In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Maria Gallagher about the latest headlines and earning reports from Wall Street. They've got news from a streaming giant, and new TV and movie production details. They go through Snap's (NYSE:SNAP) earning and ad revenue monetization. Finally, a go-to brand sees strong growth from home renovation projects, some fun facts, and much more.

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This video was recorded on October 21, 2020.

Chris Hill: It's Wednesday, October 21st. Welcome to MarketFoolery, I'm Chris Hill. Joining me from the financial capital of the United States of America, it's Maria Gallagher. Thanks for being here.

Maria Gallagher: Thanks for having me.

Hill: We've got a stock up more than 15%, we have another stock up more than 30%, but we're going to start today with Netflix (NASDAQ:NFLX).

In the past 12 months shares of Netflix are up more than 200%. So, forgive me for not wringing my hands over the fact that shares of Netflix are down about 6% this morning. Third quarter profits came in lower than expected. That said, weakest subscriber growth in four years. I don't know, that doesn't seem like something to worry a lot about, but it certainly is noteworthy.

Gallagher: I actually think it's something that's, kind of, to be expected. So, there's something called the pull forward effect, which is, there's rapid growth in the first half of the year, so then that, kind of, steals the subscribers that would have happened in the back half of the year. So, they added 2.2 million new subscribers, which is less than the 3.3 million predicted, but in total for the year they added over 26 million customers, which is more than they did all of last year. So, through the first nine months of 2020, they've added 28.1 million members and they're on pace to add 34 million users in 2020, which will be their strongest year of growth ever. So, even though this quarter is their lowest number since 2015, if you, kind of, zoom out and look at that big picture, they're going to get to almost 200 million customers in total, which if you're going to compare it to Disney+ has 60.5 million subscribers, Hulu has about 30 million. So, it's still by and large the most popular streaming site.

Hill: I did not get a chance to listen to the conference call. Do you know the extent to which management gave any guidance on production schedule, because we've certainly seen that in the traditional movie industry, television as well to a lesser degree, but we've seen a lot of movies just stopped production altogether, did they give any guidance on their own pipeline?

Gallagher: They did. So, they finished 50 projects since the initial shutdown and they will release more programs next year in 2021 than they did in 2020. They are returning to production mainly in Europe and in Asia, not as much so in the U.S. They're currently filming Season 4 of Stranger Things. They're filming Red Notice, which I don't know if that's based on the book by Bill Browder, but if it is, I'm excited to watch it. They're filming Season 2 of The Witcher. So, they seem that they are, both, finishing production in filming and reramping filming outside of the U.S.

Hill: One of the things they did note, you know, yeah, the headline is "weakest subscriber growth in four years." Their subscriber growth in the Asia Pacific region was really strong this last quarter.

Gallagher: Yeah, it was the largest contributor to paid membership growth. So, it was 46% of the global paid net ads. So, I think that that's an interesting, kind of, problem or gift that they have, is they now have such a global subscriber base. So, you have to see shows that are in English and then you have to see shows that are in different languages and you have to see shows that widely appeal, like, I don't know if you watched Indian Matchmaking, but that was an interesting show that appealed to ...

Hill: [laughs] Come on, Maria, I think you know I'm not watching a matchmaking show.

Gallagher: [laughs] I heard A+ reviews, my sister really liked it, but I think that that's an interesting, kind of, experiment. And you see that it was very popular in India, but was also super-popular in the U.S. So, trying to figure out how they can get shows and movies that have that wide appeal while also focusing on those niche shows as well that do really well, like The Umbrella Academy or The Social Dilemma, the documentary that came out.

Hill: Last thing before we move on, what is Red Notice?

Gallagher: It is a book by Bill Browder that is very good. If anyone's looking for an investing, kind of thriller, it seems like it's fake, but it's actually real, you can look it up, it's based on his life investing in Russia at the fall of the Soviet Union. And you, kind of, understand how the oligarchs get into power and then things get a little bit "stressful" is the word I'll use, but it's great read, would highly recommend it to anyone who is looking for something like that.

Hill: All right. I'm much more likely to watch that than I am the matchmaking show. Analysts were expecting Snap to post a loss in the third quarter, instead Snap reported a profit of $0.01/share, revenue was also higher than expected, and that combined to send [laughs] shares of Snap up 31% this morning! Look, I get that they are surprised with a profit, but 31%?

Gallagher: So, it's interesting. I think that right now is the time where we're seeing advertisers figure out which of these platforms give them the highest ROI. [Return on Investment] And so, as we continue to see advertising shift to more digital and more social platforms, I can't remember the last time I bought something that wasn't advertised to me on Instagram, I'm almost exclusively shopping from Instagram targeted ads. And so, I think that it's a really interesting, kind of, evolution of advertising that we're seeing. And it might be -- I know you spoke a little bit earlier about how Pinterest shares were up. And I think that that's, kind of, in the same vein. And so, quarter three sales were up 52% for Snap to $687 million. They have 249 million daily active users in the quarter; that's up 19%. And so, they're expecting year-over-year revenue growth of 47% to 50%. I think it's just really interesting to see how powerful this is as a platform. I think I tend to forget about it, but it reaches over 90% of the Gen Z population, over 75% of the Gen Z and millennial population. Their new lens that they use with AR that turns people into anime characters, people engaged with the lens 3 billion times in the first week. So, it has this massive, massive reach that I think people forget about, including me.

Hill: So, investing is all about the future. And because it's all about the future, there are times when, as investors, we kind of have to set aside any preconceived notions that we hold about a given business or an industry or a CEO. So, I get that we're going to focus on Snap's future, but I have to mention the fact [laughs] that this is a company that went public 3.5 years ago, and it was really just in the past week that the stock price for Snap got above where it IPO'd. So, if you were excited about Snap and you bought on opening day in March of 2017, you have been underwater until [laughs] just the last couple of days. So, look into your crystal ball, two to three years from now, do you think we're going to look back at this point in time as, yep, that was the turning point, you know, that they struggled for a couple of years but they figured things out, they got a boost from the pandemic and that was the turning point for Snap as a profitable investment? Or are we going to look back and say, oh, that was a nice speedbump for investors [laughs] who got in when it was lower than the IPO and then, remember, in the in the Fall of 2020, right before the election, it had that nice pop, but that was just a nice speedbump, where do you think this is going?

Gallagher: It's hard to tell, because a lot of these social platforms that are used by advertisers and the revenue that's derived by advertisers, it depends a lot on network effects. So, you will use the platform if your friends use it, and so that is really wonderful to the upside, because it grows fast, but then it's super-detrimental to the downside, because it can just be wiped out really fast. And a lot of these things, a lot of their lenses, a lot of their maps, a lot of their advertising, it's not necessarily unique to just Snapchat, right? So, you have it on Instagram, you have it on all of these different social media. And so, trying to figure out which social media, or if people will continue to use a multitude? Right now, people use all of these different social media, so I think it's hard to tell because the product itself isn't necessarily that differentiated, but it does still continue to have that scale. And I think it's changed its model so that it has monetized for advertisers better. And so, I think if it can continue to do that and they grow their shows and they improve their monetization, they said they paid their partners 85% more than the quarter three of the previous year, so they're getting better at monetization, which is important, but it is all based on how popular that ad platform is. And so, I wish I had a crystal ball to tell you which platform will be popular with Gen Z in 10 years, but I do think that will be a big decider of Snap's profitability.

Hill: Well, and you point out something that I think we always have to keep in mind any time we're looking at a business that makes its money off of advertising, their ability to deliver results for advertisers, the more they can sustain that, the more trust they build up with their advertisers, the more likely they're going to be part of those ad budgets going forward. So, it will be interesting to see, but you know this is, [laughs] for people who have held on to the stock the last few years, this is a welcome relief, because it's been a rough ride for the last three-and-a-half years for shareholders.

WD-40 (NASDAQ:WDFC) wrapped up the fiscal year in style, fourth quarter profits came in higher than expected. And shares of WD-40 up 16% this morning. And Maria, Garry Ridge, the CEO, said something, we've heard similar comments out of management at Home Depot and Lowe's talking about strong demand from consumers and renovations. You know, people trapped in their homes, home renovations are on the rise, that helps a company like WD-40.

Gallagher: Yeah, I actually didn't realize that WD-40 is a $2.7 billion company, it's bigger than I thought it was going to be. And I found a very interesting fun fact. Did you know that WD-40 helped Rocket Chemical Company in 1953 displace water and propel the Atlas missile into orbit, and it helped get people into space?

Hill: I did not know that. That's a nice little feather in their historical cap.

Gallagher: Yeah, that's my random fun fact about WD-40, [laughs] but their most recent quarter, their net sales are up about 5% to $111 million, but they're net income was up 129%, but that's mainly due to a reserve for a tax position, so I wouldn't get too excited about that net income. But so I think it's just, like you said, they talked a lot about how all of these people, it's called isolation renovation projects, the more time people are spending isolated, the more time they're spending making home improvements, they sell their products in over 176 country, so it has a pretty wide base, it has a continued strong growth. I don't see it getting hurt by people staying at home any longer.

Hill: No. And you know, this is one of those straightforward, dare I say, even boring businesses that has just steadily rewarded shareholders over the last five years. And I'm struggling to think of who their competition is, like, gun to my head, I don't know -- I'm sure there are other companies that make lubricants for your squeaky hinges and that sort of thing, I just can't think of [laughs] who they are. And I'm not suggesting that current management isn't doing a good job, clearly they are, but it also seems like one of those businesses that a larger business, if they wanted to, might take a run at WD-40 in terms of an acquisition, because this is just -- I mean, it's the go-to brand for what they do, and they're just steadily knocking out their results.

Gallagher: Yeah. I feel like it's just a great company that has their one thing that they do, and they do it really well, they haven't tried to expand and do a ton of different things. They have some of their specialized products, but they mainly have WD-40. And so, instead of, kind of, reinvesting all of that money into projects, they pay it out as a dividend, and they continue to be a steady-eddy. So, I think it's a really good acquisition target for, like, a Home Depot or a Lowe's, if they're looking to grow some of their main products, but I think it'll continue to do well on its own.

Hill: Maria Gallagher, always good talking to you, thanks for being here.

Gallagher: Thanks so much for having me.

Hill: As always, people on the program may have interest 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.