The stock market was underwhelmed despite strong results from major retailers. In this episode of Motley Fool Money, Chris Hill is joined by Motley Fool analysts Jason Moser and Ron Gross to go through the latest headlines from Wall Street, employment figures, the change in people's spending habits, and corporate debt. They also share results from the CRM, discount retailers, and cosmetics spaces, as well as news that an iconic brand has filed for bankruptcy. Finally, they answer listener questions and share some stocks to put on your watchlist and much more.
Later in the show, Rick Munarriz and Mac Greer chat about the reopening of theme parks and the entertainment industry in general.
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 29, 2020.
Chris Hill: We've got the latest headlines from Wall Street. We will dig into the entertainment industry. And as always, we've got a couple of stocks on our radar, but we begin with the market writ large. In a week where the unemployment number hit 40 million over the past 10 weeks; Ron Gross, we also have the S&P 500 basically where it was seven months ago when unemployment was so much lower. Back in late October that was an all-time high for the market. S&P 500 is still down about 7% year to date, but I continue to be surprised, and a little bit confused, by how well the market is doing.
Ron Gross: [laughs] Yes. Stone's throw from ... kind of, getting closer to even, Nasdaq actually up. Conventional wisdom at December 31st said the market was overvalued at about 23 times earnings, that was when we had historic low unemployment, and earnings that were really solid, now we have not that, and the markets are getting back to where we were. So, there's a lot of folks that are concerned that the market has gotten ahead of itself, even, I love the optimism of hoping a vaccine comes and hoping we get back to business, but we're not going to get back to the levels we saw at December 31st anytime soon, so for the market to be approaching those levels seems to me that it's getting a bit ahead of itself. And I hope I'm wrong, because I love when the market goes up.
Hill: Jason, what about you?
Jason Moser: Well, yeah, we fell really far, really quickly and we've certainly gained some of that ground back. I think Ron's right, there's probably, generally speaking, a pretty glass half-full attitude out there today, in that, there is -- at some point or another we'll be able to open back up and, kind of, get back to normal.
If you look beyond the stock market, I saw some really interesting information this week, the personal savings rate, according to the U.S. Bureau of Economic Analysis, just hit 33% in April. And if that sounds abnormally high, that's because it is abnormally high. I mean, that's a number that normally is in a 5% to 10% range in really good times. And that came as ultimately spending declined in April by about 13.6%. And so, you can see at least some folks out there trying to prepare for the worse and hope for the best. But when you look at it from the greater economy, like, the U.S. consumer accounts for more than two-thirds of the economy. So then, the big question really becomes, is this savings rate? I mean, I don't think that's the new normal; is it more due to the situation at hand? I would argue that it is. But perhaps, maybe something that comes from this is a renewed focus on saving and being prepared; a little bit of a different philosophy on how people handle their money. And ultimately, I think that would be a good thing regardless of what the market's doing these days.
Gross: Yeah, those savings rate numbers took me by surprise as well, Jason. I'm going to be really interested to see where they are at the end of May when the unemployment rate really starts to get crazy and folks really start to struggle. Did money have to come out of savings, did money go into savings at the same rate? I find it hard to believe because lots of people are hurting, but if there is a lot of money on the sidelines and if spending has, kind of, declined somewhat permanently or perhaps, you know, just gone down a bit.
Money on the sidelines actually, typically, is a good indicator for the stock market, because people don't want to save money just in the 0% rate savings account, they typically put it to work, at least those that feel comfortable with the increased risk. So, that could be interesting, if we have lots and lots of cash on the sidelines, the institutional cash on the sidelines will be mostly what drives this money. So, it will be interesting to see how that looks as well. But I can't imagine May looking the same as April.
Moser: Yeah, I think you're probably right. Another interesting statistic out there, the amount of high-grade corporate debt that's been issued this year just past $1 trillion. That's double the pace of last year. And so, when we get back to talking about these market levels and what is really behind pushing this market up, I mean, it's a bit of a simplistic view, but when you think of inflation, you're thinking of excess dollars chasing, ultimately, a limited supply of goods, right? You got people in there bidding up those goods and prices rise.
So, there could be some sort of dynamic like that in play with the market, given how much our money supply has expanded as a country. There's a lot more money in the economy today given the Fed's actions. And with interest rates so low, and we've seen clearly these corporate debts have just hit new highs, maybe that's part of it. There's just a lot of money out there and there's no other place to really chase that return. I mean, fixed income just isn't going to cut it for a lot of folks.
And so maybe there is something like that at play here, but you know that's not something that's sustainable either, right?
Gross: Right. The injection of trillions of dollars of liquidity into the system, if Economics 101 taught me anything, it means it should have consequences now. Back in 2008-2009, we were seeing the same thing, and hyperinflation did not rear its ugly head, so I'm scratching my head about that, but theoretically, there should be consequences here down the road. However, I mean, our house was on fire and we had had to put out the fire and so the stimulus was necessary even if there are consequences down the road.
Hill: Alright. Let's get to some earnings news and we'll start with Costco (COST +0.11%). Shares went down a bit on Friday after Costco's third quarter report featured only $37 billion worth of revenue and same-store sales growth of nearly 5%.
Ron, this seems like [laughs] a good quarter and this seems like a little bit of nitpicking. [laughs]
Gross: I agree with you, Chris, this quarter was absolutely fine, you know, marred by COVID-related expenses that everyone had to bear, it's just there was no choice. So, when you see comp sales up, excluding gas and currency of almost 8%, that's a really strong number. Internationally, they were up 12%, really strong. Shopping frequency was down, as expected, everyone was sheltered in place, down about 4%, but average transactions were up 9%. And that feeds into this wonderful e-commerce number of a 66% increase, which is very, very strong. All of these good numbers despite the fact that the optical departments, the hearing aid department, the photo department, the food courts were closed for most of the quarter; in the stores.
Gross margins held up. Membership fee income up to 2.2%. The all-important renewal rates -- because let's remember, Costco makes a majority of its money by charging us a membership fee. So, very important for those renewal rates to stay strong. 91% renewal rates in the U.S. and Canada; overall in the world, 88%. So, just great numbers. $280 million of COVID-related expenses, nothing you can do about it, still generated net income of over $800 million.
Hill: First quarter revenue for Salesforce (CRM +0.90%) came in 30% higher than a year ago, but guidance was not what Wall Street was hoping for and shares of Salesforce down 5% on Friday.
Jason, Marc Benioff has done a great job running this company. Is the guidance cause for concern or do you view it more as a one-time speed bump?
Moser: I certainly would view it more as a one-time speed bump. I mean, we talk about companies that are going to emerge from this even stronger, Salesforce is one of them, they have the market-leading position in customer relationship management. And that should only get stronger, thanks to the investments that Marc Benioff continues to make, not only in the business, but it's his every stakeholder mentality, right, he's not just thinking about the company and he truly is thinking about the world, his employees, the customers and everywhere in between.
And when you look at the numbers, I mean, Salesforce does dwarf competition from companies like Oracle and Microsoft and SAP. So, this really is the market leader by a long shot in CRM.
And when you look at the results, revenue of $4.87 billion, that was up 30% from a year ago. They had $1.86 billion in operating cash flow, that was down slightly but that was due to costs associated with the pandemic. In regard to the guidance; yes, they pulled back a little bit on the guidance, but I think it's also noteworthy that they're actually sticking to some firm guidance when most companies are pulling guidance altogether, I think that's a testament to Salesforce's business model.
They have a strong subscription model that a lot of companies really depend on, the Tableau acquisition that they made is starting to show its value early on in data management. And states and counties and municipalities are looking for ways to track the virus and what not. They introduced a new platform called Work.com to help companies manage their way through this period and get back on their feet as the economy starts to reopen.
So, yeah, I mean I would certainly look at the market's reaction today, probably something to do with the guidance, but absolutely, this is still just as strong of a business; and I think it emerges from this in even better shape.
Hill: Good week for a couple of discount retailers, Dollar Tree (DLTR 0.66%) and Dollar General (DG +0.04%), both, out with first quarter reports, both stocks on the rise. Shares of Dollar Tree up 20% on strong growth from its Family Dollar chain, and shares of Dollar General run hitting an all-time high on Friday after same-store sales grew more than 20%.
Gross: Yeah, both strong reports. Dollar General I would say significantly stronger with same-store sales increases of almost 22%, as average transactions were up, as customer traffics were up; both of those things, kind of, a double-whammy to create really strong data. Not surprisingly, Home Products is the strongest category for Dollar General, gross margins up slightly as a result of less markdowns; which was nice to see. As with everyone, COVID-related costs were significant, but the higher sales actually were able to absorb those and you saw an increase in earnings for Dollar General of 73%; a really strong quarter.
Dollar Tree is also strong, but not as much. Family Dollar division of Dollar Tree really got it done with 15% comps; where Dollar Tree, the namesake store, comps were actually down a bit because they're more focused on, kind of, non-staple categories, like, candy and decorations, and the Easter holiday actually hurt them. As a result, gross margins were down a bit. And of course, they had COVID-related expenses as well.
In general, both of these value-based companies, value-based stores are putting up good numbers.
Hill: On last week's show we talked about Walmart and Target, you know, they're putting up same-store sales growth of around 10%, 11% percent. We're seeing the numbers here with the Family Dollar chain with Dollar General. A year from now, if we are much closer to normal, do you think this is going to come back to bite those retailers or will Wall Street analysts actually adjust their expectations accordingly?
Gross: I mean, we'll have to, because comps can't hold up. Dollar General said comps in May are still at 22%, so that's great for May, but as you said, you know, going out a year from now, you'll constantly hear us say, and analysts on Wall Street say, "But they were up against tough comparisons," that will be the buzzword of the retail season a year from now.
Hill: Ulta Beauty's (ULTA 2.62%) first quarter profits and revenue came in much lower than expected; Jason Moser, that can't be a surprise, can it? I mean, Ulta Beauty, I know they've got the products side of the business, but they run salons.
Moser: Yeah, that's very well put, it's not a surprise. Sales fell almost 30%. Frankly, it could've been a lot worse, if you consider how this business really makes its hay. It's clearly a company you would figure would be hit harder than most during this, with all of the store closures. They have just over 1,200 stores. And as you mentioned, that includes salon services. And when you include the salon services and the hair care products and services that come from that, it represents about 25% of overall revenue. So, it does matter. Now, they are able to counter that a little bit with online sales. They have an online business today that represents about 20% of total sales, and that continues to improve.
This is going to accelerate the omnichannel investments from a fulfillment center that they're putting up in Jacksonville, to more ship-from-store capability. So, it will be rough for a little while, but everyone's in the same boat here. And when you look at the market they pursue -- I mean, that makeup and cosmetics market, it really is, it's a large market opportunity, and it's pretty darn durable, and they really are one of the leaders out there.
I have always really been interested in this coming. You know, I run our AR and Beyond service, so I'm always looking at these augmented reality, virtual reality companies and what not. And Ulta fits that bill. They made a little acquisition a while back, and they have this app now, it's called GLAMlab, and I'd be interested to know if Mac has ever used it, [laughs] but ultimately it's an interactive app, it utilizes augmented reality, it allows people to try-on Ulta products and see what they might look like before they actually have to make that purchase. Since the crisis began, guest engagement with this tool has essentially gone up by a factor of five, and more than 30 million shades, and I would imagine that's shades of lipstick and eye shadows and everything in between, 30 million shades have been tested virtually. So, this really is a very forward-looking company. I think there are a lot of things they're doing well here. And as they're able to open those stores back up, I think they're going to be in a pretty good position.
Hill: Shares of Williams-Sonoma (WSM 2.39%) up 25% this week after a strong first quarter report. And, Ron, for years we've been talking about the omnichannel approach that Williams-Sonoma has taken and it really paid off this quarter.
Gross: It was essential, because Williams-Sonoma deemed nonessential, obviously, Pottery Barn, West Elm, nonessential, so they remained closed, 616 stores closed, for more than half the quarter. But even with that, 2.6% comp growth thanks to their multi-channel platform, as you said. And by that, we mean largely e-commerce up 30%. Overall total sales were flat, but you know, this is a pretty strong quarter for a company that had to close every store. Impacted by higher shipping costs to get that e-commerce merchandise out to consumers, but a really nice quarter. Curbside pickup is now available at 475 locations, we're kind of getting back.
Hill: Hertz Global (HTZ +0.00%) has filed for Chapter 11 bankruptcy protection. Jason, this story was rumored then reported, it became official this week the New York Stock Exchange is going to delist the stock. We'll get to Hertz in a moment, I should mention though, the most surprising part for me is the fact that shares of Avis Budget up 40% this week. Is that automatically going to be a win that extends itself to Avis Budget?
Moser: I don't know that I'd go so far as to say this is the obvious trade here. I mean, it's a tough market they pursue anyway. But in regard to Hertz, I mean, this really was just kind of the icing on the cake. It's been a very challenged business for a long time. Sales were flat, they've been taking losses left-and-right. They've been plagued by management of the people. I mean, they named its fourth CEO in six years just in May. When you don't have a leader there for any stretch, and they can't have any consistent vision or try to see around those corners and evolve and adapt, it just really puts the business in a tough spot.
The line item, to me, that really stands out is on the income statement, that's the net interest expense, it went all the way from 6.5% of revenue in 2015 to 8% of revenue today. 2016 was the last year they were free cash flow positive, debt to equity is close to 14%. The cost of doing business for these guys is sky-high anyway. Gross margin is 15%. It's just a very difficult business.
And they can whittle it down and try to streamline, but, yeah, the Avis pop, I wouldn't read too much into that. I think the market probably comes back to its senses at some point, because Avis is just as challenged, really, when you look at it.
Hill: And Hertz has more than half a million vehicles, isn't it possible that if it emerges from bankruptcy, some of those vehicles get sold off? It seems like, among other things, this is a really bad point in time to be in the business of selling brand new cars.
Moser: Yeah, I think that's a reasonable assumption. I mean, if they're going to streamline their cost structure, part of that is going to have to come from whittling down that fleet. And those cars aren't just going to go to the junkyard. So, we could be in a period of time where the used car market starts looking really attractive and consumers have a lot of choice, that would certainly reflect poorly with the new car market. And they don't have a lot of levers they can pull there, and they're already at 0% financing as it is.
Hill: Earlier this week, producer Mac Greer caught up with Rick to talk about AT&T launch of HBO Max, as well as the video streaming battle between Netflix (NFLX 1.10%), Roku (ROKU +1.96%) and Amazon (AMZN +1.36%), but the opening topic was an emerging plan to reopen Disney (DIS 1.74%) World in July. There aren't a lot of details known at this point, but with a phased reopening of Magic Kingdom and Animal Kingdom scheduled for July 11th, and Hollywood Studios and Epcot targeted to open on July 15th, Mac wanted to know what Rick thought of the plan so far.
[...]
Rick Munarriz: The good thing about Disney is that they've gone through this before. I mean, Shanghai Disneyland, when it opened in early March it was done with the system where you needed to have an advanced ticket purchase or advance reservation, the capacity of the park was limited to less than 35% of the actual capacity. And it worked pretty smoothly. The first day all tickets sold out, and then eventually after that, it's been pretty steady capacity.
So, I think Disney has a handle of this, when they opened Disney's Galaxy's Edge over Disneyland, for the first three weeks they also had a reservation system to get into Galaxy's Edge. So, they probably have the technology down pretty fairly. I'm not worried about the technology aspect of it, it's going to be inconvenient, especially if you're playing to, well, I'm going to be there in Orlando for a week, and you have to get seven different days of availability on this platform, but it is what it is, and I think it's just one way to cap a capacity. It may never even have to come to that, but I think it's necessary to make sure that they don't have a lot of disappointed people driving out there to be turned away.
Mac Greer: OK, Rick, but when you look at the competition, if we define it a little more broadly, you've got LEGOLAND Florida opening June 1st, you've got Universal in Orlando opening June 5th, you've got SeaWorld, Orlando opening June 11th. Why is Disney opening basically a month after the competition?
Munarriz: Yeah, that was the real puzzling thing about it. I think, when Universal announced first and LEGOLAND also -- when they first announced, OK, well, Disney and SeaWorld will just announce sometime in early to mid-June. I think Disney knows that they have an advantage of being able to wait. Obviously, this isn't a company that lives and dies by their theme parks, they have a lot of media properties, a lot of other content, other things they can do, they can hold back on that.
And I think they would rather just watch and see, I don't think the parks need that extra month to get ready because everybody has been preparing for the new normal since pretty much mid-March. Disney was the first one to close, and announced that it would be closing its park. But, I think, by waiting, it can see what others are doing, it can see what worked, what didn't work. And, I guess, more importantly for just the sake of watching the coronavirus, if there's a spike in cases in Florida, a dramatic spike between June and July and the Governor says, "Hey, you know, we got to close the parks again." Disney didn't have to close their parks a second time like everybody else will. So, there is that advantage and also the fact that once Disney opens, there's going to be a massive lot of people coming in. Universal, Orlando; SeaWorld, LEGOLAND, they're all great, but they're not these big tourist draws like Disney is, obviously. And I think saving Disney for the end, the last course, does make sense to me just on many different levels.
Greer: What's your biggest concern as someone who obviously follows the company as an investor, but also as someone who's going to the parks, has gone to the parks, what's your biggest concern?
Munarriz: Yeah, I have several concerns as an investor, but as a park goer, and I can take off my investing ears and put on my mouse ears and approach this. My concern is what the experience will be like, because a lot of things that we know and that we probably remember Disney World and even Disneyland to be about, they're not going to be happening anytime soon. So, all the parades, the fireworks. You know, just basically lining up and getting a hug from Mickey Mouse and these character meet-and-greets, all those things aren't going to happen any time soon, Disney has said as such.
Obviously, the mask is this very hot-button issue; do I wear a mask, do I not? And it's required at Universal, Orlando, it's required at SeaWorld, Orlando. Not required at LEGOLAND, Florida and not required at a lot of smaller parks, an interesting distinction. But there are people, of course, that do not -- I don't think anyone wants to wear a mask, but I think, in general, there are people that will not go to a Disney park, definitely in July, where it's really hot and rainy and humid and put on a mask all day, especially for a child. And anyone older than three, three and older, will have to wear a mask at Disney World, is their policy as of right now.
So, I think the concerns are the experience that you're going to be a part of. I mean, you could take off your mask if you're dining at a restaurant or eating, sitting down and eating or drinking something. Disney says that they are considering relaxation areas, like little areas -- before they banned smoking in the parks, they used to have these smoking sections in the parks, that's what I think will happen. That, OK, you really want to take off your mask, go to this section where everyone is assuming the same risk, just take off your mask. But they will not let you into lines with people. Social distancing within the parks means the lines are also being redrawn where everyone has to stay six feet apart. We've seen it work at Shanghai, so this isn't something that's going to be a new ground for Disney, in general, but it is something that's going to be a new mentality for a lot of people usually coming to these crowded Disney parks where already there's a lot of things that are going to make the experience less than ideal.
Greer: OK, Rick, let's talk about the stock. You mentioned that you had some concerns about the stock. Now, Disney down around 20% for the year, which seems like a lot, but it's actually up big in the last few months, because it really, really took a hit. And if you look at the five-year chart, Rick, it's trading essentially in the neighborhood where it was five years ago. So, what do you think about the stock?
Munarriz: Yeah, I mean, Disney had all-time highs, just above $150, back around right before Thanksgiving, a couple of days before the Thanksgiving holiday. So, even though it's trading well below that, yeah, it did bounce back dramatically from that March bottom. And I think most stocks did, but Disney is the kind of company where you can definitely say that its theme park business isn't going to just spring back to life; I mean, there are international travel restrictions right now. Right now, even if you're coming from certain states in the Northeast, you have to self-quarantine for 14-days. So, there's less of an incentive to even come down to Florida.
The hotels and rental market, these are things that are slowly starting to open up, so this isn't going to be a market that will right away you'll get to the +20 million people that come to the Magic Kingdom every year; that's not happening next year even, I think this is going to be a drawn out process.
And obviously, it's not just theme parks. And Theme Parks are very important to Disney. The Theme Parks segment, which includes the resorts, the cruises, the other experiences, this is 38% of its revenue last year and 45% of its segment operating income. So, it's a very important component of Disney, and that's not going to bounce back anytime soon.
Obviously, Disney studio arm, there are no movie theaters right now open. At least not a major number of movie theaters open, so they're not going to release movies till later this Summer, and even then, those may get pushed out. So, there's a lot of assets of the Disney model that concern me. I am a Disney investor, I'm a Disney fan, it follows that I would own Disney. I'm very hopeful and optimistic that Disney will be back to normal in a couple of years, but I think it's going to be a very hard 2020 for Disney. And I'm just surprised the stock bounced up so quickly, when there's still so many question marks.
Greer: One of the real silver linings for Disney, the company, has been just a massive growth of Disney+, their streaming service; just incredible, incredible growth. How much of a needle-mover is Disney+ for the stock? Because it seems like, right now, that's the dominant narrative on Wall Street.
Munarriz: Yeah, Disney+ is the one platform you know is growing during the pandemic, but it's not going to be enough to offset what's happening now at the Theme Parks, at the Disney retail stores, at the movie theater, even at the studio arm. All these things. Disney+ is not that strong. You're thinking, well, 50 million people, that's got to be strong. And it hasn't even launched Japan yet, so we still have a lot of areas for Disney+ to grow. It is an overnight sensation; it clearly was launched just six months ago and it is a force. So, Disney+ is very exciting, but this is a company that still, 23 million people paying, let's say, $6.99/month or less for the service, isn't going to move the needle as far as what we're losing because of that. Because people that are moving to Disney+ are probably maybe also considering cutting the cord with their cable and satellite television provider, so that's money that they'll lose from Disney Channel and ESPN subscriptions. So, there is something to lose with the Disney+ gain.
I'm very excited for Disney+, I think Disney is really flooring it here on that platform, but I definitely think there are a lot of negatives to the positives of Disney+.
Greer: OK. Let's turn our attention to a potential competitor to Disney+, and that would be HBO Max. Now, AT&T owns HBO. So, unveiling HBO Max, the streaming service, this week. HBO Max will stream blockbuster movies, like, Harry Potter, as well as popular TV shows, Friends, The Big Bang Theory, and Rick, of course, they've got that HBO catalog; Game of Thrones, The Wire, The Sopranos. What do you make of HBO Max?
Munarriz: Yeah, I like HBO Max and, generally, I like its prospects, but to me, HBO Max is just what HBO Now was with maybe on steroids. So, I don't think it's going to be like this gamechanger that's going to be an immediate lift to AT&T, and HBO Max for that reason, but clearly, it's good to be differentiated. There are some hiccups with the process that it's not -- at launch, it wasn't available on Roku or Amazon Fire TV platform, which are very popular ways that people are consuming streaming media.
But I think, yeah, content matters. And the reason Disney+ became an overnight sensation was because, not only was it The Mandalorian, is that people knew this is where I can get all of my Disney content, this is where I can get all my Pixar, my Marvel, my Star Wars, that was all there.
So, HBO comes from a very big source, obviously, Game of Thrones, I mean, there are no more Game of Thrones seasons, but there is this back catalogue of iconic HBO shows that are available on other services somewhat, but I can picture HBO Max starting to pull those in so that it will be the one place where you can go stream a lot of these shows.
Greer: And, Rick, HBO Max, around $15/month. How do you weigh that value proposition relative to what you'd be paying for Netflix or Disney+ or Amazon?
Munarriz: Yeah, clearly HBO Max is priced at the high end, because they have to. They have to defend their legacy business, there are still a lot of people with their cable and their satellite television providers, paying $14.99/month for HBO. So, if you get to the point where, if they're going to price it, let's say, at $9.99 or $11.99, they actually had a pre-launch $11.99 promo they ran just before the launch, but you couldn't sustain that and be cheaper than what people were paying directly through their cable and television and satellite television providers. I think that they're stuck by that.
Disney didn't have any qualm coming at $6.99, Apple TV didn't have any reason to not go at $4.99. But HBO Max was, sort of, anchored into that $14.99 or higher spot, they could not have gone lower. And that could be an issue, because especially, you know, if we're heading into a recession, people would be cutting costs and paying Disney+ $6.99/month may seem more reasonable than paying $14.99/month for HBO Max.
Greer: OK, Rick, so as we wrap up here. Looking out over the next five years, when you look at the stocks and the major players involved in streaming, how about give me a win-place and show a first, second and third and give me a dark horse?
Munarriz: Alright. So, for win, I'm going to go with Roku as the winner, only because it is the one agnostic platform that has 39.8 million people, up 37% over the past year, a lot of people are streaming to Roku, and because it doesn't play these games. Obviously, it's entangled right now with AT&T and HBO Max right now to see whether or not it carries it. But Roku usually has all the apps, basically have thousands of available options. And people are streaming an average of 3.6 hours/day, Roku users 3.6 hours/day, which is a lot of time on the platform. It is sticky, it's engaging. And with the advertising market all in a flux, a lot of companies want to get noticed, a lot of services want to get noticed and they're paying Roku, so they're getting prime position on that hub.
So, I think Roku will be a clear winner.
For second place, I'm going to give it to Netflix. And sure, some may argue that Netflix is No. 1, as far as the pure service, but you can't argue with its scale. This is a company that has 183 million people, paying subscribers worldwide as of the end of March, it expects to have more than 190 million at the end of June. And not only that, the fact that it has this many people gives it so many advantages that people will pay -- it's able to divide the content that it acquires over everybody over such a large number of paying customers. So, they can spend $10 billion, $15 billion, $20 billion a year on content and still be fine, other companies can't do that. So, that's why people flock to Netflix as a viewer.
And why if you make a studio, if you have a TV show, if you have a movie, you want Netflix to distribute it because you want to be the next Tiger King, you want to have the next platform that people watch everywhere, internationally. And I think that's going to make it definitely a strong No. 2, and probably No. 1 overall, but I mean, if I was going to rank in the potential of the stock, I'd say Netflix No. 2.
For No. 3, I'm going to give you a dark horse, which isn't a dark horse at all, but it's a, kind of, name that people don't really talk about and I'll say Amazon. Because while Amazon itself, they have the Fire Stick platform, and they do have Prime Video and video, it's not the same kind of player as, let's say, a Netflix or Disney which owns Hulu, Disney [Channel], Disney+ and ESPN+ right now.
I think Amazon is a very interesting company, because we are starting to move away from the way we view viewing services. And I think just as we saw when Trolls World Tour came out right at the start of the pandemic and Comcast said, OK, we are not going to get this movie into theaters, we have lucrative toy deals, licensing deals that have to happen now, they went directly to consumers, asked them to pay $20 for a 48-hour rental, and they want to make an $80 million, $90 million in the first few weeks of that. So, there's a market for this and Amazon is well positioned for this. Netflix does not sell these piecemeal rentals and digital purchases, Amazon does.
Hill: Our email address is [email protected]. From Zach Torno, who writes, "Thanks for all you do. I love listening to the show. I'm a young investor who's managed to build a diverse portfolio. However, I don't have a lot of dry powder to spend on new opportunities. With recent news that Teladoc might lose some momentum after COVID, I'm wondering if it might be smart to sell some of my Teladoc position, which I have thanks to Jason Moser, to buy some stocks that seem poised for a V-shaped recovery? I still believe in Teladoc's future, but I would hate to miss out on opportunities."
Jason, what do you think?
Moser: Yeah, that's a good question. I do believe in Teladoc as well. I don't know if this is going to be a V-shaped recovery or an &-shaped recovery to be honest with you, so I understand that you're trying to predict a little bit of the future there, but I would just say this, if your Teladoc position is causing you to lose sleep at night, that can always be a sign that maybe you should pare back that position.
I would rather sell losers and reinvest that money into better ideas, personally. The one thing I do is I look for first, is I look for the underperformers, the companies that just haven't really worked out. I think you get more out of pulling those weeds and watering those flowers, but I do think that Teladoc has a very bright future, and will be volatile along the way, but that's my two cents.
Hill: Let's get to the stocks on our radar, our man, Dan Boyd, is going to hit you with a question. Ron Gross, you're up first, what are you looking at?
Gross: Dan, let's go with Intercontinental Exchange (ICE +1.09%), ticker ICE, operator of securities exchanges and clearing houses, including the New York Stock Exchange, a clear leader in the space, very strong, competitive position. They make selected acquisitions to keep things growing. Stock is actually up a bit this year, been very resilient, got hit a little bit, but rebounded really nicely. They've increased their dividend for the past seven years. It's only a 1.3% yield, but you're constantly getting that increase, which is nice to see, plus a strong stock so far this year.
Hill: Dan, question about Intercontinental Exchange?
Dan Boyd: Not so much of a question; Ron, this is the most impenetrable stock that you've brought to radar stocks in a long time. What do you have to say about that?
Gross: Impenetrable meaning that it has a strong competitive position and can't really be taken down by many folks out there, is that what you mean by impenetrable?
Boyd: Sure, you could say that.
Gross: [laughs] I mean, that's one of the reasons I like it. It has just a very strong competitive advantage and it's going to be hard for people to take much market share away from them. There are competitors out there, but they've been around for a long time and will remain very strong into the future.
Hill: Jason Moser, what are you looking at?
Moser: Well, Dan, compared to Ron's pick, this is a bit of a spicier meatball, but it's Bill.com (BILL +1.66%), ticker is BILL. Recent IPO at the end of 2019, but they cater to small- and medium-sized businesses and sell Software-as-a-Service to help them manage their accounts payable and accounts receivable, ultimately trying to whittle down that paper check and really just get into the world of electronic transactions, just recorded 91,000 customers, over 28% growth in the last quarter, processed 6 million payment transactions, which was 23% growth.
They do have a forming competitive advantage in a network effect and the Founder and CEO, Rene Lacerte, owns about 4.5% of the business. So, still a young company, still very volatile, not profitable, but very interesting, particularly, if you buy into my war on cash philosophy.
Hill: Dan, question about Bill.com?
Boyd: Is Bill.com going up against Shopify?
Moser: No, not necessarily. Bill.com is helping manage more back-office operations, where Shopify is helping companies set up their own operations. Shopify does have a payments aspect with Stripe, but they're two different things.
Hill: What do you want to do, Dan?
Boyd: OK, I'm going to pull a fast one here, Chris, I'm not going to choose either one of these stocks, I'm choosing Restaurant Brands International (QSR +0.03%) to add to my watchlist, because I'm going to Popeyes after the show.
Gross: [laughs] ... you can't do that ...
Moser: [laughs] Respect.
Hill: All right. Jason Moser, Ron Gross, guys, thanks for being here.
Gross: Thank you, Chris.
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.
