In this episode of Motley Fool Money, Chris Hill is joined by Motley Fool analysts, Jason Moser and Ron Gross, and they take you through the latest headlines from Wall Street. They discuss the economic recovery of America and they've got some quarterly reports and some stocks hitting all-time highs. They also share some stocks to put on your watchlist and much more.
Also, catch a glimpse of Mark Cuban's interview with Motley Fool Co-Founder Tom Gardner, and Senior Analyst Abi Malin, as they discuss entrepreneurship and investing.
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 June 12, 2020.
Chris Hill: The stock market's rise over the past month hit a speed bump on Thursday when all the major indices fell more than 5%. Coincidently or not, this was the day after Federal Reserve Chief, Jay Powell, gave a press conference and was candid about his belief that economic recovery in America will take a couple of years.
Ron, I got to be honest, I was a little surprised to see the reaction in the market. I know it wasn't just all in response to Powell's comments, but he didn't really say anything that sounded outrageous to me.
Ron Gross: No, I think we're seeing two related things unfold. We're seeing COVID cases increase as we reopen our economy, and then, as you say, at the same time we saw Jay Powell of the Fed come out and say the recovery is going to be long and slow. So, I think those two things caused investors to say, well, listen, the market has had quite the recovery. Those institutional investors out there that are more day traders than us Fools, say, "I'm going to take some money off the table, I'm not feeling so good about this." You know, the Fed is saying, interest rates will be near zero through at least 2022, which by the way, sometimes the market loves to hear and sometimes the market gets nervous about hearing things like that. And on any given day you can pick which reaction investors will have.
But I also heard some good things coming out of the Fed, like, GDP will be 5% in 2021. They think unemployment will be down to 5.5% in 2022. These are relatively reassuring data points if, of course, they're able to predict the future, which we know they certainly can't.
But listen, some money came off the table, it's been quite a run. The markets were actually up at some point over the last five days or so, now we're back down. But the recovery still I think is intact, but let's take a measured approach, folks.
Hill: Jason, what do you think?
Moser: You know, I don't feel like it's a big leap to get to this point where we feel like, OK, COVID-19 cases will increase as we reopen the economy, and the recovery is going to take a long time. I feel like we've been saying this ever since this really started, right? That to me is really nothing new. So, I take big sell-offs, like yesterday, obviously, with a grain of salt. It certainly is going to be a while till we get back on firmer footing. And there's no question that we're not through the coronavirus situation yet. I mean, that's just -- we're going to have to figure out how to live in a world where this exists for some time to come.
I saw a point made earlier, Secretary Mnuchin said, there's no way we can shut the economy down again. I mean, if COVID-19 cases do start getting a little bit more out of hand, it doesn't necessarily mean they're going to be able to go back there just to shut down the economy. And I think he's right to say that, because you have to start weighing the cost versus the benefits. And, yes, clearly there's a public health issue here, but when you think about how connected everything is, when you shut down an economy and the livelihoods that you impact there, and we've already seen, while there are certainly some good intentions from our government in trying to help people keep their heads above water, that's way easier said than done.
So, you know, I think that we are just going to be living in a world here where COVID-19 is a concern until we come up with treatments and/or a vaccine. I think that it's fair to assume that the economy is going to take a little bit longer to recover than perhaps maybe we anticipated, and that will probably play out in market volatility but it, certainly to me, does not mean investors should be hanging on the sidelines.
Gross: My guess is that, if we come upon a time, and I hope we don't, but if you come upon a time where the hospitals start to get overrun again, and our first responders are overrun again, and people start to get nervous that if they get COVID, they won't be able to get a ventilator, they won't be able to readily access a hospital, I think a lot of folks are going to go, "Whoop! I went a little too far, too fast, and I'm going back home, I'm putting on my mask and things are going to slow again." Which I hope it doesn't get to that.
Looks to me like it could end up getting to that, certainly in certain pockets; we're already seeing it in certain states, certain municipalities. So, again, we're going to watch this play out. And the economy, obviously, will be greatly affected by whatever the virus ends up deciding to do.
Hill: Let's get to some company news. And shares of Adobe (ADBE 3.24%) hitting an all-time high on Friday, after the software company posted record revenue in the second quarter. Jason, Adobe must be selling a lot of PDFs.
Jason Moser: [laughs] Hey, man! I'm feeling really good about building this position during that short-lived bear market. This was a company I had on my radar for a while. And, you know, when we think about the strongest businesses out there and companies that just have a stranglehold on a massive market and continue to iterate and bring more to the table, Adobe is at the top of the list for me.
And CEO, Shantanu Narayen said on the call; I think this is a good quote, he said, "Great companies are defined by how they lead through adversity. We've successfully navigated several crises and have always used them as a catalyst to make strategic and structural change, to emerge stronger." And I think the numbers certainly bear that out. You know, as we talk about this shift, this tectonic shift, toward all things digital.
I mean, it was a strong quarter, topline up 14% on strong digital media performance. Annualized recurring revenue up across all three segments of the business. Document Cloud revenue, which I think is a really interesting part of the business, that's kind of a competitor to what DocuSign (NASDAQ: DOCU) offers, that Document Cloud revenue was $360 million, up 22%. They're going to continue to ramp up investments in that side of the business.
So, I think all things told, what you have here is a market-leading company in a very good position, balance sheet wise, the business model enables just really attractive margins. And we're talking about +90% gross margins there. And 90% of its business is subscription-related.
So, we talk about this move toward the digital economy. Adobe is definitely one of the companies leading us there. The market's reaction makes sense. And I think share owners of the stock today should feel very good.
Hill: Shares of Lululemon Athletica (LULU +3.76%) down 8% this week, overall revenue fell 17% in the first quarter, although, Ron, and we've seen this from a lot of retailers, online sales definitely are the bright spot.
Gross: Yeah, this is a rare miss for Lulu, but it's almost like how can you fault them? You know, it's possible that the analyst expectations were just too frothy, it's not that Lulu didn't really perform. As you said, revenue down 17%, but all stores were closed, obviously, for a decent part of the quarter, but the app and website sales, as you mentioned, up 70%. So, a very robust part of their business there. That was 54% of total revenue, where it normally is about half, about 27% of revenue. So, you saw that spike, certainly, both absolutely and relative to total revenue.
Those direct sales up 170% in Europe, 150% in Australia. So, really strong overseas. Interestingly, they didn't give any comp store data, which I certainly can understand why; if you have stores closed, the data doesn't make that much sense. But yet, I do see most retailers still providing that data. So, it's just a little bit interesting, though, that they decided not to; not surprisingly, both gross margins, operating margins were down, earnings per share down 70%. Again, no fault of their own.
But they've begun to reopen as of May 3rd. 295 stores out of their 489 or so were open as of June 10th. All China-based stores are now open. So, I think they'll get back on track. Of course, depending on what happens with the economy going forward, and as all retailers are doing, they refused to give guidance, which is no surprise there.
Hill: But that is interesting about not giving out the comp store data. And now, I want to fast forward three months [laughs] to see if they do it again, because it could just be a blip or it could be something that they're testing the waters on. Because, you know, if they don't have to give all the information, then maybe they start ratcheting it back.
Gross: It's possible. My guess is it's a blip, but we have seen companies come out and say, we're done with guidance, this is not just because of COVID, it doesn't make sense for us going forward. So, we'll see if there's a little bit of a shift.
Hill: This week Starbucks (SBUX 5.03%) announced it'll be closing up to 400 locations in the U.S. and another 200 in Canada. Jason, they also updated guidance and said they're going to take a $3 billion hit in the third quarter.
Moser: Yeah, you know, we were talking about this earlier in the week regarding what the Starbucks of the future looks like. I think the Starbucks of the coming decade is going to look very different from the Starbucks that we've grown up with.
And I think for investors, honestly, and for consumers, that's a good thing. We've always talked about that notion of the third place, right, the work, and home and that other place where you can go to, kind of, feel comfortable and get some work done. And Starbucks was built on that notion for a long time.
And COVID-19 wasn't even really the catalyst here. I think even before, what we're seeing is a consumer base that's more focused on grab-and-go, right? I mean, we saw that COO Roz Brewer actually noted that their business was essentially over 80% grab-and-go, before we even came into this pandemic. So, folks aren't as interested in sitting into those stores. And that to me makes sense. I certainly feel that way, I definitely think our consumer behavior has changed that way. Now, they did note they typically close around 100 company-operated stores in North America each year, and a lot of that is due to leases expiring.
Now, going forward, whereas about one-third of Starbucks locations in the U.S. today have a drive-thru, 60% of the locations in the pipeline will have drive-thrus going forward. So, I think all-in-all, what this does is gives them the chance to more or less right-size the cost structure of the business for this new grab-and-go consumer. And ultimately, as investors, we have to like that, because it's still going to be the same powerful brand selling that same legally addictive substance [laughs] in coffee, and the food to go with it.
So, all-in-all, yeah, I mean it does sound like they're making a big shift. They have to evolve and I think they're going to be able to pull it off.
Gross: I have never, not once, grabbed a book or my laptop and gone to hang out at Starbucks. Have you guys? [laughs]
Moser: I would say the only time I've ever really done that is, like, you know, at Fool HQ when we would have the fire drills and we get kicked out of the building for, like, an hour. I'd grab my laptop and go to one of the Starbucks' right by work and sit down for an hour, so I could keep getting some stuff done. But, yeah, I just think now more and more people are not really looking to sit around a restaurant for an extended period of time, particularly now when the pandemic is requiring everybody to stay six feet apart and everything has to be cleaned and recleaned and sanitized and whatnot. So, I think this just gives them a chance to right-size their cost structure. And if they do it in a thoughtful fashion, yeah, that certainly should carry down to the bottom-line for investors at the end of the day.
Hill: Ron, Five Below stock is hanging in there, a little bit better than I thought it would.
Gross: Not bad. Down 15% still year-to-date, so a little bit worse than the overall S&P 500, which has recovered nicely. But these guys have had a nice run, significantly beating the S&P 500 over just let's say the last five years. So, they can take a little breather they're here. And, again, with all retailers, all stores are closed as of March 20th, nothing they could do about it. They began to reopen in late-April, 90% are open as of June 9th. So, of course, we'll continue to watch what it looks like going forward.
But for the quarter, sales dropped 45%. Comp sales, which they did offer, unlike Lululemon, down 52%. They lost $50 million in the quarter versus a profit of $26 million in last year's same quarter. Shore up their balance sheet. They increased their line of credit from $50 million to $225 million. You see this across the board, everyone making sure they have enough cash to kind of survive. And they gave no guidance, as all retailers are doing. And they did kind of reiterate their goal of 2,500 stores. And that's up from about 900 today. So, they still see growth, obviously, they'll have to wait this out and then they'll get back to business.
Hill: Shares of pet retailer Chewy (CHWY 3.53%) flat over the past week, despite the fact that first quarter revenue looked good. And, Jason, Chewy is doing a really nice job of growing their base of active customers.
Moser: Yeah, they are. You know I love the pet market, it's a big market, it's got a lot of tailwinds, it does seem now, as more folks, particularly younger generations are taking to having pets. And you know when you look back to the S-1 for this company, they listed their total market opportunity at $70 billion.
So, I mean, frankly, with the numbers they're turning out, I think that Chewy might just be one of the best ways to play that. The first quarter net sales increased 46% from a year ago to $1.62 billion. They added a record 1.6 million net active customer accounts in the first quarter, and that was double the average quarterly pace of ads in 2019. And ultimately, they ended the quarter with 15 million active customers, that was up $3.7 million from the first quarter a year ago. And the fastest acceleration that they've ever seen in the company's history.
And that makes a lot of sense, as we were shut down and e-commerce played a bigger role. And I think that Amazon (NASDAQ: AMZN) now -- we're seeing that Amazon isn't necessarily the only game in town, I think a lot of companies are jumping in there and trying to prove their mettle in this e-commerce space, and Chewy certainly is doing that.
They had that autoship customer relationship there, they exceeded $1 billion for the first time in a single quarter. And you know they launched a new fulfillment center in Charlotte to be able to shorten the distance from the product to the consumer. And their customer acquisition costs are coming down as well, that ultimately boosts margins, sort of, comparable to what we talk about Wayfair (NYSE:W), right? They pay a lot to acquire those customers, so they want to keep them.
And Chewy is doing a good job of acquiring those customers and then keeping them, and that results in repeat sales which ultimately flows down to the bottom-line. I'm just really impressed with what these guys are doing.
And based on what I've seen from Amazon over the past couple of months during this pandemic, while they're doing an OK job, it's certainly not the Amazon that I've been used to buying from over the past several years. So, you know, hey, listen, we've got a couple of dogs here, I'm going to give Chewy a try and see if they can meet my high expectations, Chris. [laughs]
Hill: One month ago on this show, we talked about the news that Uber (NYSE: UBER) was planning to buy Grubhub (NYSE:GRUB), and that is not going to happen, because this week, a European delivery company called Just Eat Takeaway.com announced that it is buying Grubhub in an all-stock deal worth $7.3 billion. Ron Gross, what happened?
Gross: [laughs] You know this is interesting, because Takeaway and Just Eat recently received regulatory approval for their $8 billion merger. So, they got together, now they're going even one step further and they're trying to take out Grubhub, as you said, for over $7 billion, where Uber was probably around mid-$6 billion, $6.6 billion. So, kind of upping the ante there.
We could still see another competing offer come in here. This isn't necessarily over yet; it'll be interesting to watch that. But this creates a pretty big company at this point, probably No. 2 behind UberEats, presence in 25 countries, 70 million active consumers.
The Just Eat Takeaway shares were selling off on the deal, perhaps folks are thinking they overpaid. Grubhub, $1.4 billion in revenue, not profitable in recent periods but they are cash flow positive, which is interesting, because I've never kind of been a fan of this model. I am a big fan of using it as a consumer. But it's tough to make money, it's tough to keep the drivers happy, so they're making enough money. My son recently started working for DoorDash and he thinks it's great, but once he figures that I'm not going to pay for the gas and there is depreciation on the car, you know, the proposition isn't as exciting, but this is going to create a pretty big company and it will be interesting to watch the competitive environment.
Hill: How long before we know whether Uber dodged a bullet in letting this get away or that they blew an opportunity? Do you think a year from now we'll be able to call that?
Gross: Two years. I'm going to give it two years and we'll have a pretty good indication.
Hill: Can I just say that other countries seem to do a better job of naming these types of services? Like, DoorDash is fine, Grubhub is fine; Just Eat, that's great. Takeaway.com? great. The best one I've seen, I don't know if you guys have seen this, Canada has a company called SkipTheDishes. That's the best name, so they win.
Gross: Before I realized this was a merger, Just Eat Takeaway seemed a little long for me.
Hill: Mark Cuban is an entrepreneur and owner of the Dallas Mavericks, but he's also one of the main shark investors on the hit reality TV series Shark Tank. And since Cuban is used to hearing investment ideas, Tom Gardner decided to pitch him one of his own.
Tom Gardner: I know you get pitched on Shark Tank, obviously, you get pitched outside of Shark Tank. Your world is probably a Shark Tank pitch experience.
Mark Cuban: You are so right, Tom.
Gardner: So then, we're going to introduce that concept right now, and I'm looking for you to shoot this one full of holes, because I love my bad ideas. When I look at Facebook (NASDAQ: FB), Amazon, Google [Alphabet], Microsoft, Apple, when I look at their balance sheet and see, let's say, +$450 billion, I think even more than that in cash, not necessarily earning great rates of return, obviously, it's a great thing for them to have that ballast through crisis, and they've earned that money and it's great that they've built that cash cow out.
But if each of them took 10% of that cash, let's say, $45k billion, and put it into a fund, Shark Tank runs the fund, Motley Fool can partner, an app is created and they invest $150,000 into 300,000 different start-ups, through an app. There will be a certain amount of fraud, many of the companies will fail, 1% will do well, 0.0025% will actually be awesome. And I actually think they'll make money on that fund and possibly create +1 million jobs out of pooling some capital and putting it, not through the traditional VC channels, but through an app at scale, that is different than universal basic income, it's universal basic investment, it tells entrepreneurs and people, you can get resources to get something started now. Agree/disagree, like/dislike, how would you modify that?
Cuban: Don't dislike but disagree; and not for the reason you expect. I get where you're going with it. I think it'd create a land grab that would be difficult to monitor and they'd put themselves in a really bad social position because of who they said "no" to. And so, it's the same reason we don't have Shark Tank for charities, right? Because you can't say no to anybody without looking like a really bad guy or girl.
And so, that's not necessarily a total response, but I'll tell you why I think them having that money right now is necessary for them. And that's AI. AI is hard. And the companies that you mentioned are the only companies, or one of a select few companies that are really good at AI. And AI is not only hard but it's really expensive. And we don't necessarily know all the directions it's going to take us.
And so, for companies who are starting to dominate in AI, I think it's important for them to have that backlog of cash and resources. And I think it's also important for national security that they do, because as a country, we're doing a piss-poor job of investing in future technologies. If you look at Russia and China, they were the first to tell you that whoever dominates AI, dominates the global. Yet, as a country, we're just minimally investing in AI. We're not investing in robotics and, you know, we're third, falling to fourth place in robotics. And if we have any interest in competing with the Chinese and kicking their ass in manufacturing or other endeavors, including national defense, again, we're going to have to become the best at AI, and right now we're behind Japan, Germany and China, we're fourth.
And then there's precision medicine, that I think companies will start to do more investments in there as well.
So, a long roundabout answer. I think because AI is so hard and so expensive, I think I'd rather see that money, as a good American, in their hands, even though the entrepreneur in me says, "Boy! how much fun would that be to be a young start-up entrepreneur and have all that funding available?"
Now that said, since we as a sovereign nation don't do a good job of investing in those high-end technologies, and in fact, we've become a nation of AI haves and AI have-nots, and that's not a good place for us competitively, domestically, I wouldn't be opposed if we did that on a sovereign basis and really, you know, took the SBA to another level and invested in start-ups that way.
Abi Malin: Shifting gears a little bit, but kind of related. As the owner of the Dallas Mavericks, we know that you are paying your hourly workers through the entire suspended season, like you mentioned. If you owned a team and you couldn't afford to pay your workers through the season, what's an excellent alternative route?
Cuban: You know, so the hourly employees that work for the arena that I own half off, right, there's just no events. And so, while we pay them for all the Mavericks events that would have occurred, there's other things, like concerts, that's not really our business that we haven't been able to pay them for. So, what we've done is connected with a company called ShiftSmart, ShiftSmart.com, and they have a program that we donated money to called GetShiftDone.org.
But what they've done is found nonprofits that need people to do work because fewer people have the ability to go out and work at nonprofits. And we donated money and they created shifts, so you download this app and, you know, it says, OK, we have X number of hours and X number of shifts available at this nonprofit that pays X number of dollars, and we've tried to hook up those employees, who otherwise would have worked hours at the arena, into working for nonprofits where donations like ours actually foot the bill.
And that program also has been used to do call center applications and things that have had to just pop up very quickly during the pandemic, and they've been great at turning it around and creating jobs for those people. And that's what I'd recommend doing, that those people who are, you know -- and I'd never be the one to spend someone else's money, so those CEOs or entrepreneurs/owners we don't feel that, you know, either they don't want to or they're not able to continue to pay their employees during the pandemic while they're not open or not able to operate profitably, working with programs like ShiftSmart, I think is a great way to do it.
Gardner: So, when I look at the businesses that are struggling right now, one way to view them is they require that employees go to a physical place and that customers go to a physical place to transact. So, restaurants, concert venues, hotels, these are actually kind of the table stakes of the NBA.
Cuban: Yep.
Gardner: So, I'm wondering, projecting forward five years, to the extent that anyone could even know what's going to happen five months from now, but projecting forward five years, do you think attendance will be replaced by digital subscriptions, online tools, viewing from home will become a much more significant source of revenue for the NBA than it is now? Is it possible that the digital experience will become more than half of the revenues?
Cuban: You know, it's a great question, because it is certainly something we've had to address. It's part of the evolution of this country. We went from agrarian to industrial to hybrid digital and physical, and now we're seeing the minimization of physical wherever we possibly can and with reduced number of touch points. So, obviously, we've had to ask ourselves that question. So, the first response is it depends on a vaccine.
So, if we get a vaccine whenever that is, and actually I'm very confident that we will, I can't give you a date, but I think it's going to be sooner. You know, I'm just a science geek, like a lot of people, and I'm reading all these things about, you know, I think Ray Kurzweil wrote an article saying that the consortium of companies working on the vaccine is using AI to create these metaphysical bodies where they can test all the different potential aspects of a vaccine.
And so, if that's real, and I have no reason to believe it's not, then I think we'll get one sooner. So, there's one bucket if we do get the vaccine. Then things can be smarter, normal. Meaning, we'll reduce touchpoints, we'll use voice activation, we'll have flow of people, you know, we'll have AR-driven apps that guide people with warnings on don't go here, don't go there. So, you know, we reduce our touch points.
If there's not a vaccine, then it depends on testing and the accuracy of testing and the speed of testing. So, right now, it may be the Gardner family, that there's six of you who want to come to a Mavs game, we can sit you together and we'll make an effort, as a sales organization, to go out there and sell to families or "quarantine groups." So, it may be your grandparents moved in and your aunts and your uncles and your cousins all moved in, and we can sell you, as a group, to come to a Mavs game and then social distance with spacing around there. And then we can start to expand those quarantine groups, the easier testing becomes.
So, if testing really -- and let's just say for the sake of example, it's 95% accurate, that you just spit in the tube, and five minutes later, you've got a "yes" or a "no," well, that's no different than walking through a metal detector in a lot of respect or going through TSA. And so, we'll be able to accommodate them there.
If this just all goes to hell and just there's no way, then we'll do some of the things we're already starting to do already. You know, streaming has changed a lot in 25 years, bandwidth is dramatically more available. So, bandwidth has become fungible in a lot of respects, so we're going to be able to deliver those games in a variety of different ways suited, if not tailored, to the individual on how they want to receive them. And so, we may have one version for bettors; we may have another for old-school fans who like, you know, the traditional broadcast; we may have another who prefer a Twitch broadcaster type approach or a YouTube broadcaster type approach, you know, a TikTok approach where everybody dances the whole way through, who knows? But we have that opportunity to, whether it's subscriptions or advertiser-supported won't matter, we'll be able to take that fungible bandwidth and customize it.
Malin: What do you think of a billionaire's responsibility in an American life? So, do you have the same responsibility, maybe more, maybe less, than the average citizen to invest in making the world better?
Cuban: You know, I never want to speak for somebody else. Here's what I know. In my position, the marginal value of another dollar is close to zero, it's not going to change my life, not even a little bit. And so, that gives me an opportunity to do things that I probably wouldn't have done 20 years ago, things that are important to me now that weren't important to me 10 years ago. And just between age and my financial circumstances, it's more rewarding for me to try to help and contribute. But that's a combination of things, it's not just, you know, being a billionaire.
On the flipside, I've met a couple of guys, not many, believe it or not, but a couple guys, and they're men that are billionaires that just want that next dollar no matter what. It's a race. It's like watching Billions and its Axe Capital, you know. Those people are their own worst enemies.
But, generally, I think we have a responsibility to pay more in taxes, contribute more, particularly when things are difficult. And so, again, I think generally, yes, we have that obligation to do more, contribute more, pay more, but you know, everybody is going to be different, everybody's circumstances are different.
Malin: I listened to your interview on How I Built This, and you mentioned the book that you kept on your desk about wanting to retire by 35 --
Cuban: Yeah, in fact, it's somewhere, yeah.
Malin: [laughs] I'm just curious to hear, you know, what is your driving force behind that? If it's not another dollar, what is really making you so motivated now?
Cuban: A couple of things. One, I love to compete. Business is the ultimate sport. And while, you know, when I was in my 20s, you know, time, you know, there are so many uncertainties, so many things that I never knew whether or not I'd ever be able to experience. And so, I wanted to retire at age 35 because I wanted all my time to myself, to be able to try everything and anything, you know, I got pretty good at it.
And you know, going forward, it's just different now, it's just, I just have a completely different perspective, and what drives me is just competing. You know, I still have those competitive juices. And, yeah, I want to make money, but I just don't necessarily need to hoard it like I would have in the past, I can put it through my foundation, I can donate it, I can invest in people, and that's what I do a lot of.
Gardner: Let's go closing the lighting round now. And, once again, just a rapid-fire answer, and a one-sentence explanation as to why. So, let's start with Jack Dorsey or Elon Musk?
Cuban: Elon.
Gardner: And why?
Cuban: You know, Jack is great. He is a great entrepreneur, and he's done some great things, but Elon has changed the world.
Malin: YouTube or Spotify?
Cuban: YouTube. And just because, just more variety. Spotify, you know, fills a need, but YouTube has just got more going on.
Malin: What's your favorite Shark Tank pitch in history and why?
Cuban: Oh, my God! I like the scams, believe it or not. Like, we had these balance bracelets, where they said, you know, by wearing this bracelet, your balance improves and your core improves just by wearing it. And I just tore them apart. And there's been other times when we've had supplement companies making these claims, and I just tear them apart.
And they know I live for those moments, because I don't want everybody and their brother to think this is a good thing and they should buy it, because Shark Tank is the world's ultimate commercial, you know. People just, because a product is on there, there are a lot of people who want to buy it, and so I really feel that obligation.
Hill: Guys, before we bring in our man Dan Boyd for radar stocks, I want to talk about Hertz for a minute, because shares of Hertz Global, the rental car company that recently filed for bankruptcy, were up more than 50% Friday morning. Ron, what is going on here?
Gross: Craziness, Chris, simply craziness. They have asked a bankruptcy judge to allow them to sell $1 billion worth of common stock. Now, what you need to understand is that, in the bankruptcy proceedings, specifically Chapter 11, which is reorganization, not liquidation, common shareholders typically get wiped out most of the time. I am unhappy to say it's happened to me; I've ridden a company all the way down to nothing in the hopes that I would get something in the reorg, and it just typically does not happen.
So, if you're one of these, either institutional or retail investors that want to get in on this offering and help out Hertz raise a $1 billion, you run the very real risk of getting wiped out if their reorganization doesn't work. That is a very speculative position to be undertaking. Honestly, it's almost too speculative to make any sense.
From the company's perspective, it's theoretically cheaper to raise equity capital than it would be to raise typical debtor-in-possession financing, which can be quite expensive, money that allows you to bridge the gap between now and when you actually reorg. But I would just caution investors, very, very speculative, I wouldn't touch this.
Hill: It's still a rental car company, right? [laughs] I mean, it's still the same business. They haven't come out with like, oh, and by the way, we're launching a cloud software division as well?
Gross: And they have a new cryptocurrency they'd like to sell you as well.
Moser: No, video streaming, I think, was what I saw on the last call.
Hill: Alright. Let's get to the stocks on our radar. Our man Dan Boyd is going to hit you with a question. Jason Moser, you're up first. What are you looking at this week?
Moser: Sure. Taking a look at Fastly (FSLY +11.13%), ticker FSLY. They play in the edge cloud market, and ultimately this brings the cloud data and processing architecture actually closer to us physically. You know, they call it on the edge of the cloud, but the idea is to be able to deliver content and data more quickly. I mean, this really does play into 5G movement as quicker and more robust delivery will most certainly need to use edge cloud computing power.
And so, Allied Market Research estimates the edge computing market will grow to about $16.5 billion in 2025. Fastly, certainly one of the company's playing in that sandbox. The stock had a great year, up +120% so far this year. Strong insider ownership with Founder Artur Bergman owning around 10% of the shares and other insiders owning more. A very healthy balance sheet. Still a fairly new company, having just IPO'd a year ago, so of course is not profitable, still lacking all that stuff, like, cashflow that we look for. [laughs] But I really do like what I'm seeing with this one. And with the new 5G service, Chris, we've just launched, this is definitely one on my watchlist.
Hill: Dan, question about Fastly?
Dan Boyd: Certainly, Chris. So, when I think of the edge of a cloud, I think of the silver lining. So, Jason, would you say that this company has a silver lining in the future?
Moser: I absolutely would say that, Dan. I think that edge cloud computing is probably still a little bit unfamiliar to a lot of folks, but as we get to understand it better, this will be one of the companies that people remember.
Hill: Ron Gross, what are you looking at this week?
Gross: Dan, this is just a rader stock, not a recommendation, so don't beat me up here with the hard question. It's a recent David Gardner recommendation, actually. Globus Medical, GMED. A medical device company focused on musculoskeletal disorders, [laughs] easy for me to say. They make the ExcelsiusGPS Robotic system for spinal surgery, which they acquired in 2014. Minimally invasive surgeries are increasing, increased usage of this system will increase their implantable device sales. Core business, 190 products. It is actually very profitable. So, don't think biotech-y, kind of, unprofitable, not sure where this is going there. They have a profitable business, but there is a fair amount of competition, including, J&J, who's going to probably get into this business.
Hill: Dan, question about Globus Medical?
Boyd: Absolutely, Chris. So, Ron, I don't know much about Globus Medical, but I do know something about the Globo Gym Purple Cobras from the movie DodgeBall. And I just wanted to say, is that a good movie, you like that one?
Gross: They don't get much better. That is a classic movie for those who have not seen it, please, please check it out.
Moser: That's a bold move.
Hill: Dan, what do you want to add to your watchlist?
Boyd: I'm going to add Fastly to the watchlist this time, Chris, because Jason didn't put a caveat at the front of this radar stock.
Moser: Hey, now! Alright.
Gross: [laughs] Sorry for being transparent.
Hill: Alright, we're out of time. Guys, thanks for being here. We'll see you next week.
