In this episode of Motley Fool Money, Chris Hill and Motley Fool analysts Jason Moser and Ron Gross discuss the rising stock market and the upcoming earnings season. Get updates on what's going on with the retail space. Discover how some companies are gaining traction in this environment and what's happening in advertising space. They cover the airline and entertainment industries as well. Finally, get some stock recommendations for your watch list.
Also, Tom Gardner and Bill Mann speak with Okta (OKTA 2.35%) Co-Founder, Frederic Kerrest, about security and entrepreneurship.
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 April 14, 2020.
Chris Hill: We've got the latest headlines from Wall Street. Okta co-founder Frederic Kerrest is our guest, and as always, we've got some stocks on our radar, but we begin with the big macro. An additional 5.2 million Americans filed for unemployment this week. That brings the total over the last four weeks to 22 million Americans unemployed. And yet, gentlemen, the Dow, S&P 500, and Nasdaq all up this week. And Jason, I know there are some bright spots out there, and we're going to get to them, but just the unemployment number and a rising stock market really seems like a disconnect.
Jason Moser: It definitely does. And I think this portends what is going to be really a tale of two recoveries, right? I mean, we're going to see the recovery for Wall Street and we're going to see the recovery from Main Street. And I think it's fair to assume, we always talk about the market being forward-looking, I mean, the market is going to get ahead of the actual recovery. And so, at least we're seeing -- we came out of a really bad stretch [laughs] in March where it seemed like every day there was nothing but bad news, and now here in April, we're starting to see some glimmers of better news. And it does seem like the curve is flattening. Maybe there's a finish line here. And I think that's ultimately what the market is taking into consideration, at least partly, it's that there is a finish line here at some point. We're talking about opening the country back up here step-by-step, little by little. And that's encouraging, but it is going to be, I think, the tale of two recoveries.
And Jamie Dimon, CEO of JPMorgan (JPM 1.72%), noted in his most recent JPMorgan shareholder letter, around 100 million Americans own stock. And that's an impressive number from one perspective, but from the other perspective, it also shows that most Americans don't actually own stock. And I think that's where that other side of the recovery is going to be. A bit of a bigger question mark is -- we sit here and we talk about these market conditions and enjoy the fact that the markets may be recovering a little bit, but we can't ignore the fact that most people out there aren't participating in this, and there are some real ramifications of this shutdown that are going to play out for a while to come.
But there is a finish line. This isn't something that's going to last forever, it's not going to be a lost decade. Perhaps that's something that's playing into these numbers today.
Ron Gross: Yeah, I agree. And I agree it's all about the market being forward-looking. I think what the market is telling us is that they see the stimulus packages as a bridge to what will one day be a new normal. And the new normal will include antivirals and vaccines, which we're also -- at the same time, we're getting good news about these coming out.
So a flattening curve, a stimulus program as a bridge, antivirals and vaccines, kind of, gets you back to at least somewhere closer to where you want to be, and the market is showing us that right now.
Hill: Yeah, I mean, we definitely saw some encouraging news, let's call it. You look at Abbott Labs and the COVID-19 tests that they're working on. Gilead Sciences, that stock was up about 10% this week on reports of a clinical trial of Gilead's antiviral drugs that could be promising in terms of treating COVID-19. So yeah, I think that there are definitely some bright spots that investors are --
Moser: ... I think it's fair also to look a little bit more for -- I mean, we're getting into this earnings season now, which I think is going to be pretty interesting. And all we know going into this earnings season, it's going to be bad, right? But it's going to be really bad. And that's all we can really say. It's very difficult to quantify this, because we haven't been through something of this nature before. Those unemployment claims are phenomenally large. And I think you have to go all the way back to 1982, I believe, to see the last stretch of time where it was something of this magnitude. But for me, I mean, I am actually looking to the next earnings season, because I think that's actually going to be a bit more telling, it's going to help put this earnings season more in the context. So while the market is reacting pretty positively today, I certainly wouldn't read into that and think, oh, we're out of the woods now. Because it's very, very possible that in the next three months, as the next earnings season starts to hit, we're going to get a little bit more context as to how bad things either are or were, and we, I think, will know a whole heck of a lot more three months from now.
Gross: And unfortunately, I don't think we're going to flip a switch and get back to somewhere close to normal. There are too many people unemployed, and there are too many small businesses that, unfortunately, I think, are going to go out even though there's a Paycheck Protection Program and other stimulus programs for small businesses out there. So not everyone is going to go back to work quickly. Some folks are going to have to switch careers, I think, they're going to have to find other places to work. This is going to take a while. So while the economy will look better probably 6 to 12 months from now than it does today, it's not going to go back to where we were six months ago, not anytime soon, I don't think.
Hill: Well, let's move on to retail, because we got the monthly report for March, and sales fell nearly 9%. That was the worst drop in history. Although groceries were a bright spot, consumer goods as well. And, Ron, we saw that on Friday with Procter & Gamble's (PG 1.84%) third-quarter sales up 10%, because among the brands in the Procter & Gamble empire, you've got Charmin toilet paper and Bounty paper towels.
Gross: Yeah. So two things. Don't extrapolate that March retail sales as something that looks not that bad at 8% or 9% down, because it's a short period of time, and things are actually much worse than that, I think, if you broaden out the lens. And I think we'll see, actually, numbers come in that, except for grocery and beverages, will just continue to be really, really weak.
On the other side, I wouldn't extrapolate too much out of Procter & Gamble, because that strength is more of a one-time, perhaps a two-time hit because people were stocking up on consumer staples. Theoretically, that's not going to continue into the future, at least not at this pace. So while P&G had a really strong report, raised their dividends, and, you know, kudos to them and what they're doing, I would be careful not to extrapolate those results into the future.
Hill: And, Jason, Amazon shares hitting an all-time --
Moser: ... well, I mean, that does make a lot of sense, right? We're seeing -- clearly a lot of businesses struggle in this market, but as we note, in times of trouble, this is when the leaders typically gain more share and come out on the other side of the recovery even stronger. And so, whether it's an established business like Amazon and that, sort of, makes a lot of sense there.
Look at some of these other businesses that are participating in the digital economy, and it's understandable why they are performing well. DocuSign hitting 52-week highs here. Well, that makes a lot of sense, I mean, that we don't have to sign papers in person anymore, we can do it digitally. Teladoc Health, obviously, telemedicine gaining traction. Look at Shopify. I saw a data point here, where Shopify's network is essentially handling Black Friday-level sales or Black Friday-level traffic every day, which is just amazing to think about. But the fact of the matter is that Shopify is a business that helps people set up their e-commerce presence, so that makes a lot of sense there.
And then you couple that with what we saw news this week, where Stripe, the payments company, just raised some more money at about a $36 billion valuation. Now, understanding that private valuations are a bit more nebulous than the public valuations, but that puts Stripe at a 44% premium to Square. And Square has done an awful good job as well. Now, the reason why Stripe matters is because Stripe is the payments provider for Shopify. And so, Shopify's success to a degree begets some of Stripe's success. So if we do see a point in time where Stripe does go public, there's going to be a lot of interested parties there as well.
So there is an opportunity here for a lot of companies, and we're seeing some really capitalize.
Gross: Yeah, I think the crisis exacerbates the opportunities for the market leaders, right? The Amazons, the Costcos of the world. They're going to be the winners here. There will be a retail shakeout, there will be a restaurant shakeout, we're not going to be left with the same amount of retail and restaurants out there after this is over.
We saw earlier in the week, JCPenney finally perhaps talking about some kind of bankruptcy, although I think it should be a liquidation, not a reorganization; how long can we drag this one out? But that's just one example. Yes, companies are furloughing workers, and yes, they will bring them back online at some point, but they're not all going to come back online, and not all these businesses will survive.
Hill: Let me tie two things together that we've been talking about here. One is market leaders and the other is the earnings season that we are entering into right now, because Facebook (FB 2.52%) and Alphabet (GOOGL 1.66%) (GOOG 1.69%) make a ton of money off of advertising, and we're starting to see more and more data come out about advertising spends being slashed. Barry Diller, the chairman of Expedia, came out this week and said Expedia normally spends around $5 billion in advertising. This year they're not even going to spend $1 billion. Now, I get that they're in the business of travel. Not every business out there is necessarily going to slash their ad budget by 85%, but that's going to be interesting to see what color we get from Facebook and Alphabet.
Moser: Yeah, I think that's exactly right. I think, when you look at these platforms, whether it's Facebook or Google, I mean, I'll throw a Twitter in there as well, these are platforms, they're all seeing tremendous boost in engagement. The dilemma is that engagement really is more about what's going on with the coronavirus and COVID-19, that is really what is covering these networks wall to wall. And advertising partners don't really want to be advertising in the midst of that news cycle. I mean, you don't want to be throwing your advertising dollars toward a platform that's really focused on probably the worst news we've been dealing with maybe in our lifetimes. But it is something that will pass.
Another interesting point: Pinterest recently updated their numbers; I think withdrew guidance. But they noted, even despite the weakness across the entire advertising market, their exposure to some of the more affected segments, like, travel and automotive and restaurants that their exposure is a little bit lower in those segments. And those segments have been hit a little bit harder as well. So it is interesting to see how some networks, like Pinterest, which cater to a little bit more of a specific audience, are a little bit more protected in a time like this. But, yeah, I mean, you're looking at Google and Facebook, I mean, they're going to come out of this just fine.
Gross: Yeah, but I will add, you would expect to see companies pull back on marketing and advertising, because those are variable expenses versus fixed expenses, and that's a lever they can pull to, kind of, rein in expenses and costs as they need to wait this out. So that is one place the revenue is not going to be there anyway, so to pull back on marketing and advertising is almost a no-brainer bringing those costs down, buy yourself some time.
Hill: The big banks have kicked off earnings season this week. As an industry, the big banks typically go first, you know, Goldman Sachs, Bank of America, JPMorgan Chase, Morgan Stanley. What stood out to you when you look at them as a group this week?
Moser: Yeah, to me, the headline can be summed up in two words, and that's "loss reserves." And I've been thinking about this, I think one of the byproducts of the Great Recession, what could be argued is that it did put our major financial institutions on firmer footing from a capital perspective. It certainly gave them the mindset to come into something like this a little bit more prepared, but they're doing the things that they need to do. They're going to continue to pay dividends until that becomes something that is more concerning. Buybacks are suspended.
But back to the reserves. I mean, we looked through these calls here, JPMorgan built the reserves up by $6.8 billion this quarter. Bank of America built theirs up by $3.6 billion, and since year-end, their reserves are now built up by $6.9 billion. Wells Fargo built theirs up by $3.1 billion.
And, Chris, you know I love to go through these earnings calls and just, sort of, search for some language there. We talk about that word "reserve." This quarter JPMorgan mentioned the word "reserve" in their call 31 times, that was six times a year ago. Bank of America used that word 46 times this quarter versus 10 times a year ago. So there's a clear trend there. And these banks are very focused on making sure that they are in good capital positions, and that's what we want to see.
Gross: Agreed. Now, that's interesting research, counting the number of times, I love that.
Moser: Hey, data is king, Ron. You got to go where the data tells you.
Gross: [laughs] The other trend I saw, pretty much across the board, the only bright spots for all of these companies were their trading divisions, whether it's Bank of America up 33%, JPMorgan up 32%, Goldman Sachs up 28%, relatively large numbers, only bright spot, pretty much across the division. Citibank more focused on consumer, not getting it done pretty much anywhere yet at this point, but trading strong, everything else weak.
Hill: The airline industry is getting a little bit of good news this week. Delta, American, JetBlue, and Southwest, all coming out saying they've reached agreements with the Treasury Department on that $25 billion plan for payroll grants.
So Ron, we were talking earlier in the show about companies getting a bridge. This is certainly a bridge for the airline industry.
Gross: A badly needed bridge. And it's interesting, from a stock perspective, it looks like analysts were hoping for more. I'm not sure what more they were looking for, because the stocks didn't react as one perhaps would have expected. But this is very important: $25 billion, as you said, in payroll grants. No furloughing until Sept. 30, limits on dividends, share repurchase, executive comp.
One of the interesting parts of this is it gives the government warrants to acquire stocks. So it's likely that when this all shakes out, we're going to end up with some government ownership of the majors here. And folks like American, Delta, United, JetBlue, Southeast participating in this program. So that will be interesting to see.
I don't know if this is going to be enough, quite frankly. I think the airline industry is going to get back to some kind of new normal very slowly. $25 billion, and there's another $25 billion on the other side in stimulus as well. We may have to go back to the well here depending on how long this takes.
Hill: Yeah, and the more you hear from the CEOs in the airline industry, the more you get a clear picture of just how they are cutting capacity to the bone.
Gross: Yeah, United came out and said demand won't come back quickly, expect demand to remain repressed for the remainder of 2020 and into 2021. That's sobering, but it's realistic. Even when we do get back to travel, planes will be nowhere near capacity. Maybe they'll be at half capacity if we social distance. International travel will certainly take a while to come back.
So you know, this will take a while. Prices, obviously, are very, very low, as they should be, and if we can get back, let's call it a year or two from now or even three, gains, from a stock perspective, could be strong enough to make up for the time it will take to get us back on our feet here.
Hill: This week, Comcast (CMCSA 1.34%) started a soft launch of its new Peacock video streaming service. Comcast is the parent company of NBC and Universal. So, Jason, there's obviously a lot of content there with The Office, and Parks and Rec, and Fast & Furious movies and the Despicable Me movies. Interesting, though, that they're doing this soft launch. This is not what Disney did with Disney+, where they delayed the launch and did everything at once. This is starting now just for, sort of, the high-end subscribers of the Xfinity services. And then, into 2021, it's going to get the full push.
Moser: Yeah, I guess I'm on the fence about this service. I mean, I understand what they're doing. I wonder what their end goal is here with this. Is it to have a presence in the streaming space? Is it to build a streaming empire, so to speak, and this is one of the first bricks that they lay in the foundation? So I think, it really does boil down to -- are they going to have that arsenal of content that ultimately will attract viewers that keeps them around? And then maybe affords Comcast the ability to raise prices on that service as time goes on.
Because it really does boil down to having content that people want to watch. And so, you know, one of the comparables there, I see what Disney has done with FX on Hulu, for example. And as a Hulu Live subscriber, that's essentially, kind of, your skinny bundle, right? It's cable, but it's not cable. But they've rolled FX into that Hulu family, and it gives them the opportunity to continue monetizing on the advertising front while also monetizing on the subscriber front in the context of a bigger offering.
And so it feels to me, like, consumers are starting to become a little bit exhausted with all of the streaming services that are out there. Peacock is definitely late to the game. I just don't know how many eyeballs it's ultimately going to attract.
Gross: The goal is, obviously, 24/7 Law & Order, so you don't realize what else is there. No. But you know, they're all reasonably priced in a vacuum, with ads $5, no ads $10. That's great, but how many of these are going to show up on my credit card statement every month? I've already got four, five, and six, there's too many. We're going to go back at some point to some kind of bundling, some kind of partnerships, or there's going to be just big winners and lots of losers, and that will be interesting to watch.
Hill: It was three years ago this month that Okta went public. Okta is a software business that helps companies manage identity and access. The stock has risen more than 500% since the IPO. And earlier this week, Motley Fool CEO Tom Gardner and senior analyst Bill Mann talked with Frederic Kerrest, Okta's chief operating officer and one of the company's co-founders. They discussed cybersecurity and tips for setting up a good password. Frederic Kerrest kicked things off by sharing Okta's origin story.
Frederic Kerrest: So we started the company just over 11 years ago. It was me and another guy, Todd McKinnon, we still work together after +11 years. I've spent more time with him than I have with my wife, so I know all of his little pet peeves.
Today the company has got about 2,400 employees, about 8,000 enterprise customers. We've been public for three years on Nasdaq. So it's 12 quarters, not that I'm counting, but if I were it would be 12 quarters. And I think it's about a $600 million revenue run rate business growing in the high 40%.
So look, if you give me all those stats when we started the company 10, 11 years ago, I would have taken them in a heartbeat. Based on where I am sitting today and what I think is ahead -- obviously, the COVID crisis notwithstanding -- I think the opportunity is great the next 3, 5, 10 years, and I'm excited to talk with you guys about it today.
Bill Mann: So Frederic, I'm pretty good at math, and so if I go backwards 11 years --
Kerrest: Uh-oh!
Mann: Yeah, you are founding your company, you're at Salesforce. In 2008-2009, when you're talking about this, which was really the last real financial crisis, obviously, very different from today. It was a real leap of faith, I think, for you all to go out during that time. Are there some things that you feel, like, you got right from the outset by virtue of being forged in steel, so to speak?
Kerrest: Yeah. So a couple of things there. The first one is, if you look back historically over the last 20, 30 years, large technology companies have successfully been founded oftentimes in these moments of crisis. So whether it's Google that happened on the previous one, you look at our whole generation of our cloud technology infrastructure companies that were built in 2009-2010, why is that?
Well, first of all, when you're building a company like ours, its infrastructure, its identity, its security, it takes a couple years just to get the core of the platform up and running. So there's nothing going on in those first couple of years other than building the software, trying to put the first team together, spending a lot of time with potential customers, or not even customers, because you don't have any customers, but just talking to people about what kinds of problems you would help them solve.
And so by the time you've actually built up that first base of product and feel like you're good enough to get out there and get going, people are actually starting to buy again. So I wouldn't be surprised if we see that happen again this time around. I think entrepreneurs are a very resilient bunch. Certainly, I think, there's a lot more focus put by venture capitalists on the types of businesses that they're going to fund, without a doubt, in the coming times here. But, I think, for those who really find the right product market fit or opportunities, you're going to see a whole new host of companies that are built that way.
Now, for us, we also kind of lucked on the timing, right? Because if you just look at the data on what's happened in enterprise IT spend, over the last 10 years, yeah, you would say, "Well, you guys are geniuses." It's not like I could have foretold that in my crystal ball when we were building the company in 2009, right? Software-as-a-Service, cloud security was a very small business. We kind of took this leap of faith that it was going to go to where it was going to go. You know, I could have never hoped for these kinds of results. So we've been very fortunate that way.
Tom Gardner: So can you just describe/define for somebody who's now encountering Okta for the first time what is the Okta Identity Cloud, what does that mean?
Kerrest: Yeah, absolutely. So what we do today, very practically, is -- we help with two main things. We help in what we call workforce identity management, which is for employees, contractors, consultants. If you're a new employee, you come to the company, a very easy way for you to access all of your applications, whether they are cloud, whether they are on-premise, it's a very simple dashboard, it's a very easy way to go.
It could be two-factor authentication, which is a one-time SMS on your smartphone, so that you get that quick code to put in. So the idea is to improve the end user experience while also enhancing security, something that's never been done. In the past, it's always like, you jacked one up, the other one went down, or you flipped them around, but you could never get them both right. So we like to think, because, of course, we're perfect that we got them both right and that you can do both things.
What does that mean for IT? It means there's one central place they can manage all these things. So if I work for you, you let me go, there's one place you can take away access to all these publicly available internet services, so I can't go home and log into Salesforce and take the forecast across the street to the other guy. So that's the first business, workforce identity management. It's at scale, it's in large deployments, you know, large insurance companies, large parts of the government. Fortune 500 companies are deploying it to their employees and their contractors and their partners. It's on any device, since it's on the web, it's on any device, of course.
The second part of the business is customer identity management. So if you fly on JetBlue, you have a TrueBlue number, or if you go to MLB.com, you're one of 60 million consumers every year who logs in to watch their baseball games, or you have one of the 27 different properties at Albertsons, so retail chain that you go and shop at. We run the identity infrastructure for all of those, so that when you go to Albertsons, if you have three different parts of the Albertsons business that you actually buy from, you actually have one username, one password, one number, make it very easy for you. And on the backend, Albertsons can actually track Tom and say, "Oh, Tom shops at these three places, let's make it really easy for him to shop at this fourth one. Let's give him a bunch of coupons and things like that."
So those are the parts of the business. Some of them, in a lot of cases -- very transparent -- people don't even know that they're using the Okta service. Tens of millions of users are authenticating every day on the service now. So it's really starting to become a big part of the economy as we're out there. And we're fortunate, things have gone well.
Mann: And when you think about the single point of failure for any security situation, it is always the individual. So leaving the individual off the table for you, in some ways, creates different vulnerabilities for whatever systems you all are working with.
Kerrest: Yeah, that's totally right. I mean, if you look at these, you know, it's not like -- you know, when you get one of these unfortunate articles that are on the top of The Wall Street Journal, you open it, it's about the fold, so and so just got breached. It's not like hackers cracked AES 256-bit encryption. What happened is, one of the system administrators was using a weak password on some basic travel website, got compromised, they reused the password and got into a bunch of administrative credentials, and then bingo! they're in.
Now, that's not what happens all the time, but that's actually what happens a majority of the time. So you're totally right, and that's why, just like, basic password hygiene is just something that I cannot emphasize enough to all of your listeners. Just do the basic things, don't reuse passwords, use complex ones, use passphrases, just all those little tips and tricks, and then multifactor authentication.
I mean, multifactor authentication should be everywhere, it should be seamless. It's a very, very easy thing for people to do, and it really gets rid of all these types of problems.
Gardner: For somebody who has no idea what multifactor authentication means.
Kerrest: Yeah. So "multi," obviously, more than one factor for authentication. Very simple, when you go to the ATM machine, you have two factors, you have your card and you have your PIN. So it's usually something you know and something you have. So in this case, it's like when you go to your bank website; something you know, your bank password; and something you have, your telephone, where it sends you an SMS with six digits. That's a version of multifactor authentication.
Mann: I want to know about your podcast, Zero to IPO. So you were just --
Kerrest: I'm an accidental podcaster, yes.
Mann: Yeah, when we talked to you last time, you were just getting ready to start it. And I love it.
Kerrest: Thank you.
Mann: What are some of the things that you have learned from -- you've had amazing guests on. And I mean, not just necessarily from a profile perspective, but you've had incredibly interesting entrepreneurs come through. What are some of the main things that you are learning from them that you're reapplying to your work at Okta?
Kerrest: Yeah, [laughs] man, there's a lot of layers in that. I love the question, Bill. So the first thing is, Zero to IPO. I started getting a lot of, when we were fortunate -- when Okta went public, we were helped a lot by entrepreneurs who were ahead of us in the journey as we built Okta. So I wanted to make sure I was giving back. I'm on the Executive Advisory Board of the MIT Entrepreneurship Center. So I want to make sure that we're helping entrepreneurs. And I started getting the same question over and over as entrepreneurs would come to ask me. And so finally, I said, "Hey, you know what? Maybe I should just write a number of articles about this." And then people said, "Well, will you interview some folks?" So I became an accidental podcaster.
We did season one last year. We actually just kicked off season two with Eric Yuan from Zoom (ZM 1.54%) a couple of weeks ago. Season two is going to be rolling out through April, May, and June, so there's more coming there.
The idea is just to help everyone else debunk the myth of what happens in building these companies. And it feels like a lot of the information, first of all, I understand why, but the media tends to hype up massive success stories, like Elon Musk or Jeff Bezos, or the ones that are complete failures. And we don't have to go through the names, but where they lose hundreds of millions of dollars and there's fraud and all these other kinds of things.
And what the media -- and I understand why, they're trying to sell viewers -- but what happens to 99% of people right in the middle, no one ever talks about. And it's just day-to-day hard work, going to work, trying to get all these things going.
And you know, some of my favorite podcast episodes were when you hear from these people, like Carl Eschenbach, the famous guy who built VMware from 200 people to 20,000, who is known as being a go-to-market magician. And he tells you the story of when in 2004, before they even had iPhones or anything, he's sitting there with his rep trying to close one big deal at a big pharmaceutical company, and he had to just sit there all day. And he can't get the deal done and he's, like, the rep is starting to cry, "I got to go back to my wife," and you're, like, "What do you mean?" Like, this is the legend.
And so, what we just wanted to translate to everyone, and so what I took back too, Bill, which is a little bit comforting, is that it's hard for everyone all the time. And anyone who thinks that you can just read the press and it's up into the right and everyone's a hero, you're just being misled.
And so, half of the thing was, the folks who came on, and it was Patty McCord, who built the culture deck at Netflix, or Ben Horowitz talking about how he's trying to go public with three weeks of cash left or Andre Iguodala talking about how he practices for hitting the big shot. Because once in a while, you're going to have that big shot and you got to hit the big shot.
It's true for me now. Right when we go into earnings, that morning, when we're about to get on the earnings call, Todd and I look at each other, with Bill our CFO and our Head of IR and we say, "this is a big shot, you got to hit the big shot, you got to get locked in, you got to get focused in." And you know, I'm just trying to help.
I think entrepreneurship is great. It's not a perfect equalizer, but it's a lot better than going and working in a large company. You have a lot of people who have the opportunity to start new companies in all sorts of different industries. And especially today, it's the driver of the economy. So the more that we can simplify and debunk the myth of entrepreneurship and just share it, I think it behooves us all to do that.
Hill: Verizon (VZ 0.10%) has entered the videoconferencing fray, gentlemen. Verizon this week bought BlueJeans network for less than $500 million. BlueJeans, unlike Zoom, Jason, they focus much more on the enterprise side of things. They've got 15,000 customers, including some pretty big companies out there. It really is going to be interesting to see how this all shakes out.
Moser: Yeah, Verizon CEO Hans Vestberg noted that they've been looking at BlueJeans for about a year and that he believes that Verizon's distribution will be a big advantage in helping grow that platform. Now, in theory, I agree. I mean, I think Verizon has phenomenal distribution and that there's a lot of potential there.
Again, we talk about Comcast and Peacock and maybe being a little bit late to the game. Granted, a lot of this kind of happened very quickly with coronavirus concerns, and Zoom has taken off because of it. I honestly think there is going to be a real branding problem here, though, with BlueJeans. I just don't know that people are going to work that into the conversation very, very well, like, "Hey, I'll BlueJeans you, all right?" "Hey, I'll see you on BlueJeans." I mean, there is potential there, but when we look at all of the progress Zoom has made thus far, privacy concerns notwithstanding -- they're digging into fixing that problem now -- but what they did early on was they took this market by storm and it's really become one of the phrases that pays here during this time. It's become a verb, right? "I'll Zoom you."
So I do understand the sentiment there. I think that competing on the commercial side makes more sense, but they have to figure out a way to propose a better value proposition. They need to come up with a better value proposition to convince a lot of those customers out there that are using Zoom today, why they should be using BlueJeans instead. I'm not certain that Verizon's distribution network cuts it, but we will see.
It seems like a relatively modest bet on the part of Verizon. I wouldn't be surprised to see this thing getting written down in a significant fashion over the course of the next year or two.
Gross: It is interesting for a company most of us haven't heard of and that is less than $500 million value. They do seem to have some real serious customers, whether it's Facebook or LinkedIn or Viacom, and the large banks, a lot of the ones we just mentioned earlier in the show appear to be customers as well. So it will be interesting if we get some user data at some point to see, kind of, how much penetration they have here.
Verizon also said they have some kind of a future in their 5G offering, I don't necessarily know what that would be, that would be interesting to watch as well.
But just on a step-back kind of a note, it's interesting to see one of these tuck-in acquisitions starting to happen. We've been wondering if M&A activity will pick up. I think we were largely talking about if that will happen among public companies and that BlueJeans is, obviously, private, but it's interesting to see Verizon putting some money to work here during a time when maybe BlueJeans valuation was down because the competition was heating up, hard to say, but I think we're going to continue to see lots of these little tuck-in acquisitions.
Moser: Well, I think that's a good point you make there, Ron, too, is this acquisition happening now. They can say they've been looking at it for the past year, but this may have been about as attractive an opportunity for BlueJeans as they were going to come across. I mean, you got to figure that, at this point, they're selling at a lower valuation than maybe they would have been a year ago --
Gross: ... or perhaps higher, because the space is hot, that's where the side of the trade [...]
Hill: Hey, real quick, before we get to the stocks on our radar. Ron, this week, Johnson & Johnson, Costco, Procter & Gamble, they all raised their quarterly dividend. Not a huge amount, you know, it was sort of in the range of 6% to 8%. But in this environment, when all these big companies are either keeping their dividends in place or cutting them back, I feel like this is going to be a badge of honor down the line.
Gross: It's a really strong signal to the market. It's showing not only is business strong right now and cash flow generation is strong right now, but our balance sheets are strong and we can continue to do this and not only continue, but increase them. Very strong signal to the market and to investors.
Hill: All right. Let's get to the stocks on our radar. Our man, zooming in, Steve Broido, will hit with the question. Jason Moser, you're up first. What are you looking at?
Moser: Yes. It's the world's largest music streaming platform. I'm taking a look at Spotify (SPOT 0.93%), ticker is SPOT. They have earnings coming out on April 29, and this is a stock we continue to follow here at The Fool in many of our services.
Monthly active users is one of the key metrics for Spotify. They recorded 271 million last quarter. That was 31% growth from a year ago. But the more important metric is actually the premium subscribers. Last quarter, they chalked up 124 million there, and that was 29% growth. And so I want to see how they're growing that premium subscriber base, particularly in the face of this stay-at-home economy, so to speak. This is a time when they should be shining.
But they make their money a couple of different ways. Advertising and subscriber fees make up the overwhelming majority of their revenue. And then finally, just want to give a little bit more insight as to how they view their acquisition of The Ringer family of podcasts, because they continue to tap this exponential growth in the podcast market, the opportunity there. And I tend to agree. I just want to see how they're exploiting it.
Hill: Steve, question about Spotify?
Steve Broido: Sure. What makes them different [from] all the other streaming providers?
Moser: Well, when they were competing against Pandora back in the day, it was more of a bespoke offering, which gave them a leg up. You could go in there, listen to anything you wanted on demand, and that ultimately is what gave them a leg up. And now, as users continue to listen, the technology recognizes what you're listening to, they have a very good recommendation engine and they've incorporated a lot more into the offering as well. So it's become more of an entertainment platform.
Hill: Ron Gross, what are you looking at?
Gross: Going back to CRISPR Therapeutics (CRSP 2.04%), CRSP, down 32% from its December 2019 high. Gene therapy company focusing on the CRISPR Cas9 technology to edit genes. Main partnership is with Vertex, a $69 billion pharmaceutical company, a good partner to have. Importantly, their balance sheet is solid $943 million cash, only $52 million in debt, and they've had some really promising early-stage data that they actually can cure sickle cell disease. So looking forward to seeing more of that.
Hill: Steve?
Broido: I'm a CRISPR shareholder, Ron. Do you see them playing a part in the COVID-19 solution?
Gross: Not in the near term, no. They would have to ramp up and start from scratch. So I think there are other folks who are much further along, and we should look to those folks for the next six months to a year innovations.
Hill: What you want to add, Steve?
Broido: I think I'll go with Spotify.
Moser: Hey, now.
Hill: All right. Ron Gross, Jason Moser, guys, thanks for being here.
Moser: Thank you.
Hill: That's going to do it for this week's show. I'm Chris Hill. Thanks for listening. We'll see you next week.
