In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Bill Barker about the latest headlines and market reports from Wall Street. They discuss Zoom Video Communications' (ZM 1.35%) quarterly report. They've got news on a new membership service in the e-commerce space, a new deal in the energy space, and much more.
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This video was recorded on Sept. 1, 2020.
Chris Hill: It's Tuesday, September 1st. Welcome to MarketFoolery. I'm Chris Hill, with me today, Mr. Bill Barker. Good to see you, my friend.
Bill Barker: Good to be here.
Hill: We have got the first details on Walmart's (WMT 1.85%) new service. We have a deal in the energy industry. We're going to get to those, but we are going to start with the stock of the day.
Second quarter revenue for Zoom Video grew 355%. Let me say that again. Revenue grew 355%. This is on top of the previous quarter's revenue growth of just about 170%. And shares of Zoom Video, a company that went public in April of 2019 at $36/share, the stock is now at $450/share.
Barker: Yes. What can I add? We were discussing whether this quarter is in the hall of fame for a publicly traded stock quarters or whether it just goes straight to Mount Rushmore as one of the very elite, perhaps only four of all-time; I'd like to know what others are in the competition for this. And it probably comes as little of a surprise that, obviously, in the May-June-July quarter, this company grew tremendously, but to have grown from doing a reasonable amount, $145 million in revenue a year ago for the quarter to $663 million, you know, that's one of the reasons -- $663 million for the quarter -- that this is a $100 billion company already.
Hill: Yeah. Certainly, over the past few weeks we've talked on this show and on Motley Fool Money about retail companies putting up ridiculous growth numbers in terms of their online sales: 200%, 240%, that sort of thing. Overall revenue growth of 355%, certainly for 2020 it's on the Mount Rushmore of quarters. And it's funny I forget who it was, but I saw an analyst this morning on CNBC basically throw his hands up and just -- and I likened it to, in the same way that a lot of companies have come out during the pandemic and said, we're not giving guidance anymore, there's too much uncertainty we're not giving guidance for the rest of the fiscal year. This analyst was basically doing the same thing with Zoom Video, like, I don't know what to do with this valuation. So, it was almost like he wanted to leave the set, like, stop asking me about this, I don't know what to do.
Barker: Yeah. Well, I think that, I mean, one of the reasons that I would put it on the Mount Rushmore, consider it being one of the ones that goes there, is that the stock price is much more correlated with the growth in the business, the improvement in the stock price, than some other things which have had unbelievable years as stocks and good years as businesses. I would include, sort of, Tesla in that, where Tesla is up, I think the stock is up 10X this year or 10X over a year period of time. They're not selling 10X as many cars today as they were a year ago. They've done a great job, they've improved all around, but the stock price is traveling on a different path than the business there at the moment. Whereas, I would say, there's a little bit of a tighter fit between the growth in Zoom. And, you know, the guidance they provided was actually quite conservative for the next quarter and the rest of the year, really just barely above what they just did. So, I think the market today, given it's up 35%-whatever, the market is ignoring, to a degree, the guidance because I think faster growth than that continuing the rest of the year is part of what people are excited about today.
Hill: I don't know when Cisco Systems' next earnings report comes out, but whenever that is, I'm looking forward to any questions that analysts ask on the conference call about WebEx and using Zoom Video as a datapoint. Just like, well, we see what Zoom was able to do in terms of growth, I know you have other businesses at Cisco Systems, we know you have other things going on, my question is about WebEx, how's that going? Because my hunch is, Cisco Systems isn't going to come out and say, WebEx grew 350%.
Barker: No, no. I mean, a closer corollary for that kind of growth might be RingCentral which has got, sort of, a unified communications cloud-based business operation, and just reported a very good quarter in their own right, not quite at Zoom level. So, obviously, this is a technology which we are using right now. We're probably familiar with how much more we use it not just in business and not just for an expanding part of our business, because we had Zoom a year ago, more than a year ago in our company, used it, we found it, I think I did, I'm imagining you did a big improvement over our previous video conferencing software. And you know, now it's the kind of thing that grandparents and grandchildren and parents are all using in a way, and adoption across generations that I think is also on a fairly shortlist of technologies that have seen, you know, all of society go into this, and to becomes of verb of what you're doing. Whether you're using WebEx or RingCentral or Zoom, you're probably referring to it as, you know, a Zoom call.
Hill: Shares of Liberty Oilfield Services (LBRT 4.25%) up 33% today, Liberty is going to merge with the North American fracking business of Schlumberger. And Schlumberger is going to hold a big stake in the resulting company. And this is one of those deals that strikes me as pretty one-sided. This seems like this is good for Liberty shareholders and maybe no one else.
Barker: Well, Schlumberger retains an interest in the new company that will be formed by the sale of its assets merge with Liberty, so it's providing a little bit of a net, perhaps, to the decline in Schlumberger's stock price today, which you know, is a well-trod path for Schlumberger this year to see its stock down, it's down about 50%. I was going back, looking over a graph. And Schlumberger has had phenomenal success over the years, it's been one of the innovators in the category and yet its stock is about the same price it was in 1996. So, you know, to me, more than anything, I take away that this is a part of the economy that the market does not like today, the market does not see a promising future for. Liberty has improved, but is really, sort of, getting up off the canvas with this deal, it does not appear to have the future, that it once appeared to have, today, as reflected by stock market prices and as reflected by people's use of fossil fuels at this moment in time.
If you want to take the other side of that, that this is a cycle and this is all going to come back then, you know, why don't you take that? We said we would try to generate a fight with -- that's what you've always said, fossil fuels, just give me more fossil fuels.
Hill: I haven't said that, but certainly, you know, to go back to Zoom's valuation, in the same way that there are people looking at the valuation of Zoom Video and saying, this is insane, some of those same people are looking at Schlumberger and Chevron and ExxonMobil and saying, look at how cheap these stocks are.
Barker: Yeah. You know who didn't say that, the people of Dow Jones and their average; they kicked Exxon out. So, they're not betting on the future. And if Dow Jones, which is the epitome of the status quo and the elite of the anointed in an economy, if they're not as interested in betting on the present and the future of Exxon as they once were, and were for decades, that's sort of just another, perhaps, data point as to how many people are getting off the train.
Now, that's one way to make money, is to pick up something that everybody else has turned on, but you are betting, you are betting on the future of fossil fuels. And I don't know if that's a bet everybody wants to make.
Hill: I think definitionally it is not a bet everybody wants to make.
Barker: It's mostly you, right?
Hill: Fewer and fewer people are making that bet.
Barker: Yeah. And, I mean, one of the reasons would be to look back on the last 25 years of Schlumberger and what shareholders have received for sticking it out with them this long. And they've seen a company that's been at the core of the innovations that made fracking possible and made fracking as lucrative as it was during the right part of the cycle. But we're on the other part of the cycle right now. And talking about this as a cyclical, we are implying that, you know, there will be another chapter and it'll look a little different on the sine curve. But long-term, I do take that 25-year view and say, sigh, I'm not sure the next 25 years are going to be better than the last 25 for Schlumberger.
Hill: Just last thing on this. When you started to talk about Schlumberger's stock price and you said, the stock is basically where it was in... I didn't know what year you were going to say, but I would have bet money it was at least going to be a year in this century, the fact that the stock is basically where it was in 1996, means that there are absolutely people listening to this podcast going, wait a minute, that was before I was born. Like, yep, that's how that's going for Schlumberger.
Barker: Well, now, it visited some very different stock prices, in-between it was a +$100 stock in 2007, it's $18 today. I haven't gone back and matched this graph up against any divestments that may have occurred. So, if I've gotten any part of this not fully accurate, that's on me, but I think that the general story is going to hold up to scrutiny. You know, this was a $100 stock in 2014, all-time high then, I think. And you know, again, $18 today, it's been a tough year and really a tough couple of years preceding that.
Hill: Shares of Walmart up 6% today, hitting a new all-time high, because Walmart has unveiled details on the Walmart+ service that it is launching on September 15th. $98/year for the service, or you can go the monthly route, $12.95/month. You get free shipping on orders over $35 and $0.05 off a gallon of gas, speaking of fossil fuels. What was your reaction when you saw the details of this service? Let's just start there.
Barker: My initial reaction was, this is a copycat of Amazon, and that's probably a pretty good idea. I think that they have built up their e-commerce. They weren't rushing into it once coronavirus hit, they've been investing in this for a very long time. And I think that they are going to be a big player and I think that they have got an audience, they're already a big player in e-commerce, but they're going to have an audience that has grown up with Walmart and is loyal to Walmart and appreciates where Walmart is and what it's done for them. And I think the distribution that they're going to be able to achieve, particularly on the grocery side, given the number of locations, given the scale of those locations, I think I would be-I and the market are buyers of this idea today. I'm not literally buying the shares, because there are all sorts of rules about that, but I think that, to me, the market receiving this positively is no surprise.
Hill: So, my initial reaction was the same that I think a lot of people have made, at least based on what I've read online and seen on CNBC, is the median side-by-side comparison with the Amazon Prime service. And people, sort of, holding those two up and saying, well, on an annual basis this is less expensive, because Amazon Prime is $119, but you get a lot more, you get Amazon Music, you get Prime Video, and there's not the limit, there's not the $35 limit to get the free shipping. Amazon Prime you get free shipping no matter what. That was my initial reaction.
The more I have thought about it, the more the rise in the stock today makes sense. Because one of the things you just talked about, I think the grocery angle here is an important thing that nobody should overlook. The way that Walmart has invested in groceries over the last, not just the last six months, but really over the last decade. And for people who are doing their weekly grocery shopping at Walmart, that gets you over the $35 limit very quickly. So, I think Doug McMillon and his team have done their homework on this. I'm interested to see the first time they come out with numbers of, here's how many people have signed up. But I think McMillon and his team have more than earned the benefit of the doubt with the way they've constructed this service.
Barker: You're betting that people are going to continue to eat; that's what I hear.
Hill: I think buying groceries, consuming them on a weekly, if not daily basis, that's a trend I believe in.
Barker: Not a fad, that's a trend, a long-lasting trend you see.
Barker: Yeah, I think that is -- I don't know that I've ever gotten out of Walmart for less than $35. I think when I've gone there it's probably been to acquire at least $35 worth of stuff. So, I agree that when I saw that number I thought, huh, Amazon used to deliver you stuff for free if you just went over $25 with or without a subscription, you know, once upon a time, so. But I think that the marketing research that Walmart has surely put into this led to that particular number. And I'm going to bet that Walmart's marketing research has once again done its job.
Hill: Bill Barker, good talking to you; thanks for being here.
Barker: Thanks for having me.
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you tomorrow.