In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Andy Cross and Ron Gross about the latest headlines and earnings reports from Wall Street. They also discuss the falling unemployment rate and market recovery. They've got one of the biggest deals ever in the software industry to talk about, a company that doubled its EPS, and stay-at-home stock that is down. They also share some stocks to put on your radar and much more.
Also, Chris chats with Jackie Breyer, editorial director of the Toy Book and The Toy Insider, about what's happening in the toy industry, and she shares some must-have cool toys for the upcoming holidays.
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.
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This video was recorded on December 4, 2020.
Chris Hill: We've got the latest headlines from Wall Street. We've got the hot toys for the holiday season, and we've got a couple of stocks on our radar, but we begin with the big macro.
The U.S. economy added just 245,000 jobs in November. The unemployment rate falls to 6.7%, but, Ron Gross, this is the fifth month in a row of slowing job growth.
Ron Gross: Yeah, concern that the recovery is stalling as we enter what will be a really tough Winter, despite the anticipation of a vaccine. I think most definitively we're seeing a K-shaped economic recovery here. And if you picture a graph, the top leg of the K goes up into the right, and that's what you're seeing if you're a high wage earner or if you have investments in the stock market. S&P 500 up 14%, for example. But if you're a gig worker without investments in the stock market, then you're feeling more like the lower leg of that K, and it's a very, very difficult time for these folks.
Interesting statistic, the employment rate for people making more than $60,000/year is up compared to January 2020, while low wage jobs are down nearly 20%. So, we have a really big bifurcation of our economy right here. Some folks are doing really well, other folks are really hurting. Gosh! We see the food lines, it's a scary time for many. My hope is that we get another stimulus package that can bridge the gap to the vaccine. And then once we have the vaccine, we can get more to a V-shaped or even a U-shaped, which is a slower V, if you will, we get to that type of recovery for more Americans.
Hill: Andy, what do you think?
Andy Cross: Yeah, I think Ron is right. Clearly, the stimulus package and the vaccine is what has been so exciting to investors and the stock market, especially for the stocks that have really dragged over the last year or so that are not part of the stay-at-home COVID movement. So, you're starting to see this little bit of a rotation into that as people get excited about perhaps a vaccine coming out early next year and having some beneficial impacts, but really, I think the stimulus package, we do see so many small businesses continue to really struggle and suffer, that's impacting some of those low wage employees like that Ron mentioned. And so, Congress really has to do something here, maybe before the end of the year, but I think certainly before the change of the administration.
Gross: And even though this report showed growth, albeit the slowest month of growth since the recovery began, you're seeing decreases in the gig economy. So, for example, retail jobs were down 35,000. Bars, restaurants, other food service establishments, down 17,000. You're seeing the show up in the numbers if you're making good money, if you have a 401(k) and IRA, you're not feeling that same kind of pain. And I think it really behooves all of us to understand that your experience may not be your neighbor's experience.
Hill: The deal of the week is also one of the biggest deals ever in the software industry. Salesforce.com (CRM 0.06%) is buying Slack (WORK) in a deal worth more than $27 billion. Salesforce is financing the deal with both cash and stock. And Andy, if anything is clear, it is that Salesforce is now in a battle with Microsoft.
Cross: Well, they've been in a battle with Microsoft pretty much since their origination, I think, Chris, in general. But yeah, from a customer perspective, one who uses Slack, I think this is a good thing for Slack, the software and the tool. If I was a shareholder of Salesforce, I'm still not quite sure how that ultimately benefits. Salesforce is a $200 billion organization, they're buying Slack for about $28 billion, most of that in cash and some in stock. It's by far their largest acquisition, twice as large as the Tableau acquisition; they're adding a little bit of more debt to the balance sheet. But Salesforce continues to rely on those acquisitions to continue to grow. And it has integrated those acquisitions over the years very well. And Marc Benioff, the Founder and CEO, lone CEO now of Salesforce, continues to find acquisition targets and Slack fits that bill.
The stock really had struggled since its IPO, the IPO price of Slack was $38, and the deal now will take Slack out at about $44/share. So, a little bit higher than the IPO price, but you know, not that great over the last couple of years and I think that he saw a real asset when you think about the Slack software and all those customers, more than 140,000 paid Slack users. Endpoints, like the Slack endpoints, as you make communication was up more than 240% year-over-year. So, they're really looking to integrate Slack. Slack will be the real face of Customer 360, which is Salesforce's CRM face. And it'll expand Slack Connect, which is the software part of Slack that allows you to connect outside of your organization. So, I think from a user perspective it's really interesting, but you know, as a Slack shareholder and someone who might have to own Salesforce stock, I don't know if I'm super-excited about that.
Hill: Yeah, it's interesting, because Benioff has done a great job growing this company, in part, through acquisitions, like the Tableau one you mentioned. I feel like the bar is going to be higher for this one, in part because I don't think they were bidding against anyone, it was basically a deal that the two companies struck, it wasn't like there was this big rush in the open market of large tech companies looking to buy Slack.
Cross: Yeah, you think about who might come in with a bid, of course, it still has to be approved by Slack shareholders, but if you look at who might come into the deal, you know, maybe a Facebook, maybe a Zoom (ZM -1.09%); I mean, there are some out there, but I don't really expect to see it. They expect the deal to close in the second quarter of next year. So, before then, I don't really expect to see someone come in. And Salesforce, they do have this model of making these acquisitions, this is a big one and it is their big one, so it will be, it gets harder and harder to digest these big acquisitions, so we'll have to see how Salesforce manages that, but so far their track record is pretty good.
Hill: Shares of DocuSign (DOCU 0.47%), the electronic document company, on the rise this week. Third quarter profits were solidly higher than Wall Street was expecting, and DocuSign's full-year guidance is looking pretty good too, Ron.
Gross: This stock is up 230% this year, just amazing. Strong results, as you said, beat expectations as businesses continue to migrate to cloud-based solutions, even more so, obviously, because of the pandemic, and it's showing up in the numbers. Total revenue up 53%. Subscription revenue, which is most of their revenue, up 54%. Billing is up 63%; and that's different from revenue, because of the way subscriptions have to be accounted for, from an accounting perspective. But a 63% increase in Billings is very, very impressive. They added 73,000 new customers during the quarter, bringing the total to about 822,000 worldwide, really, really strong. Now interestingly, still not making money, which I like money, I like profits. [laughs] And that's because of their large stock compensation expense that they have on their income statement. If we adjust for that to get a sense of how this company is actually doing from an operating perspective, earnings per share doubled, really impressive. But I will caution, you can't just sweep stock compensation expenses under the rug, it's a true expense, it does count. And to just say, adjusted earnings per share is X, I think is doing yourself and other investors an injustice.
Guidance was solid. They're introducing new products, continuing to be innovative; I like what they're doing. And the stock certainly reflects the strength.
Hill: You do realize, though, if they just cut that stock-based compensation to zero, that's going to cause a problem with the employees, though.
Gross: [laughs] Yeah, I do, I do. There's the conundrum.
Hill: Third quarter results for Zoom Video were better than expected, but guidance for the fourth quarter indicated that their growth is slowing down a little bit, and shares of Zoom falling more than 10% this week, Andy.
Cross: Yeah, I mean, just look at the numbers, Chris. So, sales were up almost 370% to $77 million [$777 million] (sic) versus a little less than $700 million of the estimates in the company's own guidance. They saw an acceleration of that growth from 355% in the last quarter. They're now at a $3 billion annual run rate, their new subscription numbers accounted for more than 80% of that growth. So, their performance obligations though, Chris, when you look at the revenue going forward, was up only 215%; I mean, that's still a massive number, but it does show that they rely on this continued growth that the market now thinks, oh, wow! maybe it's not quite as high as it has been in the past.
Customers with greater than 10 employees, was up 485% and they added almost 64,000 of those clients and customers with more than $100,000 of annual revenue was up 136%. The dollar-based net retention rate continues to be very strong at 130%.
So, you look at the history of Zoom, and no one doubts just the massive amounts of growth and value they've added, but as they see they add more and more clients, like educational institutions at their free level, they do start to have higher and higher cost, but you don't see the revenue come in, and that really hurt the gross margin this quarter, that fell to 68% from about 83% last quarter. And their sales and marketing continued to increase, but not nearly as fast as their growth in sales. So, the investments they are making, the clients they're bringing on is still massive, how that turns into potential future revenue, I think is the outstanding question. And if the growth continues to perhaps soften going forward, I think that's what hurt the sales price, but still you have a stock now that sales at 35X forward sales compared to where it was a couple of months ago at north of probably $70 or $80. So, the stock price has pulled back and the valuation has dropped along with it.
Hill: Both CrowdStrike (CRWD -3.95%) and Zscaler (ZS 5.40%) up and hitting new highs this week, Andy.
Cross: Yeah, it was a great week for cyber companies. Zscaler at a $25 billion market cap, now one of the largest cloud security platforms, so really focused on the cloud. Their solutions through more than 150 data centers, they have a great relationship and a partnership with Office 365, really seen lots of growth, Chris, and really sales efficiency. They talked a lot about this on the call, Jay Chaudhry, who's the Founder and owns a lot of stock in Zscaler, really seen that their new sales staff is really becoming more efficient, the new sales reps are contributing at a faster pace, and that's really helped drive so much of their growth. Sales were up 52% and up 13% over last quarter. The remaining performance obligations are up 56%, so again, looking at what they're going to expect to make from clients going forward up 56%. New clients, 50%. And gross margin was 81%, that's a 200-basis point improvement as clients continue to add more and more of the Zscaler product. So, thinking about the Zscaler platform and how they are continuing to expand that really did really nicely. And with only operating expenses up 30%, Chris. So, the margin continues to grow for Zscaler.
And we saw something similar with CrowdStrike, which is a little bit different cloud security company and really much more focused on the endpoints. Their revenue increased 86%, customers up 85%. They now serve more than 8,400 clients.
So, Zscaler, CrowdStrike, both talk about the benefit of network security and really the need for more and more cloud-based security across both of these companies, and it's certainly showing up in the financial picture and obviously showing up in the stock price as well this week.
Hill: Third quarter same-store sales for Ulta Beauty (ULTA 4.60%) fell nearly 10%. Revenue was a little light, and shares of Ulta Beauty flat for the week and for the year, Ron.
Gross: Yeah, not a great year for Ulta, who had put up many, many quarters of really impressive results. This is largely a COVID story for the quarter. Results hurt by lower traffic and store closures. By July 20th, all stores had become operational once again. By October 31st, which is when the quarter actually ended, the salon services were back in business. So, you know, there were a lot of headwinds that they needed to deal with as we've seen across the board with most retailers. For the quarter, net sales down almost 8%, comp sales down almost 9%, transactions declined 15%. Interestingly, the average ticket price was actually up 7.6% or so, so more spending per ticket, which is interesting. E-commerce up 90%, as the company attempts to move to more of an omnichannel, multichannel distribution. Buy online, pickup in store also strong. But they're still relatively in the infancy of their e-commerce strategy. 22% of total sales were e-commerce related versus 12% last year, so making good headwinds, but still I think they have some ways to go. Margins hurt by COVID-related expenses, store payroll and benefit costs. There were reduced marketing expenses, which people pulled back on as a result of COVID, so that helped to offset.
Now, you've got lots of charges here going on, specifically about $16 million related to the suspension of the planned expansion to Canada that they've put on hold or just got rid of completely. So, it all fell to the bottom-line. Net income fell 42%. If we adjust for those one-time charges, not as bad. Earnings per share down 26%, but certainly still weak. Company opened 17 new stores, but closed 19, and they ended with a very large footprint of 1,262 stores. They're going to continue to open new stores, they expect 30 total for fiscal 2020. But this is a very large footprint business here that's going to rely on people getting back into the stores or an improvement in the multichannel experience.
Hill: Okta (OKTA -1.15%) is in the business of helping businesses provide secure identity management, and business is booming. Shares of Okta hitting a new all-time high this weekend. Andy, how good was this third quarter?
Cross: It was really good on the profit line, Chris, so let's talk quickly. Revenues were up 42% with the 43% growth in subscription revenue, which is 95% of their business, so mostly subscription business. Their dollar-based net retention rate was at 123%, an expansion from 117% a year ago, and 121% last quarter. But, Chris, it was on their expense line. Their operating expenses were up 30%. So, again, revenue 42%, expenses 30%, that really help boost their non-GAAP operating margin to 2.5% versus a loss a year ago. And they had a record free cash flow of $42 million, which was 19% of revenue versus 6% of revenue the same quarter last year.
So, really, Okta continues to serve more and more customers, almost 10,000 customers, up 27% year-over-year. But it was really on the operating line and really managing that expenses that really did really well for Okta, and that showed in the results.
Hill: Shares of Five Below (FIVE 7.80%) also hitting an all-time high this week. The discount retailer crushed its third quarter. You tell me, Ron, how good was the third quarter for Five Below?
Gross: Pretty good. And we're not seeing this COVID hit that we're seeing with most retailers, so that's really what stood out to me; very, very interesting. All stores are open for the entire quarter, although reduced hours, about 25% reduction in hours which actually reduced their expenses, and as we'll discuss in a minute, really help margins. Comp sales up almost 13%, net sales up 26%. They opened 36 new stores, ending the quarter with just under 1,020 stores in 38 states, 14% increase in stores. So, they're continuing to grow.
Gross margins up as a result of their being the higher sales, kind of leveraging those fixed costs. They're making more money when those fixed costs just stay where they are; that's why they're called fixed after all. And then you also saw an increase in operating margins as a result of the fixed cost leverage, as well as, there were 25% reduction in store hours, leading to lower operating expenses. So, that all led to a 91% increase in operating income. Net sales are only up 26%, but operating income up 91% because of an increase in margins, that's really powerful. Then you layer in significantly lower taxes and you have a doubling of earnings per share. So, a really great job. They're continuing to expand, they have some of their own brands now in stores; so, they're not just reselling others. Management is doing a very fine job.
Hill: We'll get the latest on the toy industry with Jackie Breyer, Editorial Director of The Toy Book and The Toy Insider. She joins me now from New York.
Jackie, thanks for being here.
Jackie Breyer: Thanks so much for having me.
Hill: I want to get to the hot toys in a minute, but I have to start with the ripple effects of the pandemic. What has been the effect on the toy industry, in particular, this year?
Breyer: You know, it's been a real rollercoaster of a year for the toy industry. Early on in the pandemic, when we weren't really feeling the effects here in the U.S. that the toy industry was, because in China all the factories shut down, no one was working, so you know, in effect, toy production kind of ground to a halt and everyone was very concerned about when will it open, when can we get toys out. But at retail here, toys were selling, we were just selling what was the stock that retailers had, they were selling.
So, new products weren't getting out at that time, but since then, obviously, China seems to recover a lot more, you know, they were ahead of us, so they recovered more quickly, factories opened up. And at this point production has been on schedule across the board for pretty much everyone. So, at this point it's really more about some bottlenecks at some of the ports getting product out onto the water. But for the most part, we're not hearing a whole lot of concern about that, retailers seem very well stocked, and manufacturers seem pleased, relieved. Things are going OK.
Hill: We'll get to the retailers in a second, but what about the toys themselves, what are the hot toys for 2020?
Breyer: At The Toy Insider, we review toys all year round. So, you know, we look at toys, what are the hottest toys of the year, what are the top STEM toys, we look for budget-friendly toys, and most importantly, we look for the best toys for kids of all different ages. One of my personal favorite toys is called Present Pets. It's from a company called Spin Master, and these toys, I've never seen anything like this. They're like plush interactive pets, but they unbox themselves.
So, they come in this packaging, and once you pull the little tag out, once you have it at home, the pet will start making little animal noises and they'll claw at the box and you can hear them trying to get out and then you see little paws, like break through the cardboard and they'll poke their way out, they unbox themselves completely and then kids have an interactive pet. I think that's really cool; an innovative way to do packaging.
Hill: That's pretty amazing.
Breyer: Yeah. This is from the company that brought us Hatchimals a couple of years ago. So, they are not new to innovative ways to reveal products.
Hill: Yeah, but this sounds like next level unboxing. [laughs]
Breyer: [laughs] Yeah, I agree.
Hill: How is inventory at this point in time, because, look, anytime you're shopping for toys for kids around the holidays, you don't want to wait till the last minute, but it really seems like more than ever before, 2020 is a year where you really don't want to wait till the last minute.
Breyer: You definitely don't. And, you know, that's really our advice every year. As you said, if you know that your kids have their heart set on something, you're going to want to pick that up immediately. And honestly, now we're in the last three weeks leading up to Christmas. So, if you haven't bought it, you should buy it now, but on the other hand, I'm hearing that a lot of retailers, if you go in store, shelves are really well-stocked. I know a lot of people are shopping online, more so than ever before, which would have been the case without a pandemic, but in the situation we're in, everyone is shopping online. So, if you need [laughs] something and you can't get it online, try actually going to the store, because the shelves, you know, they've got some product there.
But you know, there are products that are selling out and you don't want to be caught trying to buy something off of eBay or, like, from a third-party seller on Amazon or Walmart, because you can end up paying many times the price that you should be paying. So, you just have to be careful about where you're getting your products from.
Hill: In terms of the retailers themselves, when you and I spoke a year ago, one of the things you had mentioned was that, looking at Walmart, Amazon and Target, that Target was really winning the toy battle between the major retailers, is that still your impression for this year as well?
Breyer: You know, I really would have to say that Amazon is probably [laughs] the leader this year. I think literally everyone is shopping on Amazon, and that just seems to be the case. If you go to a Target store, yes, I love that they have a great mix of products. Their toy department still looks fantastic. They redesigned them last year, I love that. Their online sales, I think, have risen almost 200%. So, Target is doing well, and Walmart I think had almost a 100% increase in their digital sales as well. But I think the go-to for a lot of people seems to be Amazon this year.
Hill: In terms of the toy makers themselves, certainly from a stock perspective, Hasbro has been the better performer than Mattel. From your standpoint, just in terms of toy creation and execution, what is the current state of Hasbro and Mattel?
Breyer: They're actually both in really good positions right now. They're not seeing much trouble in terms of, you know, the whole supply chain seems to be going fine for both of them. They both have -- what's important, especially this year, is they both have a really solid collection and archives of really classic brands. You know, Hasbro has got Play-Doh, they have Nerf, they have Monopoly, Connect 4, Magic: The Gathering. These are all things that have been booming, and they always sell, but in a pandemic, people seem to be turning to, you know, brands that are comforting, brands that they're familiar with.
And Mattel, also the same thing. They have Jurassic World, which is doing really well. But Barbie and Hot Wheels, they always do well, especially for the holidays. I think the Barbie Dreamhouse is one of the No. 1 sellers every single year. So, this year won't be an exception. And then both companies have some of the child product, you know, from The Mandalorian, the Baby Yoda. So, where Hasbro has the interactive figures, which are so cool. Mattel has the plush, which also, anything with the Baby Yoda license is really going to sell out this year. So, if you need that and you haven't got it yet, I would definitely check that out, go look for it.
Hill: It was sort of a double-edged sword for Disney last year. They had the great reveal of Baby Yoda in The Mandalorian series, but because they wanted to keep a lid on it, there were no toys in 2019, [laughs] even though there was huge demand for a toy. So, it's nice to see that that demand has been filled this year.
In terms of, sort of, under the radar, you mention the Barbie Dreamhouse being sort of this classic toy that is a top-seller every year. What are some under the radar things for parents who are looking for toys for their kids?
Breyer: Sure. So, one of my favorite lines this year that I did not know about before, it's pretty new, it's called Blockaroo, and they are construction toys for preschoolers. They are soft foam magnetic blocks that click together like magic. They rotate 360 degrees while they're connected. They're always attracted to each other, so kids aren't going to get frustrated. They get this whole multi-sensory experience, when you turn them, they make clicking noise. They make it so easy for kids to build and use their imagination, which is so important. And they float, so you can put them in the bathtub. [laughs] And during a pandemic, you can easily sanitize these blocks, they go right in the dishwasher. So, there's really no going wrong with these. I absolutely love them. And everyone who is getting their hands on them is loving them too. So, I would recommend checking that out.
And you know, one other thing that I think is really worth mentioning in the under the radar category, I don't know if you've seen The Queen's Gambit on Netflix?
Hill: It's on my list of shows that lots of people are telling me I need to watch. [laughs]
Breyer: Yeah. So, apparently sales of chess sets are up, like, 86% or something like that. You know, while kids may not be watching the show, obviously a lot of parents are, and you know, bringing interest back to chess, which has been around forever and ever. But there's this product called Story Time Chess, and it makes chess really fun and friendly for kids as young as three, it teaches them how to play chess through silly stories and interactive games, I mean, it's good for adults too, if you need to brush up on your chess. [laughs] No skills required. But it's such a great concept and bringing kids into something that hopefully becomes a lifelong kind of hobby. It's a really good mental stimulation, I think.
Hill: Before we wrap up, lest anyone think that toys and the things that we are talking about are just for children. I feel like I have to point out something I saw on your website that caught my attention, which is, you mentioned Hasbro and Play-Doh. Apparently, Hasbro has a new line of Play-Doh, scented Play-Doh for adults, including scents like Overpriced Latte, and my personal favorite, a smoky barbecue scented one called Grill King. Have you actually tested this out? Because I got to be honest, I'm pretty tempted by this. [laughs]
Breyer: Yeah, yeah, they're pretty cool. So, yes, I think it's a really fun and cute idea, definitely a fun novelty. Personally, I love the actual smell of classic Play-Doh, so. [laughs]
Hill: It's that sense of memory, it takes you right back.
Breyer: Yes, yes. So, for me, it's the classic, but yeah, it is a really fun idea for them to put that out, and you know, kids and adults love Play-Doh.
Hill: If you want more information, you can go to TheToyInsider.com or ToyBook.com. Jackie Breyer, it's your busy season, you and Santa, so I appreciate the time. Thanks for being here.
Breyer: [laughs] Thanks for having me.
Hill: This week, Warner Brothers announced it's going to release its entire slate of theatrical films next year in theaters and on the HBO Max streaming service simultaneously. I should point out that AT&T is the parent company of both Warner Brothers and HBO Max. So, the exclusivity that movie theater chains have enjoyed basically forever is going to disappear, at least for 2021. Not surprisingly, Ron, movie theater stocks took a beating on this news. Where do you think this is going, because there are absolutely people out there who say, this is going to be the death of movie theaters?
Gross: Yeah, great for consumers, obviously not great for movie theaters. I don't think this model is necessarily sustainable in terms of flipping the whole paradigm of the movie industry. The economics, I don't think, will make sense, movies are too expensive to make. And I think the distribution of streaming only, you would have to really change the type of movies, I think, that get made, and have to bring the cost down significantly. I think it's a bridge, I think it's a bridge to getting back to what will probably be a hybrid where there will be movie theaters, maybe not as many movie theaters, perhaps the kind of the model at a movie theater will be a combination of on-demand and here's what we have to offer, you take it or leave it, in any given week. So, as with most things, there's a compromise or a hybrid that I think shakes out after we get through probably the next 12 months.
Cross: I think that's probably right, Ron. I do think it is just a little bit of a shot across the bow. I mean, you have to expect over the next five years or so, more and more of the distribution will be in our house in front of our living room, I don't think exclusively, and I think there will be certain types of movies either at the huge box office, large release, you know you want to go and you want to experience that or maybe at the very much small independent side, where it's a really niche base, I think it'll be much more that barbell going forward, but I think it is just a sign of what, over the next few years, will be more and more distribution inside the house rather than inside the theater.
Hill: But Andy, this will have to be a reworking of the entire economic system of making movies, and that includes writers, and directors, and actors, because they have a vested interest in box office receipts, and if box office receipts go to zero, then they absolutely should be going to Netflix and everybody else, and saying, all right, let's talk about the streaming money.
Cross: Yeah, Chris, absolutely, and you know, Ron pointed out the theater economics, and those will change. It really will disrupt, as you think about the distribution, just like we saw in the journalist business, just like we saw in the newspaper business, we've seen it in the music business, these really titanic shifts, and for this business, it's really been elevated with the COVID quarantines. I think going forward that that whole economics behind that business is going to have to change, and you've seen Netflix really be aggressive and bidding up the content and the people who come and join Netflix as producers, as writers and producers, and to really focus their attention there, the rest of the industry is going to have to shift and change with it.
Hill: This week Oreos unveiled their latest limited-edition version of the cookie, it's called Chromatica, it's inspired by Lady Gaga. The cookies are pink with bright green filling, and it's all part of the new Oreo marketing campaign, Sing it With Oreo, where fans are asked to record musical messages for a chance to win tickets to a Lady Gaga concert sometime in the future. And Ron, I will point out, shares of parent company Mondelez up this week. [laughs]
Gross: [laughs] Well, I will preface this by saying I am a fan of Lady Gaga, especially after seeing her a couple of times and Howard Stern, that really turned me around. But I do think it's kind of funny that a person who, kind of, has made her career as being anti-establishment now has a deal with America's favorite sandwich cookie. [laughs] So, that's a little ironic to me.
Cross: [laughs] As a small, tiny Mondelez shareholder, that I still have leftover from years and years ago, I'm super-excited to see this. As an Oreo fan in my family, two girls, really excited to see this. I actually think it's really interesting to see how they price these, how they promote them, how they talk about them, but I think Lady Gaga obviously has a huge following. Not that they're all going to hop over to eat Oreos, but I think from a branding perspective, it's a [laughs] great move for Mondelez.
Gross: And they're vanilla and pink.
Cross: Yeah, totally. Lots of different colors, I think, right?
Cross: That's so cool.
Hill: Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Ron Gross, you're up first, what are you looking at this week?
Gross: Fulgent Genetics (FLGT -0.91%), FLGT. Learned about this company from our Discovery Ownership portfolio at The Fool, thought it might fit nicely into my biotech, gene therapy basket, not sure yet. They're a genetic testing company focused on making tests flexible, affordable. During the pandemic, they quickly pivoted to COVID-19 testing which really drove their growth throughout 2020. Not surprisingly, stock took a hit when word of a vaccine or multiple vaccines came out, and it seemed like, perhaps testing was going to not be as important as it was. But the company still has all the positives it had before COVID, offers tests for more than 18,000 single genes, more than 800 rare diseases, as well as, whole genome sequencing, lots of good stuff. Founder and CEO owns 35% of the company; we like to see that. Management estimates the opportunity, from a market perspective, is $10 billion, and right now they're only a $135 million revenue company.
Hill: Dan, question about Fulgent Genetics?
Dan Boyd: Absolutely, Chris. Is Fulgent Genetics doing anything to make the COVID-19 test less completely awful. Last time I had one, I sneezed four times with that Q-Tip thing all the way in the back of my nose, it was terrible, come on, Fulgent.
Gross: I believe they are, Andy, who is familiar with this company, might even know more than me, but I do believe they worked on making the test more accessible and easier.
Hill: Andy Cross, what are you looking at?
Cross: I'm pivoting away from testing over to insurance with Lemonade (LMND 2.19%), symbol LMND. A real innovative tech-focused insurance company trying to disrupt the property and casualty insurance, has thousands of thousands of clients, most of them young millennials. They are trying to do insurance in a different way. They provide insurance for renter's insurance, a little bit of home insurance, now pet insurance, and they do it in an interesting way, where of the premiums they bring in, Dan, they keep about 25% of it and then they use the other 75% to help offset some of the reinsurance costs. If the cost structure is low enough, they'll kick off a little bit into charities of which are selected by the Lemonade clients, and then they'll keep a little bit of it leftover for shareholder profits, as well what's leftover. They're growing very fast, they've doubled their premiums in force over the last year, and it's a Founder-run, tech-focused insurance company. I'm still learning a little bit more about it, but I do like it.
Boyd: Yeah, Andy, why Lemonade? That doesn't say insurance to me, that's a delicious beverage that I drink in the summertime.
Cross: You're right, it sounds more like a fashion company, I actually don't know why they call it Lemonade, I'll have to find that out, Dan, but it is a really funny name for an insurance company, but it's also evidence of what they're trying to disrupt.
Hill: What do you want to add to your watchlist, Dan?
Boyd: Listen, Chris, I hate getting poked and prodded, so anything that reduces that by any sort of means, I'm all for it, so I'm going Fulgent Genetics.
Hill: All right, guys, we're out of time. Thanks everybody for listening. We'll see you next week.