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How the Economy Is Interconnected

By Chris Hill - Apr 14, 2020 at 3:05PM

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One break in the chain can cause ripple effects throughout the economy.

In this episode of Motley Fool Money, Chris Hill chats with Motley Fool senior analysts Jason Moser and Emily Flippen about the $2.3 trillion support program and its relation to consumer spending, what determines the success in retail space today, and why timing is important. They share some financial spring-cleaning advice and stock recommendations for your watch list.

David Gardner chats with Chip Paucek, the CEO and co-founder of 2U (TWOU -3.21%), about how the online education space is disrupting the cost of education and much more.

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.

Chris Hill: The market is closed for the Good Friday holiday, so we're recording a little earlier this week. Chip Paucek, the CEO of education company 2U, is our guest. And, yeah, we've got some stocks on our radar, but we're going to start with the big macro once again.

On Thursday, the Federal Reserve announced a $2.3 trillion support program for cities and states, and another 6.6 million people have filed for unemployment; and, Jason, that brings the total for the last three weeks to nearly 17 million.

Jason Moser: And yet the market is just en fuego, Chris. I mean, let's try to make sense of this all, because it doesn't seem to make a lot of sense on the service. But to me, honestly, this window in time is the greatest testament to why our way, our Foolish way of investing, works. I mean, we hear people talking about getting out of the market during these bad times and trying to get back in when things seem a little bit more stable, and that's just such an unproductive way to go about things, because it's so difficult to figure out what the market is going to do, the timing, it's very difficult to figure out the timing, as we've always said. And that seems to only be getting more so the case as time goes on.

So I mean, I think there's going to be a lot of volatility both ways here in the coming weeks and the coming months. There's a lot of information still to come out to digest, to understand exactly how it's going to play out on economy. But for the most part, I mean, you know, we talk about staying the course, and we know that's not easy. It does take a leap of faith.

But generally speaking, we're making the bet that we think the future is going to look better at some point. Maybe not in the near term, in the next couple of months, but generally speaking, as time goes on, the future will look better, and that's been a pretty smart leap throughout history. So it's nice to see that we have our government hard at work trying to make sure that the financial resources are there for our economy, because this is one of those self-imposed shutdowns, so to speak. We don't know when that necessarily is going to stop, but we're seeing our government pull every tool out of the toolbox here, and that has to be very reassuring.

And I think, honestly, that's why the market is starting to receive news like this and feel a little bit better about things, because now it really is all just a matter of time as opposed to just not knowing exactly what's going on.

Hill: Yeah, Emily, it really does seem like J. Powell, the chairman of the Federal Reserve, is basically saying, whatever happens, we're going to pull every lever we have. This is not going to be because the Fed didn't do everything it could.

Emily Flippen: Yeah, Jason said that that's reassuring to him, and it's been reassuring to the markets. To me, that's been concerning, because these aren't economic stimulus measures, these are economic safety measures. These are just trying to prevent small- to medium-sized businesses and low-income or unemployed individuals from completely going bankrupt. I mean, it really is base-level functioning here.

What the intent of their monetary levers used by the Federal Reserve historically have been, have been to stimulate demand-side movement, because a lot of recessions and depressions are driven by an inability or lack of desire to spend money. And it's not that Americans or the economy doesn't want to spend right now, it's that we can't. And these measures are needed just to keep people on their feet, but it's not actually going to do anything to fix the economy.

Moser: Yeah, I think Emily makes a great point there, in that there's still plenty of questions here to be answered. We were talking about this before taping and this is going to be a bit of a two-sided recovery, in that, just because businesses start opening back up, that doesn't mean it's going to be business as usual. I mean, a lot of this really depends on the consumer, not only the purchasing power of the consumer, but also the willingness of the consumer to go out there and behave like we used to do. And I don't know that that's necessarily realistic expectations.

I mean, I don't think we're all going to get out there and just get back to life as normal, at least not immediately. Until we actually have something that eliminates this virus as something that could potentially affect us, I think a lot of people are going to be, sort of, keeping at bay here and not necessarily getting back to the same behavior that they had before. And if that's the case, the stores can be open all they want; that doesn't necessarily mean the consumers are going to be in them. And if the consumers aren't in them, well, then, that obviously is going to be a big problem.

Hill: Emily, the last time there was an economic crisis in America, it was 2008-2009, the Great Recession. Housing was at the center of it all. When you look at the housing industry today, what stands out to you?

Flippen: It's really interesting, because the housing market, with the Great Recession in 2008, was the centerpoint. I feel like it's such an ancillary issue where we are right now with this global pandemic. We're seeing a lot of major companies, Zillow and Redfin, are both suspending their iBuying program. So their buying program where they would purchase houses essentially over the internet. There's going to be a slowdown, I think, in the housing market just because people aren't going to be inclined to buy or sell homes during a global pandemic, but I don't think we're looking at something like 2008 where the issue was so much focused on that type of housing issue; we're not seeing that right now, that's a once-in-a-century issue. What we're seeing right now is a once-in-a-century pandemic that also seems to be impacting the housing industry on the side.

Hill: Our email address is From Patrick Burns, down deep in the heart of Texas, he writes, "I've been a listener since 2013. On last week's show you talked about retail and the fact that a lot of stores are out of stock of different items. If you could, please don't forget about the backbone, the trucks and logistics behind it all. It's been rather busy over here in the trucking industry, so it would be nice to get a shout-out."

Absolutely. I was thinking the other day, Jason, about -- you know, I was outside, I went for a quick run and saw 18-wheelers going down the street and CSX trains going by, and I was actually thinking about like, "Well, you know, certainly the trucking and logistics, the train, the transports, they're doing everything they can to try and get us through."

Moser: Yeah, I mean, there's no question about it. I mean, we've seen that even in the efforts to more or less shut down the economy as much as we can, you can only do that so much. I mean, we can't just shut everything down, we still need essentials, and it's been interesting to see how that word is defined through the course of the last month or so. But there's no doubt, I mean, you see how connected everything is.

I mean, this is a great example of how connected we are as a country, as an economy, and just one break in that chain can have a really, really great impact. But you're seeing in the retail space, examples from Nordstrom, for example, where they're talking about, if it drags on much longer, then they are going to be in real trouble. And honestly, that's not a surprise. I mean, this is a business that was challenged even in normal times. I mean, we could consider Nordstrom, I think, to be nonessential. I mean, it is a small company, it's less than $3 billion market cap. One of the most interesting metrics out there for Nordstrom right now [is] that debt represents almost 500% of total equity. And total equity essentially being assets minus liabilities. You don't want that number to be high.

And we talked about this, I think, last week when we were talking about balance sheets and assessing companies' financial positions. We were thinking, look toward the future, don't look at those trailing 12-month metrics, consider what the future might look like. Because in Nordstrom's case, the future looks even worse, I would say, because you've already got revenue that was shrinking in good times, margins were being challenged in good times. Now, I mean business is going to fall off a cliff. And I don't know exactly how they're going to be able to service this debt unless they find outside investors, sell new shares, figure out a way to refinance things. And so, you know, you look at something like Nordstrom, they're in a tough spot.

Costco, yeah, I mean, that's going to be more essential, right. Sure, they're selling stuff that maybe isn't as essential, but for the most part, that's an essential business, and I'm less concerned with a business like that. Interestingly, much like restaurants, these entities depend on traffic. And so even if we're at the point where these stores are open, they're limiting the traffic that goes into them, and that's a problem.

Now, the nice part is that Costco does have other avenues of growth or at least other avenues of generating revenue, e-commerce, for example, other companies out there that depend on them, like, but it just all goes to show how connected this all is and how one little break in the chain there can have such profound ripple effects throughout the entire economy.

Hill: Emily, when you look at the retail industry, what are you seeing that turns your head?

Flippen: Well, the companies that are really succeeding are not just the companies that are essential businesses -- clearly, those companies are still open, while many are closed -- but it's the companies that have invested heavily in the omnichannel experience, it's the companies that have already done their best to set up logistics and infrastructure to support pickup, delivery, online shopping, companies that are just now trying to build that out are doing essentially just too little, too late.

I think it's interesting to look at a company like Walmart, which during the Super Bowl earlier this year had big advertisements for their pickup grocery business. I mean, the timing of that very expensive ad for them probably could not have been better. And then you can compare that to a company like Ulta, and I'm a big fan of Ulta as a company, but part of their value proposition over the past, probably, six to nine months has been the fact that they've been making a concerted effort into getting more people to purchase beauty supplies online through their omnichannel experience. And this is actually bad timing for them, because I think something like 15% to 20% of their sales are online compared to other retailers; that's not very much. It offers a lot of opportunity, but Ulta's core customer is not accustomed to shopping online quite yet.

So there are some brands, there are some retail chains that have the ability to exist in a COVID-19 world that simply didn't invest the time or money to reach that scale before this crisis, while others are succeeding much more thanks to investments that they've made over the past three, five years.

Hill: Shares of Zoom Video (ZM -4.46%) down 15% over the past two weeks as the company continues to deal with security issues, leading Google [Alphabet], among others, to ban its employees from using Zoom. Emily Flippen, how bad is this?

Flippen: It's not good, Chris. [laughs] But I will say that security risk for any company cannot go away. Security risk can be managed, and it ought to be properly managed, but it never disappears. So a company like Zoom will always be fighting with itself and fighting with external sources to best secure their platform, but that risk will never be zero.

So when you look at a company like Zoom, there's undoubtedly some questions regarding the time and effort that management put in to secure the platform, especially as they gained thousands and thousands of new users amid this pandemic. But it's also worth noting that most companies don't know that they have security issues until something like this happens. So I think it's more telling how Zoom and Zoom's management responds after this than it is about how they managed risk before this.

Hill: If you're a Microsoft or a Cisco Systems and you've got a competing product, are you using what happened to Zoom as part of your sales pitch now? Because I would.

Flippen: [laughs] Undoubtedly, I mean, there's no reason why you wouldn't want to leverage this against a formidable competitor. But as the saying goes, you know, "Any press is good press," and the more that Zoom is making headlines, the more we're seeing the company transition from just a business-focused service to something that now consumers are using in place of Google Hangouts, in place of Skype, in place of these other programs. I mean, how much do you really care if somebody hacks in on your family conversation, right? So as people become accustomed to using platforms, it truly is just the winner of who gets the most headlines.

Hill: I don't mind if they hack in on the conversation, I mind if they're like, you know, bombing with profanity or something that I don't want to see. But I think to your point, the saying that "Any press is good press," you know, 6 months from now, 12 months from now, I think we'll find out just how many of these new customers Zoom actually keeps.

This week, Disney (DIS 0.67%) announced that the company now has passed the 50 million subscriber mark for its Disney+ streaming service. Jason, when you consider the parks are closed, the cruise ships are docked, this is welcome news for shareholders.

Moser: Very welcome news indeed. And I remember we heard the 60 to 90 million subscriber projections by 2024. Yeah, Chris, I think they got that. Listen, I'm a big Disney fan, don't get me wrong, this is a massive number, and, in my opinion, it portends great things to come. Now, let's also remember, you have to adjust a little bit. I mean, remember, there is a short-term catalyst in play here that has helped them to a degree.

And I also think investors should not begrudge them that. I mean, as a Disney+ subscriber, it's a good product, we like it in our house and we watch it, it's got a lot of great content, and I'm really excited about the content that they have coming up. I think it is only going to get better in time, but there's no question, I mean, timing, as they say, in life is everything. This has worked out to just be great timing for Disney.

And if you think about the power of this business and its offering, I mean, you know, this is a company that for the longest time, I mean, they've done so well in getting our attention outside of the home. And now they're getting our attention while we're inside of the home, or I guess sometimes outside of the home, if you're watching on your phone somewhere, but regardless, it just goes to show that Disney has become this just massive, massive threat on all fronts.

And I want to say one thing in regard to the Disney-Netflix (NFLX -1.60%) comparisons, because it always -- I get a little bit worked up about this. This is not a Netflix killer, OK. And let's not say, because Disney got to this number so quickly and it took Netflix, like, seven years to get past 50 million members. Let's remember, when Netflix started this, they were the first ones in the pool, right? They started this whole thing. And so you got early adopters, there was a slow adoption curve to get into the streaming. I mean, now, this is typical consumer behavior. So let's not really compare it to Netflix so much, but I do think it really is a testament to the power and the strength of the business that Netflix has built. The vision that Reed Hastings had so early on to build out this streaming service. And I think that Disney is going to be another winner in this space.

Hill: We got about 90 seconds left. Long-time listeners know, this week is usually the week when we do our spring-cleaning special, because we're on spring break. So Emily, for anyone looking at their portfolio and looking to do a little cleaning, what do you recommend?

Flippen: It's really hard to clean up any recommendations or stocks that you might own in this environment. So what I'll say is, look at consolidating your brokerage accounts. A lot of brokerage accounts now have moved to completely fee-free trading. So there's not a lot of reason to have five different brokerage accounts across many different services. So one of the things that I've done is consolidate all mine into the brokerages that allowed me to have fractional share trading, like Fidelity or Schwab.

Hill: Jason Moser, what do you think?

Moser: Yeah, I think this is actually a really good time to go through your portfolio and assess what you can sell, if anything, in order to raise cash for that six-month emergency fund. If this has not been a wake-up call for you, then I don't know what is going to do it, but this, I think, could be a great time to go through, trim some gains from winners, maybe cut your big losers, start building up that cash fund that is ultimately sacrosanct, because at some point down the road, it will serve you well.

Hill: Chip Paucek is the CEO and co-founder of 2U, an education tech company based in the Washington, DC, area. Earlier this week, he talked with Motley Fool co-founder David Gardner. They discussed a range of issues including disruption to the cost of higher education and how the pandemic has changed 2U's business.

Chip Paucek: So for those not familiar with the company, we're a global education technology company that builds, delivers, and supports +400 online programs at scale with 70 great nonprofit universities, including, Yale, Harvard, Oxford, London School of Economics, Berkeley, Northwestern, and of course, David's alma mater Carolina UNC at Chapel Hill.

So I started the company 12 years ago. When I started the company, the grade schools weren't doing anything online. We thought that was very strange, we thought the world was ready, from a technology standpoint, for high-quality online education, but you needed the will of a great institution to make the students equal to the campus students and make the experience equal. And so, it's now been 12 years and over 200,000 students across the platform.

We started focusing on graduate education and thought that that was the right place to be. And then over the years, we've radically expanded the company from the standpoint of, we talk about the career curriculum continuum, so meeting the student where the student needs to be met from a learning perspective across their lifetime with many different types of opportunities for learning. So short courses, boot camps, and now recently announced, which obviously is well timed, in October, we're launching our first undergraduate degrees with the London School of Economics and the University of London.

So great to be here with you guys, I've got a long history with The Fool. I met David and Tom way back in the day when I used to produce a PBS show here in the DC area and very proud of the relationship, and I appreciate you guys having me on.

David Gardner: Well, thank you very much, Chip, and it is a delight to have you on. Let's go right into it, Chip. So I think the most obvious question is, how has your business changed because of the pandemic?

Paucek: I mean, you know, we've all obviously never seen anything like this in our lifetimes, you know, sitting here from the global headquarters of 2U, my home office, obviously, just like everyone else, social distancing. We went remote very quickly. The first step, which is business continuity, like, make sure everything was running.

You know, this is a paradigm-shifting moment for online education. And I don't agree with people that are giving schools grief for being unprepared. I think it's wildly unfair. Like, the notion of how prepared is the NBA for canceling all of its games, you know, we've never seen anything like this before. With that said, from a 2U perspective, we're in very high demand right now. As you can imagine, this is a moment in time where online education is desperately needed.

And high-quality online education, I think, is where the story turns to. And dropping into a live room is not high-quality online education. We did a partnership with Gallup where we nationally benchmarked the students that are in 2U back programs to the national benchmarks of people that were in campus-based programs. And it took us a long time to deliver. Gallup released the results, and we announced it a couple of weeks ago. And it really should put to rest the notion of whether online education can be as good as the campus. I actually think most of the data suggests that it can be better than the campus, but it has to be done well. Supporting the partners in the short-term was what we did first.

So we released a product called No Back Row Pro that was -- No Back Row was our slogan about what it felt like to be in a live class. You know, if you're not used to it, you know, there is no back row, you're front and center, you're engaged. But the best way to do it is to flip the classroom and sort of have people consume a bunch of really good content ahead of time so they come to class really engaged.

And so the professors at our community of campuses, many people were forced to go into this online environment and had never done it before. So we rolled out a training product that allowed professors at, like an example, at Oxford, the entire B school was dropped into this training platform to be able to use the online environment most successfully and get confidence as an instructor, if you've been teaching on campus the entire time, learning how to handle a Zoom room, from a learning and teaching standpoint it's pretty important.

Gardner: You just mentioned a Zoom room. So obviously, a lot of people who had never heard of Zoom before are using Zoom [laughs] these days. But I'm curious, Zoom, is this a partner of yours, Chip? Do you use Zoom as a platform? Are they a competitive threat? How do you look at Zoom?

Paucek: No. So not only did we have a partnership with Zoom for a long time and it is a great company and it's an excellent relationship. And we built into our online learning platform and it's served us incredibly well. Particularly structured the right way to ensure that you're controlling the environment. They've been awesome. Zoom is not only not a competitor, they are built into what we provide our partners. And we expect that to continue.

So just to break it down for the people that are new to the company: We provide a combination of people technology and data to do what we do. And so we're behind the scenes offering the learning technology, the course build, all of the student support, all of the faculty support, things like clinical placement that wouldn't be obvious to people. What is that? Well, one of our degrees is a Master of Science in midwifery from Georgetown. Well, when you're in midwifery, you're learning to deliver a baby. So you need to go do that. And so we arranged clinical placements all over the United States for these programs.

It's a portfolio of activity that we provide our schools, and we share tuition over a long time period with the school in very lengthy contracts. So on the degree side, our contracts are 10 years, they are long. We invest in a program. And I think that that has also become even more important and timely given what is going on right now.

Gardner: What do you think the most long-lasting change to higher education is because of the pandemic? I mean, what structurally do you believe, in your business or generally, is going to change as a result of what we're seeing right now?

Paucek: So we had said most recently. Our, sort of, most recent update to our vision. If our mission is to eliminate the back row in higher education, our vision is to address society's critical needs, and we believe that we are a company uniquely positioned to do so.

Actually, if you look at our competitive set, our breadth, our depth, our experience, and even just our product set, you don't see anybody with this comprehensive of a solution. And it's a $1 trillion market. What people don't appreciate about higher ed, it's actually quite difficult to scale a business in education.

So what I would say, Tom, is that in our new vision statement, one of the things we've said is higher education must be blended and connected. My God, did that become more relevant. In other words, like, fundamentally, it's not about online anymore, it's all the same thing. You know, this is now a permanent change to an industry that historically has not changed fast. We have been a disruptive force in our space. And even so, you know, one of my provosts said the story of changing higher ed is the story of the turtle being mugged by two snails. You know, it's a slow process.

Well, guess what, decisions that might have taken three years are happening in three days right now in a way that, without question. There's a firm named HolonIQ that studies the education space. And they do a survey of higher ed presidents and provosts, leaders in higher ed, and they do it every six months. And they did one last March and they did one in September.

And they asked, what percent of the group that they polled, it was something like 1,000 people, said that higher ed was in for -- like, immediate disruption was occurring. And in March and September of last year, the exact same percentage of people said disruption was imminent, and it was a small percentage. And then you look at this March, when they did it again. Half believed that it was immediate disruption. So you are talking about very profound change to the psyche of overall higher ed, not just administrators but faculty.

Gardner: What I'm wondering is, though, because you just brought up the principle of disruption, that suggests that the pricing that we've seen -- because the pricing in higher education. I remember when I got my graduate degree and I was really fortunate, because I got a graduate scholarship, if I had had to pay for it, I don't think I would have gotten it. And I think it's getting worse. So do you think the disruption that you're bringing and that this pandemic is bringing is going to reframe the pricing of higher education?

Paucek: We do. Pre-COVID, you know, we had worked on this vision narrative of higher education, of course, must be high quality, accessible and affordable, blended and connected, sustainable and relevant. You know, where relevance is about meeting the learner where they are, like, technology skills.

And I would say, accessibility and affordability. You know, very proud that we were able to announce two weeks ago a partner of ours, Simmons University in Boston, they announced a very significant tuition reduction for their nursing programs. And like, right now, we need more nurses, and because of the scale that we're seeing with Simmons in that business, they reduced their MSN program and their RN to MSN program by $9,600 and $13,600. So like a huge change to the tuition cost. And we think that that kind of opportunity, that is what you get when you start to see the benefits of scale.

So now at the same time, the whole thing has to be sustainable for all parties. So we've always believed that the 2U model was if the student wins, the university wins and then we win. And today, we feel like that's even more relevant. So I do think, as you get into -- you know, as more and more people experience online education, we think, it is a demand accelerator over time.

Gardner: You know, you've been talking about this, and I think this is really important for your investors and for us to understand, the runway -- and I think you're right about this, you make a really articulate point that -- there's a lot of runway here. Habits have changed, we're not going back, online education is clearly going to be a massive part of the future. You cited that study that said now 50% believe, like, this is disruptable, this is now the future.

But that's going to require some investment and some focus on your part. So I have two questions about this. So answer them any way you like. One is, what do you have to do that you aren't currently doing? And second, if Zoom is a big part of this, do you have any issues or concerns about the security issues we've seen with Zoom?

Paucek: So I guess two parts to that. First, just from an investment standpoint, part of the model we provide is effectively a conduit of capital to these great programs to drive the opportunity for the schools, and we share tuition revenue over the life of a really long contract. So how many we drive in any given year keeps growth very high but drives losses in the short term, because there's a lack of alignment between the marketing spend today and the revenue on the P&L. So the more money we spend in marketing, the more that we drive larger growth in the future.

So last year, part of what happened is we slowed down our cadence. And we did that purposefully to get to free cash flow, honestly. We're 12 years in, we believe it's important for the company to be at free cash flow, and we're getting achingly close, so.

In terms of Zoom, you know we've had a very successful deployment of Zoom. In terms of how we deploy it to our partners, it's effectively part of our walled garden. So it's not an open deployment, and we also have privacy protections built into our relationship with Zoom.

So that's part of what you get when you work with a company like 2U in your university, that's part of what we deploy.

Gardner: You know, I'm getting a really basic question you can speak well to here. How about a minute, Chip, on -- is this the same experience for students?

Paucek: So the entire premise from day one was, it's got to be just as good. And now, I think we can more often say that it can even be better than the campus experience. It's the same degree, you got the same great faculty teaching you. And ultimately, you know, you become part of a community. I mean, I graduated from our Carolina MBA program, I did the MBA while I was doing an IPO, I don't think many people have done that. I didn't do it to eat my own dog food or for the Hair Club for Men effect, I did it for myself, I wanted an MBA, I'd never had one. It took me five years to finish, but I got through it. And I will tell you, it's a life-changing experience. These are really high-quality programs.

You know, I saw one of your viewers asking about high school. Pretty excited to tell you that we've got for the summer, a new innovation in this moment in time is that we're working on a variety of coding boot camps with our partners for high schoolers this summer, which we think is actually quite an opportunity. So there's all kinds of great stuff going on.

I see this moment as not just a game changer for higher education, but I take personal responsibility to, you know, this is a moment where certainly the crisis sort of drives innovation, it's a moment in time where the necessity for innovation is real. And I felt like we're a 4,000-person dispersed beehive that's more like a start-up right now. You know, I just feel really bold about how, as a team, we're delivering for our partners.

Gardner: Well, we're going to channel that, we're going to channel that before we let you go, because we asked you to do this at our annual member event, and you did it with gusto. But the world has changed, right, so things are different, and it's time for an encore performance. So 2U CEO, Chip Paucek, what is your 45-second speech to graduates and the class of 2020?

Paucek: Well, I mean, two parts. One is, a crisis is a terrible thing to waste. Seize the moment. You know, all bets are off. I mean, all assumptions that people made are now in question. And I think it's an opportunity for people that can find the opportunity to sort of not let the skeptic win.

I feel very strongly -- we're seeing that in our business, even though we're 12 years in and, you know, not quite at a billion in revenue, but getting there, so. But even in a larger company, that's real.

And then I would say, on a personal level to the grads, my personal, sort of, slogan is every day is a holiday, every meal is a feast. If you can process every day is a holiday, every meal is a feast, every day you wake up, life is a little better. And it might sound like a bumper sticker, but it is real. I was told that by somebody I had met who told me that he ran his life like a drill sergeant until he woke up one day and he was in a hospital bed and all he could do was count the ceiling tiles. And he said, "Don't wait until you're counting the ceiling tiles to process that saving, young man." And I never forgot it. And I would tell you that, if you can really capture that. And right now, don't we all take a little bit more stock in the fact that every day is a holiday and every meal is a feast? So I would tell your grads, just try to capture the moment and put that positive energy into what you do.


Hill: Time to get to the stocks on our radar this week. Our man behind the glass, Steve Broido, is not behind the glass, he's in his home, so he's going to hit you with the questions. Emily, you're up first. What are you looking at this week?

Flippen: I'm looking at a company called Kura Sushi (KRUS -2.43%), the ticker is KRUS. This is not a recommendation, it's a pure radar stock. They operate a chain of technology-enabled Japanese restaurants here in the U.S. That is to say, they sell conveyor-belt sushi. They've been hit by the coronavirus, but they are in a strong financial position and I think they could come out of this better than ever.

Hill: Steve, question about Kura Sushi?

Steve Broido: Is there a sushi you won't eat?

Flippen: I don't like sushi actually, [laughs] so I'll eat the edamame when it comes around on the conveyor belt.

Hill: Jason Moser, what are you looking at this week?

Moser: I'm still trying to digest, no pun intended, this whole Emily-doesn't-like-sushi thing. I mean, I don't know, man, Emily, we're going to have to talk when you get back to the office, OK? I'm going to see if I can sway you. But for now, I'm taking a look at Wayfair (W 7.84%), ticker is W. Some very encouraging information for Wayfair investors this week. And this is a stock that has seen levels from around $110 per share all the way down to $20 per share just this year alone. So it's been a crazy year thus far.

But back to that encouraging information. It sounds like, based on their news release, they're going to meet or exceed guidance that they set out for the first quarter of this year. And they also noted that revenue is accelerating, their revenue growth is accelerating.

So you know, they went into this coronavirus time here already dealing with China trade war issues, and on top of that, obviously, the coronavirus has taken our economy and ground it to a halt. But that's really encouraging to see the revenue growth is accelerating. The balance sheet just got a little bit stronger with the private placement of over $500 million in capital. And that was at attractive interest rates and an attractive convertible price as well.

Remember, they, earlier this year, announced they were letting go close to 600 employees. And it was all in the name of getting closer toward profitability, and they mentioned in the release they are accelerating their path to profitability. So it does sound like the future is looking good for Wayfair. I'm very encouraged.

Hill: Steve?

Broido: What is the largest piece of furniture you bought from Wayfair, personally?

Moser: So I think that's probably a tie between we bought two couches for our basement, which have worked out very well, but we also, Steve, finished renovating our bathroom upstairs recently, and we got a big vanity that we just had carted up there too as well.

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

Broido: Well, I would have to go with Wayfair. Emily's pitch, I did enjoy, but the conveyor-belt-sushi thing, they have one of those at Tysons Corner mall, it's pretty cool, but I don't see a business there. I'm going with Wayfair.

Hill: All right. Thanks for being here. That's going to do it for this week's show. Thanks for listening. We'll see you next time.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Walt Disney. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Netflix, Walt Disney, Zillow Group (A shares), and Zillow Group (C shares). Emily Flippen has no position in any of the stocks mentioned. Jason Moser owns shares of Alphabet (C shares) and Wayfair. The Motley Fool owns shares of and recommends 2U, Alphabet (A shares), Alphabet (C shares), Microsoft, Netflix, Redfin, Ulta Beauty, Walt Disney, Wayfair, Zillow Group (A shares), Zillow Group (C shares), and Zoom Video Communications. The Motley Fool recommends Nordstrom and recommends the following options: long January 2021 $60 calls on Walt Disney, long January 2021 $85 calls on Microsoft, short April 2020 $135 calls on Walt Disney, short January 2021 $115 calls on Microsoft, and short May 2020 $120 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
$38.17 (-2.25%) $0.88
Microsoft Corporation Stock Quote
Microsoft Corporation
$291.50 (-0.67%) $-1.97
Alphabet Inc. Stock Quote
Alphabet Inc.
$121.23 (-0.70%) $0.85
The Walt Disney Company Stock Quote
The Walt Disney Company
$125.09 (0.67%) $0.83
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$46.58 (-0.03%) $0.01
Netflix, Inc. Stock Quote
Netflix, Inc.
$245.12 (-1.60%) $-4.00
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$139.86 (5.47%) $7.26
Ulta Beauty, Inc. Stock Quote
Ulta Beauty, Inc.
$411.95 (1.63%) $6.62
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
$26.71 (7.20%) $1.79
CSX Corporation Stock Quote
CSX Corporation
$34.29 (0.44%) $0.15
2U, Inc. Stock Quote
2U, Inc.
$8.75 (-3.21%) $0.29
Alphabet Inc. Stock Quote
Alphabet Inc.
$122.00 (-0.72%) $0.88
Wayfair Inc. Stock Quote
Wayfair Inc.
$73.70 (7.84%) $5.36
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
$38.13 (-2.38%) $0.93
Redfin Corporation Stock Quote
Redfin Corporation
$12.50 (5.10%) $0.61
Schwab Strategic Trust - Schwab 1000 Index ETF Stock Quote
Schwab Strategic Trust - Schwab 1000 Index ETF
$41.64 (0.05%) $0.02
Zoom Video Communications Stock Quote
Zoom Video Communications
$108.19 (-4.46%) $-5.04
Kura Sushi USA, Inc. Stock Quote
Kura Sushi USA, Inc.
$93.36 (-2.43%) $-2.33

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