In this episode of Motley Fool Money, Chris Hill and Motley Fool analysts Ron Gross, Andy Cross, and Jason Moser take a look at the latest headlines from Wall Street and go through earning reports of companies in a range of industries. They discuss the recent jobs report and they share some stocks for your watch list.
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This video was recorded on May 8, 2020.
Chris Hill: On Friday morning we got the jobs report for April, the unemployment rate soared to 14.7%, the highest level since the Great Depression. And, Andy, we knew it was going to be a big spike, and a month from now, we know this is going even higher.
Andy Cross: Yeah, Chris, it was a little bit lower than expectations, which I guess is some good news, but we've seen 33.5 million people have filed for weekly unemployment claims since, really, the crisis really got kicking off. That's almost one in five U.S. workers now. The temporary layoffs that we saw on the jobs report really surged up more than 10X to 18.1 million versus the number of permanent losses that jumped 544,000 to 2 million; that's 37% increase. Interestingly, employment-to-population ratio fell to 51.3% down 8.7 percentage points, and that's the lowest ever since 1948, when they started recording these figures, and the biggest drop since then.
So, really you start to see the details behind this report. The leisure and hospitality industry just got crushed, as we expected, down 7.7 million jobs, a loss of 47%. So, obviously, a lot of pain there. And what will be really interesting, from my perspective, is just looking to see how long this lasts because I think we're seeing some nice reaction today from the market, but overall there's going to be this lingering effect and that's really going to impact stock prices, I think, over the next few months.
Ron Gross: Yeah, I agree, simply staggering and each job lost represents a story, a human story out there. And really, it's not just a data point on a piece of paper, it's a lot of folks out there that are hurting. My hope is that the various stimulus packages, whether they're the Paycheck Protection Program or the enhanced unemployment will somehow bridge the gap to at least some extent for most folks.
Interestingly, a high percentage of the number, I think it was greater than 70% of people responding, think that their job loss is temporary, more of a furlough than a layoff or a firing, I certainly hope they are correct. I think to a large extent they are, but as we've said before, this is not going to be flipping a switch. Everyone is not going to get back to work quickly or as quickly, and not everyone is going to get back to work because I think there will be some businesses that permanently go out.
But the stock market is looking forward, which I think is important, and we can see that in the numbers. You know, [laughs] the Nasdaq is actually up for the year, how could that possibly be? Fascinating. S&P down less than 10% for the year at this point. So, the stock market is looking forward, the job numbers look backward.
Cross: Yeah, Ron, that's a great point to see how long this lasts and how many of those jobs come back. So, many temporary and furloughed workers on the sidelines right now and needing help and getting help from the Federal government, that's great. The length that goes for the next month to three months I think is going to be really telling for the markets.
And to your tech factor, for every 10 jobs lost since the crisis, we've created three jobs. I think, so many of those jobs have been created in the tech space. And those jobs, I think -- and we've seen this time and time again -- those jobs and those companies continue to be around and to hire and see some expansion as we're seeing in the earnings results this quarter.
Hill: Alright, let's get to some earnings and we're going to start with the ridesharing economy. Uber (UBER +3.61%) and Lyft (LYFT +0.45%) both came out with first quarter reports this week and both stocks up, Ron, although there are so many question marks with Uber and Lyft, I don't even know where to begin.
Gross: [laughs] There were question marks before the pandemic. Now, we've got triple question marks. Similar stories, though, coming out of both companies. Weakness in bookings began late-March into April, so a real big drop-off in gross bookings and riders, but both management teams signaled that they have seen a rebound in the last three weeks, a nice, steady rebound that seems to be continuing.
Both companies are cutting costs in an effort to eventually become profitable, because I will remind everyone that these companies have not been profitable yet. So, costs perhaps, especially in the current environment, are too high. So, both companies are cutting costs.
Uber is the non-pure play here, so interestingly, they have some offsetting businesses that helped. Uber Eats, for example, up 52% in gross bookings, probably not a surprise as many folks are turning to DoorDash, Grubhub, Uber Eats for food. Their freight business is also strong; 55% growth in bookings, but that is a smaller business than the other two. They're trying to get profitable; both are signaling it's not going to be this year, that's not a surprise, perhaps next year. We'll have to wait and see; I've heard that tune before.
Hill: Shares of MercadoLibre (MELI +1.30%) up 30% this week after a monster first quarter report. Andy, active users up, transactions up. MercadoLibre looks bulletproof right now.
Cross: Yeah, Chris, I mean it was a really impressive report. Unique active users up 31%, now 43 million. Number of new users up 13 million. That was an acceleration from 12.3 million in the first quarter of 2019. Net revenues up 38% in U.S. dollars, up 70.5% when you account for foreign exchange, the strong dollar really having an impact there. Commerce up 62%. The Commerce revenues up 62%. And Fintech up 83%; a little bit of a slowdown from the fourth quarter, but I think we kind of expected that.
We're seeing growth, again, across all of their countries: Brazil, Argentina and Mexico. Brazil has actually been a little bit of a struggle for them.
MercadoPago continues to be such a great growth engine for MercadoLibre, the payments business. Total payment volume up 43.5% in U.S. dollars; up 82% when you back out that strong dollar. So, really a strong quarter for MercadoLibre. They continue to show the relevancy in providing commerce services, payment fintech services, logistic services for all kinds of business units in Latin America.
Hill: Well, and we've talked before about how we're seeing accelerations in different businesses. And when you look at MercadoLibre, it seems like one of the things that they are accelerating is their lead over the competition.
Cross: I think so, part of that also is just, A. they have such a great brand and such great services. And like I mentioned, payments, logistic, financial services. Just the response to what they've done around the COVID. They launched new marketing campaigns called "Stay at home, we are delivering," they reduced listing fees, they extended grace periods for the people who have to pay off loans, eliminated late fees, they're doing all the right things for their clients and their merchants to be able to maintain that lead, and that's so important in a time of crisis.
Hill: MercadoLibre shareholders had a great week, and the only people even happier are Twilio (TWLO +1.14%) shareholders. Shares of Twilio, the cloud communications Platform-as-a-Service company, up more than 60% this week after a first quarter report that just blew away Wall Street expectations, Ron.
Gross: So, impressive. Year-to-date up 75% for the stock, that's simply incredible in this environment. Crushed expectations, revenue up 57%. Their dollar base, net expansion rate, retention rate up 143%; 135% if you exclude an acquisition. Incredibly strong. Their non-GAAP operating income almost doubled to 6.1 million, so profitable. On a non-GAAP basis, but still it's an important metric, I think, to look at. And their non-GAAP EPS is up 20%. So, really strong.
190,000 active customer accounts as of now, up 23%. Very strong growth numbers. They are able to see into Q2, guiding for a 35% revenue increase, but there it didn't feel comfortable looking out at the full year, so they withdrew their full-year guidance, not surprisingly, as everyone is doing, so. They did indicate that they would continue to spend on marketing and R&D to remain competitive.
Hill: Disney's (DIS 0.42%) second quarter profit fell 91% compared to a year ago, but Jason, Disney stock basically flat this week, because there really weren't any surprises, were there?
Jason Moser: No, I think that's a good point there. Weren't really any surprises, and you know, we are seeing a little bit of a turn in the headlines here, that there is at least some optimism starting to come into our day-to-day lives here. And so, at some point or another, COVID-19 is going to be in the rearview mirror and Disney is still going to be awesome. And so, I think that's kind of the way the market is viewing this right now, and I actually think that's the right way to look at it.
Because honestly, this isn't just a Disney thing, right? Pretty much everyone around the world is in the same boat here. We knew the numbers are going to be bad, if we adjust for certain items, as earnings fell 63% from a year ago. They estimated a $1.4 billion hit to operating income for the quarter due to COVID-19.
Now, the good news there, I think they did a good thing in forgoing the semiannual dividend, and that comes out to about $1.6 billion in cash that they're going to save. And the optics there are really good as well. And if you look at how the business was performing before the shutdown, per capita guest spend during the period the parks were open, it was up 13% on higher admissions, merchandise and food and beverage spending. Per room spending at the domestic hotels was actually up 6%. So, they were performing very well before the shutdown started.
And then, certainly, Disney+ which has been on the top of everyone's mind. As of May 4th, they estimate around 54.5 million Disney+ subscribers and they're going to be rolling that out into new markets here as the year progresses. So, it is a difficult time, obviously, for everyone, but there are a lot of ways Disney can win. And I think the market is looking at it the right way.
Gross: Yeah, I heard the famed investor Jeremy Siegel speaking this morning, he made a good point. He said, 90% of a company's value is based on the cash flows that a company will generate after the next year. And if you believe in Disney after this next year, I think it's too good a price to pass up here, I think it will remain a strong company and do great things.
Hill: Well, and, Jason, presumably Disney's attempts to open the park in Shanghai, depending on how that goes, that maybe provides a roadmap for opening those parks back up in the States.
Moser: Yeah, that's a good point. There are still a lot of questions to answer here domestically, of course, and we have to acknowledge that anything can happen; we're still not out of the woods. But again, I mean, there is a finish-line here at some point regarding this virus. Disney is still going to be just as strong, it's still going to have all that IP and all those parks and everything. So, it's still going to be a company in great shape. So, I suspect they'll be able to weather the storm without too much of a problem.
Hill: Sticking with entertainment, two of the bigger players in video gaming out with quarterly reports. Activision Blizzard (ATVI +0.00%) and Electronic Arts (EA 0.07%) both saw their stocks rise this week. Ron, there's certainly a lot more gaming going on these days; what stood out to you?
Gross: Yeah, for sure. As folks are staying home, net bookings of both companies rose, which I think we would have expected to see. They both have very strong franchises. Out of Activision, Call of Duty remain really strong. Their new free game Warzone accumulated 60 million players since March 10th. World of Warcraft remains really solid. They actually were able to raise their full-year guidance as well as their dividend, which is really impressive.
Electronic Arts is also relatively strong, but not as robust. And I think we saw a little bit of weakness in the shares at certain points for a couple of reasons. One, I think the valuation is significantly higher than Activision; 35X EA versus 28X Activision. As well as some concern that Electronic Arts really is dependent on sports gaming, like, FIFA and Madden. And in an age where we don't know what the future of live sports looks like, there could be concern there that we'll see some negative impact on those franchises. So, in this case, I think Activision is a bit stronger, but under the circumstances everyone is sitting at home, playing lots of video games.
Hill: We've certainly seen, Ron, in the movie business that production schedules have been halted around the globe. Are we seeing that sort of thing in the video game space as well, because some of these games are created in such a way where you actually need people to get together?
Gross: Yeah, I think that both companies are going to spend, because they have to, because as you said, it's similar to the movie business, you need to either reenergize your franchise that exists or come up with new games. But they'll be spending prudently for sure. In this environment, you've got to protect the balance sheet. But as we saw with Activision, as I said, increased the dividend, so they're certainly thinking that business will remain strong.
Hill: Shares of Wayfair (W +0.28%) up 50% this week after the online home furnishings company's first quarter loss was smaller than expected. And, Jason, some of those people who were shorting Wayfair, they headed for the exits.
Moser: [laughs] This stock chart makes Space Mountain just look like a little stroll through the park, Chris. It's been a crazy year, no doubt. I mean, I think a time like this is shining a light on the advantages of the market that Wayfair is pursuing. As you know, a lot of their competitors are really closed for business, and Wayfair is not. And then when their competitors open back up, they're still going to be limited to the traffic they can take in and it's still not certain that consumers are going to be all that willing to go out there and shop around crowded stores.
So, as much as there was probably an overreaction to the downside on Wayfair earlier this year, this may be a little bit of an overreaction to the upside, but there are reasons for the market's reception here. And there was a quote that stood out in the call, they said, starting in mid-March, we saw pickup in both traffic and conversion with increasingly strong repeat behavior coupled with an acceleration in new customer orders. So, right at the time when business was falling off a cliff for a lot of businesses, it was picking up for Wayfair, and that showed in the numbers with revenue of $2.3 billion, up 20% from a year ago; gross margin ticked up 70 basis points; active customers up to 21.1 million versus 16.4 million a year ago. And that most important metric that we always talk about, the repeat customers. Repeat customers placed 69.8% of total orders in the quarter versus 66% a year ago.
So, again, all of the numbers tell us that what they're doing is working. And the market's going to give them a little wiggle room until they get to that ever-invasive profitability, but it sounds like that's coming probably pretty soon.
Hill: Jason, I feel like a couple years ago, when we started talking about Wayfair, that repeat customer number, which I remember you highlighting even back then. My memory is, that was somewhere in the 40s.
Moser: Yeah, you're right. And with any new business like that, they have to acquire customers and then they really focus on trying to get those customers to come back and buy more. It costs money to acquire those customers. So, the more repeat business, the less they have to spend on acquiring those new customers. And for a business model like Wayfair that really is crucial.
Hill: Pinterest (PINS +0.05%) first quarter results showed slowing user growth, and shares were flat for the week. Ron, Pinterest is a growth company and we don't want slowing growth in our growth companies.
Gross: [laughs] That is very well said. The quarter was solid, but it's all relative. I think, most importantly, folks are looking at what they said about the second quarter, which they expect to see advertising revenue decline, so that in late-March and into April. Also expecting lower margins as costs increase as user numbers grow; and I don't think investors like that at all. Interestingly, this is another stock, though, that is actually up this year, almost 5% but at around $19 a share, trading kind of flat to its IPO. So, it's a stock that overall hasn't gone anywhere.
But for the quarter, you know, you saw revenue up 35% and 26% growth in monthly users. I think folks were hoping for numbers that were a little bit stronger than that, but you can't argue that those are relatively strong. They're still not profitable, but adjusted EBITDA only about -$53 million; I say "only," that's not too bad, a little bit of growth and a little bit of cost-cutting can perhaps help them turn the corner there. They did pull guidance as everyone else did. Balance sheet looks good; they've still got a fair amount of cash, not in any jeopardy there.
Hill: Although you think back to the start of earnings season, Snap came out with a pretty solid report and that may be part of why the expectations for a business like Pinterest on the ad side were higher.
Gross: Yes. And for sure, I think you've got to be prepared for a second quarter that's going to look pretty weak. I don't know if that's a reason to sell the stock off now, because again, that's only one quarter.
Hill: Shares of Etsy (ETSY 1.24%) up more than 20% this week. First quarter revenue came in higher than expected. And, Andy, you look at the early results that we're seeing so far in Q2, and right now Etsy is on fire.
Cross: Chris, it was really another nice quarter with gross merchandise sales, so the sales across the Etsy platform, up 32.6% to $1.4 billion, and net revenues followed up almost 35%. Their Marketplace revenues up 23%; that's about 68% of sales, that's down a little bit from the first quarter or from the quarter last year. And their Service revenues were up more than 70%.
Active buyers up 16% in the quarter, which is nice; and active sellers up 26%. They did see at least higher growth in their operating expenses, which hit their profitability; I think there were some concerns with that from the marketplace.
They really saw this explosion in mask interest and sales. April mask sales were $133 million in gross merchandise. They sold 12 million masks in April. If that was its own category, that would be the second highest category of goods sold across the Etsy platform. So, a really nice overall quarter. They saw some nice growth in their new Reverb musical instruments business they acquired last year. In April merchandise sales were up 50% and their forecast was pretty nice for the second quarter, revenues up 70% to 90% and continued operating profit margins on the adjusted side between 23% and 27%.
So, overall, pretty nice quarter for Etsy and you see it in the stock price.
Hill: Yeah, it's a sign of the times that we live in that the CEO gave an interview this week and broke out Etsy's sales into two categories; masks and non-masks.
Gross: [laughs] Yeah, it certainly is an indication of what we went through and what we're continuing to go through, but when you see just the quest and the thirst for mask and protections. And, hey, you got to start to marshal resources where you can find them. And there are millions of people out there looking for masks and lots of Etsy sellers willing to make them and sell them.
Hill: Square (SQ 1.48%) and PayPal (PYPL +1.28%), both, out with first quarter reports. Square's stock up 15% this week; PayPal shares up 20% and hitting a new all-time high. Jason, cash is going to have to throw in the towel soon, because this is getting very one-sided.
Moser: [laughs] Yeah. Even cash doesn't like he's in cash anymore, Chris. You know, this takes me back to last week, what Satya Nadella said on the Microsoft call. He said, we've seen two years' worth of digital transformation in two months. He's right. And ultimately what that means, there are a lot of companies that are leading this transformation and they're doing really well because of it. Payments companies certainly are in that group.
PayPal, very strong first quarter results. And I want to actually talk about the month of April alone, because they added 7.4 million net new accounts in April alone. Now, that compares to 9 million new accounts in all of the second quarter a year ago. So, you can see this business accelerating. They added 20.2 million net new actives in the first quarter; now, about 10 million of those were from the Honey acquisition, but overall, total payment volume is $191 billion, clearly there's a lot of money moving through that network.
And with Square, it was really a lot of the same kind of thing just on a smaller scale. Sales of $1.4 billion, that was up 44% from a year ago; actually 51%, if you exclude the Caviar side of the business which they sold off. Cash app generated $528 million in total net revenue. They continue to bring more users into the ecosystem there.
But they did note, during the last two weeks of the first quarter, seller gross payment volume is down 39% from a year ago. It does sound like things are getting a little bit better, they are participating in the Paycheck Protection Program, so they're playing a role in getting that money back out to consumers and their merchant customers.
So, all-in-all, I understand the market's optimism with these two businesses; I'm optimistic as well.
Hill: Where do you want to see these companies investing their money? Obviously, PayPal is much bigger than Square, so they've got more to deploy, but just as a shareholder, what do you want to see in terms of capital allocation?
Moser: So, I think with PayPal, you know, you're going to watch them continue to make maybe some little acquisitions here-and-there. I think integrating Honey is going to make a big difference into the business and bringing more people into that network. And certainly, hey, they quoted the acquisition of Xoom as being one that's really paying dividends. You remember Xoom, a financial remittance company, not Zoom the video company. But they noted on the call, they've seen a 400% increase in people using Xoom. So, I think they're going to place a lot of emphasis on that remittance market here in the coming quarters and years.
And I think with Square, they're going to continue to invest in that capital side of the business, they're getting their bank charter, so they're going to participate more in lending, but they're also making a lot of investments in their Square online store, which is kind of their answer to Shopify.
You see Shopify trying to become a little bit more of a payment-style company, and you see Square kind of going that other direction, trying to become a little bit more of an e-commerce company. And so, the nice part is, it's a really big market, there's plenty of room for both companies to win, but that's right, I see them focusing their attention in the near-term.
Hill: Shares of Roku (ROKU +0.19%) up this week. Roku's ad business took a hit in the first quarter, but, Andy, we saw some solid user growth from Roku, as well.
Cross: We did, Chris. Now, they preannounced their results maybe a few weeks ago, so it wasn't too surprising. Revenues up 55% to $321 million, up 73% on the platform side, so that's really a lot driven by advertising, the player revenue is a little slower growth, up 22%.
Active users up 37%, and now almost 40 million. Saw some growth on their player unit sales of 25%. Saw a drop in the average selling price which hurt them on the revenue growth side there. Average Revenue Per User at $24; when you look over the course of a year of revenue, that's up 28% from $19 a year ago. The gross profit trailed a little bit, Chris, that was up only 40%. Their platform margin saw a hit.
And as you mentioned, a lot of that was from some of the advertising conversations, so streaming hours continue to be very, very exciting. They stream more than 13 billion hours in the quarter, that was up 49%. And streaming per user continues to grow. But the downside to the quarter was really some slowdown in the advertising. And just some conversation on the conference call about, hey, the advertising market we are definitely seeing a pause or reduction in spending from some of the advertising clients, and that might be a drag on Roku's revenues going forward for a little bit.
Hill: Yeah, it really seems like the advertising pie is getting smaller in 2020, when you hear companies like Expedia saying, we're cutting our ad spend by 80%. And yes, we get some surprises on to the upside here-and-there, we certainly saw that recently with Alphabet and Facebook and their latest results, but I think, across the board, what we're seeing with businesses like Roku and Pinterest and certainly at the local level, that seems to be more the norm, doesn't it?
Cross: I think so, Chris. And it's a little bit more on the branding side. So, Roku talked about the ad cancellations being particularly pronounced in late-March and then continued into April. So, I think as opposed to maybe targeted, like, search advertising or very specific advertising, much more maybe on the branding side Roku has seen some of those slowdowns.
And there are some clients, when you just look at some of the spending and the business impact from the COVID crisis that we're going through, companies just may not be willing to spend at a large scale like they used to, and that might be bad for Roku's, not just the revenue side, but also for the profitability side because those are very high margin spend on the Roku platform.
Hill: First quarter sales for Shake Shack (SHAK 2.79%) down 45% and yet, Jason, it kind of looked like there were some glimmers of hope for Shake Shack's business.
Moser: Yeah, I think so. I mean, the stock has been cut in half since the middle of last year, so it's coming off of a little bit of a tough time. I mean, clearly restaurants are one of the most severely affected by what's going on. and for Shake Shack, honestly, it could be worse. I mean, at least it's not a casual dining concept, right? But that said, they definitely have some problems to deal with.
Tricky time, total revenue was up 8%, however, comps for company-operated domestic stores fell 12.8% or that's what they call the same-shack sales, any which way, [...] it's a mouthful, I guess. There are certainly signs as many other restaurants, I mean, in their most recent fiscal week, the week ended April 29th, same-shack sales were down 45% compared to the same quarter a year ago, same week a year ago.
You know, they are in cash conservation mode and they noted that. They're really focused on making sure they're in a good capital position. They've issued some additional equity to raise some money. They have pulled down some from a line of credit. They are going to continue to invest in delivery. They're no longer exclusively just Grubhub, and that's good, I mean, it's a double-edged sword, it's not the most profitable business in the world but it keeps the lights on and it keeps business running.
But they are going to, in the near-term I think they're going to have a couple of challenges here. No. 1 the availability of beef is starting to come into question. And obviously, that's about a third [laughs] of what they're putting out there. And there was some analysis out there that about a fifth of Wendy's locations nationwide have taken beef items off their menu. So, I mean, that's just because of the lack of availability. And then, clearly, the economics that result from that, beef prices are going to go up, that's going to hit them on the margin side as well. So, they're playing a little bit of defense right now; this isn't a company that, I think -- they don't do for the burger what Chipotle did for the burrito. So, I think you got to probably keep your expectations in check. There's probably still some growth to be had there, especially from today's price, but no question they've got some problems to deal with.
Hill: Is it safe to assume that Shake Shack has scaled back on their expansion plans? Because this is a business that was heavily concentrated in New York City, sort of the mid-Atlantic area. There were tremendous opportunities for expansion, but I'm assuming they've scaled that back.
Moser: Yeah, they've at least put it on hold. They had some projects that had been put on pause and then projects that haven't been started yet. They're just pushing that out a little bit further down the timeline, as I said, they're in that cash conservation mode. And I think that's the right move for now. They need to make sure they come out on the other side of this with a good capital position, which I think they will, but it definitely delays the growth story, no doubt about that.
Hill: On last week's show Beyond Meat, was the stock on Andy's radar, at the time, Beyond Meat was $90 a share. One week later, it is $130 a share. So, you tell me, Andy, what was in Beyond Meat's first quarter report?
Cross: Yeah, Chris, it was a pretty nice quarter when you think about revenues up 140% to $97 million. Now, that was a deceleration from the fourth quarter's growth of 212%, but still very nice retail sales. And the retail business and the food service business are about the same, at 157% growth, but half the total business is tied to U.S. retail. So, that's very important to them.
I'll note, inventories were up only 48%, Chris, that's a really good sign that Beyond Meat is doing a very nice job being able to manage their inventory and their point of growth. That won't always be the case, but they've done some nice things in that line that helped gross margins to 38.8% versus 26.8%. So, a really nice boost there on the gross margin side. And they became profitable in the quarter, which was unexpected, I think, from what Wall Street was looking at. So, nice balance sheet, lots of growth, a very expensive stock when you look at the earnings potential.
Hill: Real quick, Andy, before we get to the stocks on our radar. A week ago, which feels like two months ago, we had the Berkshire Hathaway Annual Meeting, and the big headline coming out of it was Warren Buffett selling every share of airline stock, but more surprising to me, he's not really buying anything.
Cross: That's right, Chris. As you and I talked about on the show, he really has been, I would say, cautious even more so than just conservative. Like, just seems very cautious about the market environment, stung by the loss that they took on the airline sales and they sold more than $6 billion worth in April, most of those in airlines, cashed out completely there. It was not a good investment for him and for shareholders.
I think he was just a little bit dour and down just from the lack of having a lot of thousands of thousands of people at the Woodstock of capitalism, as is known, in Omaha for the shareholder meeting. So, it was just a totally different feel, but very just cautious, working in an environment, wondering maybe perhaps what the intrinsic value of Berkshire Hathaway is actually really worth, and not even buying a lot of Berkshire Hathaway stock itself.
Gross: Yeah, that's what I was going to touch on. Understanding business is weak, energy business is weak, their investment portfolio is weak. Maybe, as Andy says, it's hard to get a line on exactly what book value or intrinsic value looks like, but I was stunned that he didn't put more money to work. And if he didn't like anything out in the market, which I don't even understand how that could possibly be with stocks on sale to the tune of 25% to 35%, how could he not buy more of his own stock back? Berkshire is my largest holding; I was disappointed to see that.
Hill: And for anyone wondering, is it time to buy the airlines? Yeah, that's a resounding "no," at least from Warren Buffett.
Let's get to the stocks on our radar. Our man, he's not behind the glass, he's on the video screen like all of us are, it's Dan Boyd. Andy Cross, you're up first, what are you looking at this week?
Cross: Smartsheet (SMAR +0.00%), Chris. Symbol SMAR. It's one of the collaborative workforce tools out there available, a $6.6 billion market cap company, makes subscription products that help companies organize their workflows much better. They take email, spreadsheets, phone conversations, meetings, whatever it may be, a collaborative tool, helps their clients and their clients' workforce work more collaboratively. Sales growing 50% per year, a 135% dollar-based retention rate last quarter, continues to expand its user base across more than 6.3 million total users. They report earnings sometime, I think, in the next month, so they're a little off-cycle here. So, I'm really interested to see what they are experiencing, because the last time they reported, Chris, it was really before the COVID epidemic. So, interesting to see what they are hearing.
Hill: Dan, question about Smartsheet?
Dan Boyd: Yeah, Andy, so if we, the Motley Fool Money radio team here, were to start using Smartsheet in our workflow, would that make us any smarter? Because if anybody needs it, it's us.
Cross: I was going to say, do we need to be that much smarter, Dan? I'm not sure about that, but, yes, I think it might make us just a tad bit smarter if that is possible.
Hill: Jason Moser, what are you looking at?
Moser: Yeah, taking a look at Coupa Software (COUP +0.00%), COUP is the ticker. Coupa is the provider of business spend management solutions, basically that helps businesses focus on procurement, invoicing, expense management, helps them make their operations more efficient, save money. The value proposition is pretty simple there, it is just to increase user adoption and spend under management that drives better visibility and control what a company is spending. So, it's a business that ultimately has really strong network effects that over time should lead to some level of pricing power, and we do like to see that.
It's been a good year for the stock so far. They're still working on that pesky profitability number, which makes valuation in the near term a much larger risk, but it is a good business, compelling network effects, I really do like this one and I'm enjoying learning more about it.
Hill: Dan, question about Coupa Software?
Boyd: Certainly, Chris. Jason, when I think Coupa, I think Mario, as in Super Mario. So, do you have a favorite Super Mario game?
Moser: You know, I am old-school, I go back to the very early days of Super Mario Brothers on my Nintendo, boy, oh boy, wasted a lot of time playing that thing.
Hill: Ron Gross, what are you looking at?
Gross: Circling back around to Costco (COST 0.53%), COST, due to some news that came out this week. I'm a big fan of their membership model, their value prop offer to consumers, their management team. I think they'll likely be one of the winners when this all shakes out along with Amazon and Walmart.
Interestingly, they recently released April sales numbers that were weak due to, perhaps not surprisingly, less traffic at warehouses, also travel food courts, closures of departments like Optical and Hearing Aids hurt them. Comp sales in the U.S. down 3.3%; in Canada down 11.7%. If we strip out gas and foreign exchange, it looks a little bit better. But a weak report for Costco that perhaps we're not used to.
I am happy to report that e-commerce was strong at 85%. So, something that we might expect. Traffic to the stores is weak, e-commerce strong, but we've got to keep an eye on this. We have to see the trend reverse, because at 34X, this company needs to continue to put up that growth. So, that's what I'll be keeping an eye on.
Hill: Dan, question about Costco?
Boyd: Sure. Ron, you're a known doomsday prepper. So, what sort of things were you hoarding from Costco this summer, Ron?
Gross: [laughs] Well, you know, obviously, toilet paper, but you can't go wrong with their rotisserie chicken, you just get a bunch, you freeze them right up, they last forever. Delicious.
Boyd: Very nice, Ron. And, Chris, I think I'm going with Ron on this one for Costco. I need those jeans, those Kirkland jeans.
Hill: [laughs] Alright. Ron Gross, Jason Moser, Andy Cross; guys, thanks for being here.
Cross: Thanks, Chris.
Moser: Thank you.
Hill: That's going to do it for this week's show. Our Engineer is Dan Boyd, our Producer is Mac Greer. I'm Chris Hill, thanks for listening, we'll see you next week.
