In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Jason Moser and Ron Gross about the latest headlines and earning reports from Wall Street. They start by delving into the entertainment landscape, particularly movie theaters. They bring details of a spin-off announcement by a tech giant, and separately, a possible buyout by another. They've got a preview of some upcoming events and also share a couple of stocks to put on your radar and much more.
Also, catch Motley Fool Senior Analyst Bill Mann speaking with Roger Martin about Costco (NASDAQ:COST), why it's bad for businesses to focus on any single metric, and Roger's latest book.
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 Oct. 9, 2020.
Chris Hill: We begin with the week in entertainment, where the overall business landscape had a rough week. Movie theater stocks down across the board after Cineworld Group, the second-largest chain in the world, announced it is closing all of its theaters in the U.S. and the U.K. Broadway extended its shutdown through the end of May 2021. And AT&T is on the verge of selling DIRECTV for 70% less than it paid for it just five years ago.
Jason Moser, I'll start with you. I guess the silver lining in traditional entertainment continues to be the streaming services. We saw on Netflix and Roku, both, up this week after getting upgrades from Wall Street analysts, but that's really just a silver lining.
Jason Moser: Yeah, I mean, there's definitely not a lot to smile about here. You're talking about 97,000 workers who rely on Broadway for their livelihood. You're talking about 45,000 people impacted by the Cineworld closures. That's a lot of employment, that is a lot of money, that is a lot of economic output that is just going to, essentially, disappear. And we don't know really when it's going to come back.
The weird thing about the entertainment industry right now, and we talked about this earlier in the week, they've got a supply problem and a demand problem. I mean, you don't have consumers frequenting the theaters or Broadway for obvious reasons; most everything is shut down. But even for areas that are not closed, for theaters that are still open, it's just that the demand isn't there, right, consumers aren't just clamoring to get out there and sit in crowded spaces. And by the same token, you've also got Hollywood and all of the producers and actors, they're faced with not being able to really supply the entertainment to begin with. And so, in most cases, you're seeing, sort of, this one-two punch in the entertainment industry.
And there are a couple of outliers there that are able to deal with this a little bit better than others. We've seen Disney, obviously, able to utilize Disney+ as a platform to get that content out there. And typically, when you have highly produced or animated content, it's not necessarily the same supply problem that you might witness with real-life production, but regardless, this is an industry that has been thrown into chaos, and it touches so many lives, there are so many participants in the value chain, it's going to be a while. I mean, Broadway now is going to be closed through May of 2021; that's $15 billion of annual economic impact to the city of New York; that's a tremendous amount of money, and then top it all off with politicians in D.C. who just cannot come together to provide some level of assistance for the folks that need it most. It's just a very frustrating time for a lot of folks, I'm sure.
Ron Gross: Yeah, you know, most of us don't get to a Broadway show very often, but the movie business, it's part of some of our weekly, or if not weekly, monthly, kind of, social activities. And it's not just consumers' apprehension to get back into a crowded space. As you mentioned, Jason, there's not a lot of blockbuster movies out there, and those that have been produced have been postponed; like, a Wonder Woman, for example.
When the vaccine comes, I think production gets back in gear. And then it's a question of, do consumers then feel comfortable getting back into a crowded space sitting next to their neighbor and going back to the movies. But with all the wonderful streaming services we have and all the first release movies coming on streaming, it's not as important as it once was.
Hill: Shares of IBM (NYSE:IBM) up this week after the company announced it is spinning off its IT infrastructure division into a new publicly traded company. The deal is expected to close by the end of 2021. Ron, Arvind Krishna has only been CEO for a few months, you think this is a good move?
Gross: I do think it's a smart move to unlock the value of the cloud business, it's a quintessential move. When you have a slow growth, low-margin business combined with a faster growth, [laughs] large opportunity business, from a stock market perspective, if you separate those two, the faster growth, larger opportunity business should receive evaluation that is more appropriate. And if you don't separate them, what happens is, the valuation gets dragged down as a result of the slower business.
So, that managed infrastructure service, which is the services business, which is the less exciting one, will be the new company. It will have about $19 billion in revenue, so not a small company, 90,000 employees; that's about 25% of the total of IBM right now. So, the larger piece will be focused on the cloud. They'll be able to focus now on the hybrid cloud business, the artificial intelligence business, which was all acquired in that $33 billion Red Hat acquisition in 2019 last year. So, that opportunity is going to be really exciting.
And then the question is, instead of trading at nine or 10 times earnings, which is where IBM was before this announcement, does that cloud business get something more like a Microsoft valuation, 30 times, 32 times? Certainly, higher than 10. Will it approach something like a Microsoft? Remains to be seen, but I do believe it will unlock significant value.
Hill: Advanced Micro Devices (NASDAQ:AMD) in the spotlight on Friday on reports that AMD is in final talks to buy specialty chipmaker Xilinx (NASDAQ:XLNX). Jason, AMD could be paying up to $30 billion for Xilinx; you think this is a good deal?
Moser: I definitely think it could make sense. I mean, AMD is certainly in a heated competition with other big companies in the space, like Intel; you've got NVIDIA buying ARM Holdings. This would be a big acquisition for sure, but they can finance easily via debt or shares or a combination of both. I mean, shares are pretty cheap currency today. So, I suspect that from a financial perspective it would be an easy pill for them to swallow.
AMD and all of these chip companies are really seeing some push-up in demand as this digital pandemic economy continues to take front and center. And in regard to Xilinx. Xilinx, their forte, they make these programmable logic devices, these things called PLD. They are essentially programmable chips as opposed to specialized chips. So, typically you can make these more quickly, they're more flexible, they're faster to market than custom silicon chips that a lot of these companies make. And it's important, I think, to remember, too, who their customers are; it's not just data centers.
Now, with that said, management for Xilinx made it very clear it is pursuing a data center first strategy for growth, and that's why their data center segment is the fastest growing. It is a big opportunity that we're seeing a lot of companies, including NVIDIA, for example, pursuing. But all in all, they have a nice diverse customer base from industrial, to wired and wireless, automotive, broadcast, data centers, of course. We're seeing consolidation in the space, no doubt about it, scale is a big competitive advantage when it comes to making and designing and implementing these chips. So, I could see a world where Xilinx and AMD together makes sense.
Hill: Ron, if this deal goes through, from a market cap standpoint, AMD is probably going to be roughly half the size of Intel, which if you go back a decade, Intel was 10 times the size, 20 times [laughs] the size of AMD. It's really remarkable the run that company has had, particularly over the last five years.
Moser: Yeah. And when you consider Intel not really capitalizing, so to speak, on the mobile front, that market cap could have been really a lot greater [laughs] even than it is today.
Hill: Third-quarter revenue for Domino's Pizza (NYSE:DPZ) came in higher than expected, same-store sales were strong, but shares of Domino's down nearly 10% this week. This is a good quarter, Ron, but their costs are rising.
Gross: Costs are rising, but it's largely pandemic related, employee bonus related. Now, commodity costs also are up 3.8%, because for some reason, the price of cheese hit an all-time [laughs] high during the quarter, and that is actually a very, very large input cost for Domino's. So, they did not meet profit expectations despite incredible demand for their products and really great top-line numbers. As you said, same-store sales growth in the U.S. up 17.5%. I mean, that alone beat estimates, that's an incredible number, obviously, juiced by the pandemic and everyone ordering to their homes. International, up 6.2%. These are incredible numbers.
A hundred and seven consecutive quarters of international same-store sales growth, and 38 consecutive quarters of U.S. same-store sales growth. I remember back in the day when we were talking about these guys revamping their menu and wondering where they were going to go; they've done a wonderful job. They continue to focus on tech innovations. They added wings, chicken tacos, and cheeseburgers to their menu. I'm not getting a cheeseburger from Domino's; but listen, if that's your thing, go for it.
Moser: Wait, wait, wait, wait! Now, let me clear this up, isn't that a cheeseburger or a chicken tacos ...
Gross: It's a cheeseburger pizza ...
Moser: Pizza, right. OK. So, it's not the actual burger ...
Gross: Yeah, but that's a big thing in Massachusetts, where I went to school, cheeseburger pizzas. I'd never, never, it's not my thing. But again, a strong 17.9% increase in total revenue, 83 net store growth. So, they're continuing to open up stores. As we said, the higher cost, the pandemic related, employee bonus related, commodity related, did hurt margins, but listen, earnings per share was still up 21%, that's a great number. The problem with the stock is that when you're trading at 32 times, if you miss profit expectations and you don't get growth anywhere near 25%, 30%, you're going to get a bit of a sell-off in the stock, but still a wonderful job by these guys.
Hill: You know, Jason, you look at the numbers out of Domino's; McDonald's came out this week with really impressive same-store sales numbers for September. And at the other end of the spectrum, you get these sit-down restaurants that just continue to struggle. Ruby Tuesday declaring bankruptcy this week. And it seems like the longer this pandemic goes on, the more we're going to see this fork in the road where fast -food and fast-casual restaurants, like Chipotle, have a greater opportunity, and the Applebee's and TGI Fridays of the world just become more and more challenged.
Moser: Yeah. And I don't mean to draw quite the comparison here, but I'm going to go ahead and do it. I mean, it's like these businesses that were built on cloud native infrastructure, right; I mean, that is a much different ball of wax. I mean, something like a Zoom versus a Skype. We say Zoom's big advantage, one of its biggest advantages, was that it's cloud native versus something like a Skype, which wasn't necessarily that case. These restaurants, the easier the pivot they have to make during times like these, the more successful they're going to be. So, whether it's a McDonald's, or Chick-fil-A, or a Domino's, or a Chipotle, these were businesses that made investments in mobile and delivery and a good experience long ago. And you can certainly question long ago whether those investments are really worth it; clearly now we're seeing that they were worth it. And you couple that along with their scale, I mean, it's just a much more efficient way to spread costs to keep things consistent, it's just really a matter of when we get the economy back open and people want to actually go sit in a restaurant; much like the entertainment industry is today.
Gross: Yeah. And I would like to add that it is National Pizza Month, go out there, support your local pizzeria, Domino's and Papa John's will be OK for a few weeks, go out there and support your local guy in the corner.
Moser: Hey, and support your local chef at your house. You got somebody at your house that likes to cook? Buy them a pizza stone and a peel; I got that, and it's a wonderful gift.
Hill: Shares of Alteryx (NYSE:AYX) up 35% this week. The data analytics software company increased revenue guidance for the third quarter 35%. Jason, how much did they boost that guidance?
Moser: [laughs] Enough. I think this is a great example of where sometimes, you know, when it looks like the chips are down -- investing, ultimately, it's about patience, it's not about perfection, we're not trying to hit home runs every time, sometimes the market just doesn't operate on our timeline. But back to your point there in regard to guidance, it was just a few months ago where they offered up guidance that really didn't meet expectations. Fast-forward a couple of months, they're able to boost that guidance a little bit, it was modest, but it was enough. Like I said, that range from $111 million to $215 million, now they've boosted it to a range of $126 million to $228 million.
You couple that along with a leadership change, the co-founder of the business, the CEO, Dean Stoecker, is going to step down as CEO, he is going to move over to executive chairman. Succeeding him is Mark Anderson. He's a seasoned vet of the industry, formerly at Palo Alto Networks, so clearly very familiar with this line of work.
And I think perhaps the bigger question is, folks think, how could that change so quickly in such a short period of time? I think that's a very valid question, but you have to remember that with a business like Alteryx, it's similar to a business like DocuSign. When they're reporting billings as a metric of success, a metric that matters, billings can be very squishy and very timing related. And you add that to the fact that right now, I mean, things are just all up in the air regarding COVID-19, it makes projecting these numbers far more difficult than it would be in normal times. It's not uncommon, but it was nice to see that they were able to get out there, boost those numbers up a little bit, the succession is now out of the way; we don't have to worry about that question anymore. So, it does sound like Alteryx is setting themselves up for success, and I like the direction that they're headed.
Hill: This week Costco said that same-store sales in the month of September rose 15.5%. Costco's next earnings report isn't due for another two months. But Ron, comps like that, that's got to give investors something to look forward to.
Gross: Strong numbers. Costco being one of the retail winners during the pandemic alongside Amazon and Walmart and Target. A 14.5% increase in comps in the U.S.; 17.5% in Canada; e-commerce up a whopping 90%. These are big numbers. That won't be sustainable, but for now they're doing a really wonderful job. They did get a boost. Two holidays, kind of, were shifted into the month of September; Labor Day in the U.S., Moon Festival in Asia, interestingly. So, that gave them a little bit of a boost, but still incredible numbers. Shares are up 25% this year, stock is not cheap, hasn't been cheap for quite a while. You're paying a premium for this great company; you're paying, like, 38 times earnings. That's versus, like, a Walmart where you can get for 26 times, or a Target you can get for 22 times, or even a BJ's 17 times. I would argue that Costco is a really well-run company and it deserves a premium, but you got to be careful because it's getting kind of pricey.
Hill: Tuesday, Oct. 13, is going to be a busy day. Apple is holding an event to unveil the iPhone 12 along with updated versions of other devices. The 13th is also the start of Amazon's Prime Day event, which is usually held in July. Jason, obviously, both companies want the day to go well; which one needs it more?
Moser: Well, I think Amazon needs it more. I think Apple has already kind of set the table for us, right, with the event they had a few weeks back with the tablets and Macs and watch; not quite ready to release that phone yet, but we knew that it was coming. And so, I think they're very excited to get this 5G-enabled phone out there. I think consumers are just champing at the bit for an upgrade, I think it's perfect timing as far as the holiday season is upcoming. And we know that supply likely shouldn't be an issue because Apple has been planning for this and are gearing up for around 75 million iPhones to initially get this thing rolling.
Amazon, I think that ever since the pandemic really started, the big question with Amazon, and we've seen some weakness, some cracks there in the foundation regarding fulfillment, right, shipping and logistics, it's just not necessarily been as seamless as it has been before. Part of that is due to conditions on the ground, but I think also part of that is due to competition entering the fray, and we're seeing a lot of success from companies like Wayfair and Chewy. Etsy, for example, they're certainly following that Amazon blueprint to a degree.
Hill: What do you think, Ron?
Gross: Yeah, I think, Amazon, it's their business, [laughs] the fulfillment, right? So, if they mess that up, their business is in serious jeopardy. It will be interesting to see: Is this actually the launch of the holiday season, the early launch of the holiday season? And it will be a test run to see how they do. Apple, on the other hand, needs to continue to be innovative forever, not just stick to their knitting and do what they do. So, it's always important, every year, to see what Apple has out next, whether it's the iPhone 12 or the over-the-head AirPods. But I think Amazon has got something to prove here in terms of fulfillment; make it go smoothly and people will continue to do their shopping right on that site.
Hill: All right, guys, we'll see you later in the show.
Up next, a conversation with economist Roger Martin about why businesses shouldn't focus too much on any single metric. They talked about Costco, why it's bad for businesses to focus on any single metric, as well as Roger Martin's newest book.
Bill Mann: Your newest book, which is called When More Is Not Better: Overcoming America's Obsession With Economic Efficiency, came out just this last month, correct?
Roger Martin: Just two days ago.
Mann: Which was last month, so I ...
Martin: Good point ...
Mann: I'm going to say, on a technicality, that I'm on it. So, we have been talking in the Motley Fool Live construct, we've been talking since March, and then even before that about the danger that has -- and the fragility that has been introduced into American businesses by being so focused on shareholder capitalism. And what we've seen in 2020; look at the airline industry, look at the oil and gas industry, is the fact that they didn't have the cash or resources because they were so focused on this that they were fragile at a very bad time.
I'm wondering, was this the impetus for beginning the book or is this a process that you have been thinking about for a much longer period of time?
Martin: No, it's actually something I've been thinking about for a long period of time. I started the work in 2013, and I actually put it to bed, sending it off for the final editing and publishing in January before COVID. So, this was not a response to COVID. But in some sense, I guess, I think I had it more right than wrong on the notion that our pursuit of efficiency -- and I think this whole -- the thing you were just talking about, the shareholder value maximization, pursuit of that, is a subset of a broader phenomenon; it's kind of something even worse than you described or more --
Mann: Because I feel pessimistic about this, so. [laughs]
Martin: [laughs] Yeah. But that we have a privileged efficiency over resilience to such an extent that we have created some problems that we didn't anticipate. And I did not realize that within a month after I put the book to bed that it would be visited on us, which it certainly was in COVID. But there is one thing to pursue, whether it's shareholder value maximization or actually almost anything else. If you just say it's one thing, that will make you, kind of, extreme and fragile. And it turns out that shareholder value maximization and pursuit of that most certainly has.
Mann: We are here at The Motley Fool and we are investors who write for other investors. So, we are tautologically shareholders. What is it that your research tells you about this single-mindedness that is bad?
Martin: It's bad because attempting to produce that does not lead to it. All right, this goes all the way back to maybe one of the wisest men in history, Aristotle, who pointed out 2,400 years ago that if a man sets out to seek to be happy, is unlikely to end up happy. If instead, he seeks to live a good life -- by which he meant, live a life of, like, servitude to society, his fellow men, etc., etc. -- he is likely to end up happy. I say the same thing about shareholder value maximization. The idea that you're attempting to do that and saying to everybody involved, that's what I'm tempting to do, is not correlated in any way with doing it, and in fact it makes the job harder.
I like the J&J approach. You know, when Robert Wood Johnson took J&J public in 1948, he created a credo that's engraved in granite, and I'll paraphrase it, but it said, patients -- which were their customers -- patients come first, employers come second, the communities in which we work come third, and last -- not next, last -- come shareholders. However, if we do a good job on the first three, shareholders will earn a fair return. Well, Johnson & Johnson is worth several hundred billion dollars now. They've done just fine, even though he says they are last.
So, the idea of saying something is first, will not necessarily happen unless there's a system that produces that. And Robert Wood Johnson had a system. He said, take care of these three people and the shareholder value thing will take care of itself. So, there is no evidence to suggest that since shareholder value became the thing of primacy, sort of, arising out of Mike Jensen's, kind of, famous article in 1976, shareholders haven't done better.
Mann: No, managers have done well.
Martin: Absolutely. And you'd be like, no, no, that's not the way things work; we align their interest with shareholders with stock-based compensation. This is all supposed to work well, but, no, it turns out that that doesn't improve shareholder value. In fact, as I've written in several other articles and the book, stock-based compensation actually puts shareholders and managers in opposition to one another. So, it's these simplistic things. In a very complicated world, and I don't want to overstate it, but in a complicated world you just can't have those singular objective functions, that's why Robert Wood Johnson is smart.
So, most airlines are smart, they say, here's what we want, we want the lowest cost, highest customer satisfaction, highest employee satisfaction, and most profitable airline. And you'd say, you got to be kidding me, those are, like, internally inconsistent, contradictory, how the heck do you get to be low-cost and have a high employee satisfaction? The answer is one word, cleverness. You've got to find a clever way to balance those things out. So, they say, well, here's what we're going to do, we're going to simplify the system so that we can actually have fewer employees per passenger seat mile; not because we work them harder. Yes, they work on a variety of things, but we simplify the things so that we can pay them more than anybody else, so they're deliriously happy to work for us, which will make customers happier, they'll make each other happy because they all come to work, kind of, happier than at the other airlines. So, it's a complex world, right, that requires you to have somewhat complexity in the way you think about how to manage it, not the simplistic, well, all we have to do is say, kind of, we want to maximize shareholder value. It doesn't work.
Mann: You have hit upon two of the three companies that I specifically wanted to bring up during this half-hour that we spend with you, because I wanted to talk about Johnson & Johnson and specifically their reaction to the Tylenol -- it's not a scandal, I'm not pulling the right word -- you know, the disaster in 1981, in which they pulled no punches, they had a plan in place, and it was expensive for them.
Martin: Yes. I think -- wasn't it $300 million in immediate costs of taking all of the Tylenol off of the shelves? I think in 1981 dollars $300 million is just ...
Mann: That's in cost, that's not even opportunity cost, that's cost.
Mann: And that happened, and you know, as going through your book, you seem to claim that about the breakpoint from when we went, you know, where we really started pushing to your primacy of shareholder capitalism is about 1976; you know, not to put too fine of a point on it. If you were to re-extrapolate, was J&J's response in the early 1980s the same type of response that you would have expected to see from a company in 2018 where that singular focus was much more in place?
Martin: Yeah, no. With a singular focus in place I would've expected them to say, well, we got to be careful here, we got to not take any steps that would cost us, you know, kind of, too much money in this quarter; that's what would have been the case. And they would have taken whatever the hit was to the reputation of the product. In this case, you know, as history has shown, the extremeness of their response, we're going to take it all off the shelves and we're going to go to all these lengths, we're going to create three layers of protective seals and everything. Everybody, sort of, said, wow! Is Tylenol ever safe?
Whereas, if they would have left it on the shelves and said, well, just be a little careful. If it tastes a little funny, maybe you shouldn't swallow, you know, that everybody would have ...
Mann: [laughs] That's great. If you swallow it and it is bad, don't swallow it.
Martin: Yeah, exactly. A really helpful advice. You know, we probably wouldn't -- we hardly recognize the Tylenol brand because it'll be gone, right, it would be one of those crippled brands maybe limping along. So, yeah, I think that's just the problem. And, you know, as I always, when I'm talking about this to challenge people, I say, well, [laughs] do you operate with a single objective function in your life, it's all about my work?
Martin: No, it is, oh! I have to balance these things. I want to do what I need to do to get ahead and have a good career, but also take care of my family and my home life and my aging parents and whatever. You have to balance these things. So, why is it notionally that companies can't, right? That was the argument that Milton Friedman in 1970, and Mike Jensen later on '76 and some other articles said, you have to have one objective function or everything will go to cats and dogs sleeping together, you know, that's going to be a day --
Mann: [laughs] The apocalypse.
Martin: It's chaos. [laughs] And I'm sort of thinking like, gee! So, every individual in the world has to do that, balance a bunch of things to live a decent life. Why is it that individuals can, and this entity called the corporation for sure [laughs] can't? It would be impossible. But it ruled the day, it absolutely ruled the day the notion that that is what, if you're a good, strong manager you will have a single objective function and you will focus everything on that. And then, like, when people do extreme things in service of that, people are like, oh, why did that happen. [laughs] Oh, it's because the message was clear, do extreme amounts of that thing, more is always better, no, it's not, more is sometimes --
Mann: Roger, what do you think is the highest purpose of business?
Martin: I think it's about to make a buck while making the world a better place. So, to earn a return for shareholders, that makes shareholders say, I'm glad I gave the company the money; and the bondholders, by the way, all capital providers, I'm glad I gave them the money. And the people in the company can say, let's say 10 years later, the world is better in the following way: they have a product or service that makes their lives better that they didn't have 10 years ago. And we didn't wreck the economy to do it. We created jobs that are above the living wage, so that whoever was the worker, whether it's a husband, a wife, they can help pay for their children's education to better them.
So, again, it's two things, it's you have to [laughs] make a buck and make the world a better place.
Mann: Yeah. As I've gone through your writings and as I've gone through this book, the company that I kept coming back to, and it's a stock that I've held since the '90s and very happily so, is Costco.
Martin: Oh, good for you, oh, boy! You made a lot of money.
Mann: Right. But I've done very well in every single quarter with Jim Sinegal would get on for the quarterly call and the Wall Street analyst would say, you know, if you just raised your prices a little bit more. And you know, if you just were to adopt the median wage. And if you were just to do these things, you would make so much more money. And yet, to me in some ways, Costco, I mean, you know, I've benefited quite happily from it, but to me that model is an enlightened model for capitalism.
Martin: Absolutely. And so, for the people who are, like, worried about, oh, we are too socially conscious, you're not going to make money. [laughs] If it made a ton of money for you, if you say, oh, no, but maybe less competitive businesses. Discount retailing is not competitive, the last time I checked, it's fiercely, fiercely competitive. So, in one of the most fiercely competitive industries in all of America, this company is minting money by being more sophisticated about the system. And the system, you know, Jim Sinegal would say, you know, I need to have my employees feel rested, healthy, not worrying about making ends meet at home when they deal with the customer, because then they'll give the customer their attention, they'll be upbeat with the customer. The customer will love it, the customer will love that experience. And that's why I'm going to pay him $20-plus an hour when the laws and the labor market for jobs in retail says, you know, $12, $13, $14 would be plenty. I mean that, there's an irrelevance to him, they couldn't care less what the minimum wage is, because it's not relevant to their business. That kind of broad-based thinking about how to create value is, I think, a thing of rare beauty, and he's magnificent.
Hill: Let's get to the stocks on our radar, our man behind the glass Steve Broido is back. He's going to hit you with a question. Ron Gross you're up first, what are you looking at?
Gross: How about we go to Equinix (NASDAQ:EQIX), EQIX. Largest global operator of data centers. Over 200 centers around the world. Interestingly, it's organized as a real estate investment trust. It's a recent David Gardner recommendation, a two-time rec in our Total Income service. They continue to capitalize on growing data consumption, increased cloud outsourcing, growing device counts that we all have. Data centers are very difficult to replicate, giving them a very strong competitive advantage. Revenue model is really strong, 95% of revenue is recurring, about 80% of bookings from existing customers, 70 consecutive quarters of revenue growth, 1.3% yield. The REIT structure will probably keep that growing over time.
Hill: Steve, question about Equinix?
Steve Broido: How would I know a good data center from a bad one? And I ask that because I'm assuming all data centers, probably they don't lose data, right? Because that's the thing, they can't lose the data. So, if they're all keeping the data, isn't it just who's the cheapest provider?
Gross: It's just like real estate, location, location, location. You want them spread out, you want them in key centers, it costs money to build these things, so location is key.
Hill: Jason Moser, what are you looking at this week?
Moser: Speaking of location, location, location, I'm diving into eXp World Holdings (NASDAQ:EXPI), ticker is EXPI. And my man Matt Frankel and I dug into this company on Monday's Industry Focus this past week. And the main part of the business is eXp Realty, its essentially cloud-based real estate brokerage services for residential homeowners and homebuyers. So, we certainly know that real estate is moving online, it does feel like it has been slow to disrupt, but it is happening nonetheless. And the numbers that eXp continues to lob up there, pretty impressive, if you look at the number of agents and brokers on the platform, that grew from 20,162 a year ago to 31,091 at the end of the second quarter in 2020. And the residential transaction volume closed for the second quarter of 2020 increased 26% to $13 billion.
So, you were seeing companies like Redfin and Zillow moving in all of this direction, eXp is a smaller company playing in the same sandbox. Glenn Sanford, CEO, founder of the business, owns 30% of the company, his ex-wife actually owns the other 20%. So, some interesting dynamics at play there, but yeah, there's even an interesting immersive technology angle here, too. So, one I've got on my radar.
Broido: Do traditional realtors want to embrace tools like this?
Moser: No, and I think that's why it's been so slow to develop; it is taking money out of their pockets.
Hill: What do you want to add to your watch list, Steve?
Broido: I think eXp, I think it sounds interesting.
Moser: Hey, now.
Hill: All right. Jason Moser, Ron Gross, guys, thanks for being here.
Gross: Thanks, Chris.
Hill: That's going to do it for this week's edition of Motley Fool Money, the show is mixed by Steve Broido, our producer is Mac Greer, I'm Chris Hill, thanks for listening, we'll see you next week.