon, and it's in a bag. And if you give us money, we'll give you this.

Barker: Yeah. As they put it in their release, "With its classic flavors featured in everything from toothpaste to vodka, bacon is a phenomenon, but at Dunkin' we believe the best way to enjoy bacon is simple. Eat it!" I think they've highlighted it. They've delivered a lot there. First of all, they've reminded you that there is bacon-flavored toothpaste and vodka. And of those two, I say the vodka.

Hill: I hope whoever wrote this press release at Dunkin' Brands gets a bonus, because they could have chosen any number of things for that sentence, and this person chose the correct two. Toothpaste and vodka.

Barker: [laughs] And everything in between. All the things that are between toothpaste and vodka, which, when you get down to it, really is the beginning and the end of the day.

Hill: Yeah. If you're a vodka drinker.

Barker: Start the day off with some vodka. Brush those teeth before you go to bed.

Hill: You actually had a good suggestion this morning.

Barker: Really?

Hill: Yeah, I was as stunned as anyone. We're going to throw a Twitter poll up on this to see, which is the better innovation here, is it the monthly coffee subscription or is it the bag of bacon? And people will vote however they want to vote. And we encourage people to vote if they're on the twitters. But time will tell which is the better innovation, because the answer will be, which one gets imitated.

Barker: And I would just request, don't vote with logic, vote with passion. Please come to this poll with a passionate feeling about bacon and/or coffee. And if you have a passion toward both, this may be a tough call.

Hill: Yeah. This isn't going to be one of those, "Oh, you get three choices, you can vote for the coffee or the bacon or the both." No, we're not doing that.

Barker: You, for instance.

Hill: I haven't decided yet.

Barker: So there's a Dunkin' that is also -- so, we're at a corner, there is coffee at the other three corners of our office building. And one of those corners is Dunkin' and one of those corners is Panera.

Hill: And the third is Einstein, and a block and a half away is Starbucks. And in all seriousness, the Panera Bread announcement, that is going to put a dent, for me anyway, that's going to put a tiny dent in the coffee sales at both Starbucks and Dunkin', because Panera --

Barker: And Dunkin' is fighting back with its bacon, so...

Hill: Well done. Well played. Bill Barker, thanks for being here.

Barker: Thank you.

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

That's going to do it for this edition of Market Foolery. The show is mixed by the amazing Dan Boyd. I'm Chris Hill. Thanks for listening, and we will see you on Monday.