Please ensure Javascript is enabled for purposes of website accessibility

Visa Eyes $185 Trillion Opportunity

By Chris Hill – May 11, 2020 at 3:17PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Making money from the movement of money.

In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Jason Moser, Andy Cross, and Aaron Bush about the latest news from Wall Street and they go through some earnings reports from a variety of industries. They also talk about three stocks for your watch list 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.

This video was recorded on May 1, 2020.

Chris Hill: We're going to begin, once again, with the big macro. Nearly 4 million Americans filed for unemployment this week, that brings the total to 30 million unemployed since the pandemic hit America. And yet, Andy Cross, somehow, April was the best month for the S&P 500 since 1987.

Andy Cross: Yeah, Chris, you really see those headlines, and then you see the stock performance in April and you just think there's just some disconnect with what investors are seeing. Now, we're still off in the highs, so clearly the COVID pandemic that is facing all of us continues to have that impact. So, we're down from the highs, but it's been a really nice rebound. Really, the April, which is pretty much across the board, energy was actually the best-performing sector in the S&P 500, but clearly tech and consumer are seeing a nice rebound as well. And you just look at the numbers, Chris, and you look at how each of us is interacting day-by-day and I just can't help but think, you continue to see this divide between the digitals haves and the digital have-nots and the companies that are really reacting well to the pandemic, and as we are using more Zoom and Google [Alphabet] solutions and Microsoft (MSFT 0.13%) solutions, Apple (AAPL 0.20%) solutions, much more digital solutions, those companies not just during the pandemic but also through the pandemic will continue to do well and thrive. And those that aren't, that are much more tied to the traditional economy are the ones that look like they're going to be the ones that are going to be long-term dragging behind. But clearly a lot of excitement in April with the news that's coming out about potentially improving and unlocking the economy longer term.

Jason Moser: Yeah, I mean, I don't think we've ever really made the argument that the market makes a lot of sense in the short-run, I mean, that's something we talk about all the time is that these near-term market behaviors aren't always so easy to fully make sense of. And that's why I think it really, really supports our argument of always be investing. I mean, it's just so difficult to try to figure out ways to get in and out of the market.

You would think maybe this would be a tumultuous time for the market, but here we are, obviously, it was one heck of a month, and I think part of that really just speaks to the source of all of this, really when it boils down to it. I mean, there is a finish line here. I mean, at some point, we will have this virus under control, whether that's in the form of treatments or whether that's in the form of vaccine. So, I mean, this isn't something where I think we're looking at ultimately a lost decade. I've had questions before about the Great Depression versus what's going on now. Let's remember the causes of the Great Depression. There were a number of causes and it's difficult to really pinpoint one thing there. We know the cause of this and we also know the ultimate solution of this. And it's just a matter of buying time.

And so, we've seen that our government is going to get in there and do what it can to provide the liquidity to buy us as much time as possible. And I think that's something to remember. But ultimately, there is a finish line; that's something to always keep in mind here. I think that's why the market is willing to give this thing a little bit more credit than perhaps we were thinking it might give at the beginning of the year.

Cross: You know, my comments about the energy market in April aside, we are now looking at a very concentrated market. More than 20% of the S&P's market cap is tied to five companies, five of the largest companies and you haven't really seen that since you have the dot-com craze of the late-90s and the 2000s. So, you're seeing a concentrated market. And that's sometimes a little bit scary for investors over the shorter term, I think.

So, I still think there's just uncertainty about how investors and algorithms can react to what is happening in the consumer business and businesses in general. But also, we can't forget all the trillions of dollars that the Federal reserve is pumping into the economy to keep things humming along.

Hill: Alright. Let's get to some earnings and we're going to start with Amazon (AMZN -0.12%). Shares of Amazon down more than 7% on Friday after first quarter sales came in north of $75 billion, but the higher than expected sales came with Amazon's statement that it plans to spend all profits from the second quarter responding to the pandemic. And, Jason, anyone who has watched Jeff Bezos for a while cannot be surprised by this.

Moser: No. You can't be surprised at all. This is much of the same here. The retail business continues to impress, 27% growth in revenue, overall revenue excluding currency effects, and I think what we're really seeing, though, beyond the growth in Amazon's business, another word they mentioned in the release and something they talked about in the call, that's the durability of this business. We're at a point now, like it or not, this is a business that really needs to exist. And I think it goes to show the value and thinking the way that Jeff Bezos does. The way he's always thought about this business in such long time frames, that's starting to pay off now far beyond just the growth of the business and the durability of the business, the importance of this business.

But if we dig down into the results there, I think one of the encouraging aspects of the business, here we talk a lot about, Amazon Web Services, that hit $10 billion in sales for the quarter. They boosted the operating margin there to 30% versus 28.8% a year ago. And just to go back to that point you were noting there earlier, just so we can get some clarification there for listeners, so they understand exactly what was said there in the release. And I'm going to just go ahead and read the quote real quick so it makes sense.

They say in the release, "If you're a shareowner in Amazon, you may want to take a seat because we're not thinking small. Under normal circumstances, and this coming quarter too, we'd expect to make some $4 billion or more in operating profit. But these aren't normal circumstances, instead, we expect to spend the entirety of that $4 billion and perhaps a bit more on COVID-related expenses, getting products to customers and keeping employees safe."

Again, the durability of the business allows them to think this way, and as a shareowner, listen, I'm not taking a seat, I'm standing up and applauding this move because I really like it.

Hill: Apple's second quarter profits and revenue came in higher than expected. And, Andy, we can also add Apple to the short list of companies raising their dividend in this environment.

Cross: Very short list, Chris. It was actually a pretty good result considering that China sales were down 8% during the quarter, announcing, like you mentioned, it's going to increase its dividend by 6% and authorize another $50 billion in share buybacks. Revenues were up 1%, slightly ahead of estimates. Maybe it was $58 billion down from the $63 billion that they were expecting before the COVID-19 pandemic really started to hit.

Product sales were down 4%, that's including a 7% drop in iPhones. Now, less than 50% of total sales versus 53% last quarter. Services continues to be the bright spot for Apple as we've talked about time and time again that those revenues were up almost 17% and now make up 23% of the sales versus 20% of the sales last quarter. A really strong January, but then the COVID pandemic started to hit and dent February and March.

So, overall, really pretty nice quarter for Apple considering what was happening in China then what would really happen in February and March of this year. They now have 515 million paid subscriptions across all of their services. That was up by 125 million from a year ago or more than 30% growth and they'll cross that 600 million mark this calendar year, which is what they expected. And Wearables, Home and Accessories were at $6.3 billion, Chris, that was up 23%.

So, really, I think that you look at Apple and you say, wow! Yes, they were really hit hard by what happened in China and they're starting to see some slowdown, but overall, pretty nice quarter.

Hill: Well, and we've talked about this before, one of the things that Apple's enormous pile of cash affords it is the patience to see segments like Wearables and Services pay off, because there was a point in time where those were a tiny fraction of what Apple was doing every quarter in terms of their business. And this latest report, it's roughly $20 billion.

Cross: Yeah, it actually continues to be the bright spot for Apple. Now, the iPhone is such a key part to their ecosystem, so when those sales are down overall there is some concern there, but I think a lot of that was just considering the environment that we're in and there's maybe some hope that there's a lot of pent-up demand when you look out over the next 12 to 18-months as we begin to continue to go and shop in those stores that we'll see some bright spots on the iPhone sales.

They did flag some challenges with advertising and Apple Care for June, so that's something to watch.

Hill: Let's move to the War on Cash, Visa (V 1.09%) and Mastercard (MA 0.97%) reporting this week. Mastercard's first quarter profits and revenue came in higher than expected. Similar story for Visa's second quarter results. And, Jason, both stocks up this week.

Moser: Yeah, I mean, in regard to Visa, you know, this is not just the card that's in your wallet company anymore, they're really focused on this massive new flows segment of the business, this opportunity that they refer to as new flows. And ultimately, this is focusing on everything from business-to-business -- and that's big business and small business -- person-to-person, business-to-consumer, even government-to-consumer. And particularly now, government-to-consumer, we're finding that to be a bit more relevant these days, but all-in-all it totals $185 trillion opportunity of money moving around the world. And that's really where Visa and Mastercard are also headed with their networks.

And I think it's important to really stress the value of that network there, they're facilitating the movement of this money. But when we look at Visa, revenue was up 8% for the quarter, excluding currency effects. They now have $3.5 billion cards issued in total. They did withdraw guidance simply because it's too nebulous at this point. But again, it's not just consumer payments, it's everything from consumers to business to governments.

The long-term tailwinds, though, you do have to love. I mean, money continues to move around. Looking at some specific relationships. They renewed their relationship with Square. I think it's really important for people to recognize that Visa and Square, these are two businesses that like each other. Their success, you know, that begets success both ways and you're seeing value play out in this Visa Direct platform, which is ultimately leveraging that network to get money pretty much anywhere fast at this point.

I did think it was interesting, the disparity in the share repurchase philosophy between the two companies. Mastercard, they're sort of diplomatically suspending at this point, that'll be temporary nature.

But Visa, really, they are, kind of, putting their foot on the gas. They bought back 17.8 million shares for around $3.2 billion for the quarter. They have a plan to buyback over $9 billion in stock this fiscal year. That absolutely remains unchanged, because they don't see this COVID-19 crisis as something that is fundamentally challenging to the long-term nature of the business. Money still has to get from point A. to point B. and I think they're really showing the value in that network there. I suspect they'll be set up for many, many good years to come.

Hill: Shares of Alphabet up this week after first quarter revenue came in higher than expected. And, Andy, this seems like one of those situations where the comments from leadership is what drove the stock more than the results.

Cross: Yeah, Chris, I think expectations are pretty muted, because there's been talks from the CEO and from the company about hiring freezes and pullback in some of the spending. But overall, pretty nice. Revenues up 13%. Operating income down a little bit, when you account for the $1.7 billion European Commission fine from last year. But like you mentioned, the commentary is really what's important.

Performance was strong during the first two months of the quarter, but then in March it really pulled back. Sundar Pichai, the CEO, talked about a tale of two quarters, so that strong beginning is really tough at the end. Ruth Porat, she's very conservatively, I really like what she's brought, a lot of discipline to the financial picture, she's a CFO. She talked about -- we anticipate a second quarter that will be a difficult one for the advertising business. A lot of excitement around search with COVID terms, but they don't know how much that will monetize. Still a very well-run company. 100 million students and educators now are using Google Classrooms. That's double just from what they saw at the beginning of March.

Hill: Aaron, really quick before we get to Facebook's (META -0.93%) latest results. How are you thinking about the disconnect between what's happening in the market and what's happening in the economy?

Aaron Bush: Yeah, I think what the guy said earlier, I mostly agree with. I think we just see a confluence of lots of different factors right now. The market is forward-thinking. The mix of what companies have become a larger percentage of the markets or a smaller percentage, that has changed. [laughs] The trillions in dollars in stimulus helps. People still need a place to put their money, and obviously, things are still playing out and it's going to get better for some, worse than others, but the disconnect is real, but I think, over time, we'll start to see things connect back in a more logical way.

Hill: You know, Facebook's first quarter results seemed a lot like Alphabet's, you know their ad revenue fell in March, it sort of stabilized in April and that stock is up nearly 10% this week.

Bush: Yeah. I mean, on the consumption layer, things are holding up really well. They have 2.6 billion monthly active users, over 1.7 billion coming daily. So, the Facebook platforms are more relevant than ever. Now, on the business front, results held up pretty well. Revenue was up 17%. Record free cash flow. Obviously, some of that came before the worst of the economic crisis hit, but still this is a business that has held up really well. And I think a lot of it, you can point to some patterns where brand advertising has fallen off, but Facebook has a really strong direct response advertising business where people pay or companies pay for specific consumer responses. And so, a lot of companies have filled those voids when ad prices have fallen. Lots of stronger companies, like, e-commerce companies or gaming companies have really stepped up and have started spending more.

And Mark Zuckerberg has been pretty clear and saying that he still sees pretty major opportunities. Facebook is continuing to hire, they're continuing to spend in order to capture opportunity, both, in attracting more users, improving their core platforms, adding more products and making sure that Facebook is doing its part to help the world battle this ongoing pandemic.

So, Facebook, it still is a pretty noisy business and it still will get a lot of criticism, but there still is a lot of reason to be bullish when you look under the covers and see how strong this business is performing.

Hill: Let's move to food and beverage. Andy, McDonald's (MCD 0.25%) first quarter, same sort of thing, results were good early in the quarter, fell off as COVID-19 hit and I'm just struck by the fact that this is a global restaurant, more than half of McDonald's international restaurants are closed right now.

Cross: Chris, you got that right, we need to talk about that, the two different kinds of quarters. In January and February, global comps were up 7.2% and they finished down 3.4% versus a growth of 5.4% last quarter. Global comps are down 22% in March. So, you can really see the impact. Chris Kempczinski, the CEO, relatively new CEO, talked about January February sales doing really well. But then we saw this with the restaurant closures, limited operations, and what they call dramatic changes in customer behavior, leading them to withdraw their 2020 guidance and really cut their CapEx spending. Looking forward, operating cash flow will be much lower for the year.

So, they continue to do what you have to do when you're running that kind of store and it's $100 billion market cap company. Huge company. 40,000 stores, but obviously, it's a tough go in the face of this pandemic.

Hill: Aaron, Starbucks, the global same-store sales were down 10% in the second quarter, and Kevin Johnson, the CEO, he's working to open every store in America by early June. And I don't want to gloss over the earnings report, but this is going to be interesting to watch.

Bush: Yeah, it definitely will be interesting to watch. My hunch is that the numbers were bad this quarter, next quarter will get even worse, but this really is the type of situation where, similar to McDonald's, like, you can't extrapolate what's going on right now too much. Like, as a long-term investor you still need to kind of go back to the basics and recognize Starbucks as a great brand, when times normalize, it will reaccelerate new store openings, openings of existing stores. It still has pricing power, [laughs] it has a great digital presence. So, all of these factors -- it sucks in the short-term, but in the long-run, all of those same factors still exist and point to Starbucks being a business that can turn itself around.

Hill: Shares of Twitter (TWTR -1.35%) went down a bit despite good results in the first quarter, Jason. I mean, it seems like this was a little bit of the reverse of what we saw with Google and Facebook. Twitter executives definitely are not saying that the worst is behind them, in part because of live events. Live events helped drive engagement on Twitter. And the executives at Twitter were pretty upfront about the impact they're feeling there.

Moser: Yeah. I mean, it was a mixed bag, I think is fair to say. It certainly feels like Twitter has the opportunity here to meaningfully grow its audience as it's being seen as a source of information right now as opposed to really entertainment. Though there is a lot of entertaining stuff out there right now, Chris.

I think the real question, though, is can they keep that audience? And we're going to have to just wait and see there, but in regard to the numbers. That monetizable daily active user number reached 166 million for the quarter, that was up 24% from a year ago, that marks the fifth consecutive quarter of double-digit growth there, so that's good. Revenue of $808 million represented 3% growth. That wasn't bad. They had a pretty good quarter, but they really did show the impact of coronavirus. From March 11th until March 31st, total advertising revenue actually declined about 27%. And I don't think they're really out of the woods there yet.

They are going to have some capital expenditures ramping up here in the year, as their aim to build a data center is going to be pushed back a little bit due to supply chain constraints there. So, they're going to be spending a little bit more money and, of course, guidance is still somewhat nebulous as well. The balance sheet remains a point of strength. They have $7.7 billion in cash and short-term investments there. So, they're going to be buying back some shares.

And, again, it seems like they keep on recording these mixed bag quarters. I think it's just a matter of finding out, can they really grow that audience and keep the audience and then meaningfully monetize that audience. They just continue to have trouble doing that on a sustainable basis, but this is certainly a point of time where they have that opportunity as it's being seen as a platform of information, and right now that's valuable.

Hill: First quarter revenue for Spotify (SPOT -3.41%) rose 22%, and Spotify now has 130 million paid subscribers. Aaron, really seems like there's a lot to like in this quarter.

Bush: Yeah, I think so. I'm pretty impressed with what Spotify is putting up right now. To be clear though, I don't think that Spotify is a fantastic business yet, but I think it's doing a lot of solid work that will make it a much better business in the future. So, as you mentioned, they continue to amass a ton of active users and then convert them into paying subscribers. So, they now have 286 million monthly active users and 130 million of those are now paying.

And even though there's a lot of competition out there, it's pretty clear to me that Spotify is the one who, one, is innovating the most, and two, is becoming the aggregator of all audio in general. They threw out a couple of interesting stats. 70% of users who churn out, come back within 45 days. I thought that was impressive, and then, podcast listening has also been a bright spot, which is also more profitable for them, it's growing. And 70% of new podcasts that are put on Spotify are made on Anchor, which Spotify purchased last year.

So, from a strategy standpoint and a user standpoint, things are looking really strong. Revenue growth of 22% is good. It's not as strong as user growth due to heavy free trials, but I think that there is reason to think that it can go steadily high like this for a few more years. They also expect to be free cash flow positive for the year. And even though music isn't that profitable of a business to be in, if they're successful in aggregating all of audio as a whole, the room for profitability goes much higher. So, even though Spotify isn't a perfect business today, I like what I'm seeing them do right now and I think that they're setting the groundwork to be a much better business in the future.

Hill: On a related note, I'll just add that anyone on Spotify can get all five of the Motley Fool's podcasts as part of their offering there. So, check that out if you're on Spotify.

Let's go back to big tech. Microsoft shares up a bit this week after third quarter profits and revenue came in higher than expected. And, Jason, I feel like we say this every quarter, the Azure cloud business just continuing to get it done.

Moser: It really is. You're right, I think similar to what we were talking about with Amazon earlier, what's so impressive with Microsoft at this point in the game, it's the durability of this business. The fact that it is so important and it plays such a big role in everything that we do, they talked about it on the call, this realization of the digital economy, they're seeing essentially two years of digitization being pulled forward into two months due to conditions on the ground. And I think the continued efforts on the part of Satya Nadella to continue to invest in that cloud business, it's clearly paying off.

If you look at the overall results, $35 billion in revenue, up 15% from a year ago. Even more impressive, that operating income number grew 25%, that brought it down to the bottom-line. 23% growth in earnings per share. But back to the cloud business, that intelligent cloud segment of the business revenue at $12.3 billion, that was up 29%, thanks to that Azure revenue growth of 61%. So, yeah, you said it there, the Azure platform continues to get it done.

And I tell you, on a separate note there, you could see in the call, this really does seem like a moment for Microsoft Teams. I mean, it does seem like, in a world driven by headlines of Slack and Zoom, Microsoft Teams is starting to step up their game and you're seeing some really impressive numbers beyond just those user numbers, but just the partnerships that they're forming, the educational institutions that are depending on that platform, the NFL, big companies like Accenture and Pfizer and SAP, it's not going to be the biggest revenue driver, but again, I think it goes back to the durability of this business, the need for this business. And I think this was another quarter that really reemphasized that.

Hill: You know, I'm reminded of the fact that one of the reasons Bill Gates was so successful in leading Microsoft in the 80s and 90s was his willingness to abandon projects that had a lot of sunk costs, a lot of resource hours thrown at them, Microsoft would invest one, two years in a given initiative and then if Gates felt like it wasn't working, they'd walk away from it, they would just drop it and move on to something else. Teams does not seem like one of those things, it really feels like Microsoft is going to stick with Teams for a while.

Moser: Yeah, I tend to agree. And just as someone who's fiddled around with Teams before, I think it's a really great platform. I found a lot of use out of it, and honestly, I wish we'd use it here more at Fool HQ, but we are where we are today and that's just fine. I do like the bets they're making on that side of the business, though, for sure.

Hill: Aaron, one of the things Microsoft talked about with this latest quarter was more engagement with Xbox, not surprising, as everyone is trapped inside their homes. No one knows more about the gaming industry that I know than you. Where are we right now with the gaming industry, because it seems like every time I read something about it, people are talking about how the holidays at the end of this year are the key to everything. Is that really the case?

Bush: I think the holidays will be important, because Microsoft's new Xbox system, Sony's new PlayStation system are coming out this holiday season. So, there's a lot of hype around that, but I don't think it's as revolutionary as a lot of people think that it is. It definitely is a big deal for the gaming community, but from like a business perspective, I think other things, perhaps, are more important. I mean, with the console specifically, we will see demand, for sure. Like, it'll benefit these companies, it might benefit some retailers, it's not the type of thing that's going to save GameStop, whichever [...] on about before. But it will be beneficial. But I also wonder just if there's high unemployment if these console prices are much higher than in past generations, will it lead to a similar explosion out of the gate? I'm not sure.

But also, I think it's important to put two other things in perspective. One, is that mobile gaming is a much bigger deal than it used to be. It's the biggest and fastest growing category of gaming. So, that's not something that is strictly reliant on the holiday season like a new console launch is. And so, big parts of the gaming industry humming along just fine. And then second, [laughs] I think in a normal year, the holiday season is more important, but this is not a normal year at all. And we've seen pretty tremendous results and crazy stats around how videogame engagement, both, in terms of people playing games and watching other people play games, is higher than [laughs] it's ever been by far, e-sports is legitimizing it at faster pace than I think anybody could have expected. We're seeing records broken for, like, digital unit sales of games. So, there's a lot going on right now that is exciting that has nothing to do with the consoles coming up, which are exciting in their own way, but the industry is a lot bigger than just Xbox's new console coming out.

Hill: Last thing before we move on. We've certainly seen it in the entertainment industry that movie production, television production is being halted for all the obvious reasons. Is this affecting video game production for companies like Activision Blizzard, Take-Two and the rest or are they basically proceeding?

Bush: It definitely is affecting them. On the consumption layer, again, like, with what users were doing, it's hitting record highs. But these companies are having to figure out what every single other company in the world is having to figure out, how to work remotely, how to ship results when everybody isn't working with each other the same way. We already have seen some game delays, we'll probably see some more, but I'm optimistic that this is something that companies will figure out and this won't stay an issue forever.

Hill: First quarter revenue for Teladoc (TDOC -3.46%) came in higher than expected. Shares of the telehealth company are down this week, but, Jason, even with the drop, Teladoc has doubled in 2020.

Moser: Yeah, it's certainly been a very good year for the business, and I think that's for obvious reasons. It was a good quarter, we kind of knew that already with their preannounce a little while back, but for me, it was really the full year guidance that tells the real story and put a little context around that.

Previously, management had targeted a range of $695 million to $710 million in revenue for 2020. The most recent street average bumped that number $737 million. As of this release now, management now sees a range of $800 million to $825 million in revenue for the year, and that's pretty much all organic growth at this point. So, I think it's safe to say that we have now bought into the merits of telemedicine as a part of our overall healthcare system.

But if we look at the numbers for the quarter, total U.S. paid members grew 61%. Visit fee-only members grew 89%. Total visits almost fully doubled from a year ago. The acquisition of this InTouch Health business will also help diversify their revenue stream and their customer base, as they ultimately start working on supporting hospital customers, looking to establish or expand their telemedicine offerings.

They foresee U.S. paid members at the end of the year of at least 50 million members, that would be 36% growth from a year ago. Again, visit fee-only access, which is a nice way to get your foot in the door, that'll be around 20 million individuals. And they are calling for total visits of 8 million to 9 million, which would be a total visit growth of around 90% to 100% over the prior year.

So, the numbers are all telling a tale here. I think it's important to note all of this guidance, this is all forecast based on no resurgence of the virus here in the back-half of the year. Now, of course, we hope there is no resurgence, but the point is, that it's a fairly conservative forecast in that regard. And so, I think it all just leads us back to this notion that Teladoc Health is one company out there certainly benefiting from this idea that telemedicine can be a nice value-add to our overall healthcare system here, not only nationally, but really globally, and I think that's where Teladoc Health shines. It is a comprehensive and global network and it's continuing to grow like gangbusters.

Hill: Atlassian (TEAM 2.65%), the enterprise cloud software company out with third quarter results on Thursday afternoon. Aaron, when I think of Atlassian and the way that they develop collaboration software, this also seems like an environment where Atlassian would do even better.

Bush: Yeah, maybe surprisingly, it was a pretty boring quarter for Atlassian, which in today's world is a pretty great thing. They sell collaboration workflow software which is as relevant as it ever has been. I don't necessarily think it's more relevant or less relevant now that people are working remotely, but it still is a critical function to the way people work in the vast majority of industries. And the company's low-touch marketing, where no one has to interact with the sales rep to get onboarded and ramps up with their products and services, that is perfectly suited for today's environment, in particular.

So, this is a company that doesn't have too much to worry about and it shows in the results. The company added over 6,000 new customers this quarter. Revenue rose 33% and that was driven primarily by a 47% increase in subscription revenue. The company is still spitting out free cash flow, which kind of goes back to that low-touch marketing model, that's just a lower cost for the business to run. They have $2 billion in cash. They're still hiring. So, this is a business where things are still going well.

If there is anything different to note, though, about this quarter, it's that Atlassian is offering up free cloud-based solutions to a bunch of new companies or those who are trying to transition away from on-premise work. That free component won't go on forever. And there is a short-term cost to it, but that represents the type of long-term thinking that I like to see in the companies that I own. So, Atlassian is doing good. And that type of effort that they're putting in to help companies will build loyalty over time.

So, all-in-all, I mean, Atlassian, they're doing exactly what anyone, any investor would want to see from them as a shareholder. There's a chance that growth slows a little bit as companies are slower to make types of big decisions around tools, purchasing decisions. Right now, they are focused on other things, but looking out longer term, absolutely nothing has changed about this business.

Hill: Atlassian has a bunch of different types of software in their portfolio, is there one in particular that really helps drive business more so than the others?

Bush: I think Jira, which is kind of like a workflow tool, is their biggest and most important. It was their first product that they made. But really, what drives Atlassian is, obviously, bringing people into those products, but they also have a really good approach to knowing when to build something new, when to buy something new and when to partner with someone. Like, they shut down some of their services in exchange for equity in Slack. 

Hill: Time to get to the stocks on our radar, and our man, Dan Boyd is going to hit you with a question.

Andy, you're up first, what are you looking at this week?

Cross: Chris, I'm looking at Beyond Meat (BYND 0.75%). Tyson Chairman, John Tyson warned this week that the food supply chain is breaking with millions of pounds of beef being lost from slaughterhouses closing and processing facilities closing. So, I'm taking a look at Beyond Meat, the maker of plant-based meat substitute, like, its very popular Beyond Burger. Personally, I'm a fan of the beyond sausages, but it sells these plant burgers and meats in grocery stores like Whole Foods. It reports earnings next week, has partnerships with McDonald's, Dunkin' Donuts, it will start offering it's Beyond Beef in China for the first time through its partnership with Starbucks.

It's a $6 billion market cap, one of the hottest IPOs of the year and the stock is down to below $100 from $235 last year. Founder and CEO, Ethan Brown owns 2.5%. So, I'm really interested to see what they are talking about with the food supply chain issues that we've been hearing about for the past couple of months in the face of the COVID pandemic.

Hill: And the ticker?

Cross: BYND.

Hill: Dan, question about Beyond Meat?

Dan Boyd: Sure, Chris. Andy, let's fast forward to November real quick. Thanksgiving is coming up, are you buying a Beyond Meat turkey?

Cross: [laughs] Well, since my family doesn't really eat a whole lot of meat, if they had a Beyond Meat turkey, knowing my fan for the Beyond Meat burger and the sausage, I would definitely take a look at it.

Hill: Jason Moser, what are you looking at?

Moser: Yeah, taking a look at Medtronic (MDT 0.65%). Ticker MDT. You know, I'm a big fan of healthcare and immersive technology, and Medtronic, it's kind of like a peanut butter and jelly sandwich there, Chris, it's firing on both cylinders. It's a global medical device company with a long history of innovation. You probably saw in the news recently, they actually made the design and code for its portable ventilator available for all to use in the face of the COVID-19 crisis, which I just thought was really, really nice to see, but they have more than 80 extended reality projects under way across the company, from their diabetes division also, even using extended reality programs to help train the best way to insert glucose sensors. So, this is just a company I think is really doing a lot of cool stuff. Looking forward to earnings later this month.

Hill: Dan, question about Medtronic?

Boyd: Alright, Jason, if you can augment one of your senses, what are you going with and why?

Moser: Ooh! Augment one of my senses? Man, I feel like I'd have to augment my hearing, because I love music so much and you can just feel it.

Hill: Aaron Bush, we got less than a minute what are you looking at?

Bush: I'm going to DocuSign (DOCU -3.56%), ticker DOCU. So, there's been a lot of discussion about companies like Zoom and Teladoc lately, but DocuSign is another company that in my mind is just so obviously a more important part of the digital future, it was important before the pandemic hit, but it's accelerating what's going on with the e-signature business.

And what's great about DocuSign is that like Zoom, it is the verb, it is the word for e-signature. Two, it has a massive runaway left, and then three, it has some good optionality. So, it's a $19 billion business, but it's a lot smaller than the Atlassian, Zooms and Adobes of the world.

Hill: Dan?

Boyd: Aaron, this week we talked on our podcast about DocuSign getting bought by Adobe, what are your thoughts, still interested if they do?

Bush: I think they're almost too big, but maybe worth a shot.

Hill: What do you have in your watchlist, Dan?

Boyd: I'm going with my man, J. Moe, and Medtronic.

Moser: That's three in a row, baby. Hey, now.

Hill: Alright. Thanks for being here, guys. We're out of time. I'm Chris Hill, thanks for listening, we'll see you next week.

John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. 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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Aaron Bush owns shares of Activision Blizzard, Adobe Systems, Alphabet (C shares), Amazon, Apple, Atlassian, Facebook, Mastercard, Square, Starbucks, Take-Two Interactive, and Teladoc Health. Andy Cross owns shares of Adobe Systems, Alphabet (A shares), Atlassian, Facebook, Mastercard, Microsoft, Spotify Technology, and Starbucks. Chris Hill owns shares of Amazon and Starbucks. Jason Moser owns shares of Adobe Systems, Alphabet (C shares), Amazon, DocuSign, Mastercard, Square, Starbucks, Teladoc Health, Twitter, and Visa. The Motley Fool owns shares of and recommends Accenture, Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Atlassian, DocuSign, Facebook, Mastercard, Microsoft, Slack Technologies, Spotify Technology, Square, Starbucks, Take-Two Interactive, Teladoc Health, Twitter, Visa, and Zoom Video Communications. The Motley Fool recommends Adobe Systems, Beyond Meat, Inc., and Dunkin' Brands Group and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short May 2020 $120 calls on Zoom Video Communications, short September 2020 $70 puts on Square, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Stock Quote
$146.40 (0.20%) $0.30
Microsoft Stock Quote
$249.20 (0.13%) $0.32
Alphabet (A shares) Stock Quote
Alphabet (A shares)
$101.43 (-0.21%) $0.21
Pfizer Stock Quote
$44.12 (-0.77%) $0.34
McDonald's Stock Quote
$239.09 (0.25%) $0.59
Amazon Stock Quote
$120.95 (-0.12%) $0.14
Adobe Inc. Stock Quote
Adobe Inc.
$297.38 (0.82%) $2.41
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$138.98 (-0.93%) $-1.30
Starbucks Stock Quote
$90.12 (1.82%) $1.61
Take-Two Interactive Stock Quote
Take-Two Interactive
$117.30 (0.61%) $0.71
Mastercard Stock Quote
$304.20 (0.97%) $2.93
Visa Stock Quote
$187.67 (1.09%) $2.02
Whole Foods Market, Inc. Stock Quote
Whole Foods Market, Inc.
Medtronic Stock Quote
$85.05 (0.65%) $0.55
Dunkin Brands Group Stock Quote
Dunkin Brands Group
SAP SE Stock Quote
$87.18 (-0.98%) $0.86
Accenture Stock Quote
$274.34 (0.01%) $0.03
GameStop Stock Quote
$26.39 (-4.38%) $-1.21
Twitter Stock Quote
$51.30 (-1.35%) $0.70
Activision Blizzard Stock Quote
Activision Blizzard
$74.11 (-1.19%) $0.89
Alphabet (C shares) Stock Quote
Alphabet (C shares)
$102.22 (-0.19%) $0.19
Teladoc Health Stock Quote
Teladoc Health
$27.03 (-3.46%) $0.97
Block, Inc. Stock Quote
Block, Inc.
$62.15 (-0.42%) $0.26
Atlassian Stock Quote
$242.46 (2.65%) $6.25
Spotify Technology Stock Quote
Spotify Technology
$91.40 (-3.41%) $-3.23
DocuSign Stock Quote
$53.89 (-3.56%) $-1.99
Zoom Video Communications Stock Quote
Zoom Video Communications
$77.52 (-0.03%) $0.02
Beyond Meat, Inc. Stock Quote
Beyond Meat, Inc.
$16.03 (0.75%) $0.12
Slack Technologies Stock Quote
Slack Technologies

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.