In this episode of Motley Fool Money, host Chris Hill is joined by Motley Fool senior analysts Ron Gross and Andy Cross to discuss how investors have reacted to the GameStop (GME 1.26%) drama. Also, they talk about the latest encouraging news on Johnson & Johnson's (JNJ +1.09%) one-shot vaccine. They cover the latest earnings reports from Apple (AAPL +1.20%) and Microsoft (MSFT +1.11%) and weigh in on the latest from Mastercard (MA +0.22%), Visa (V 0.11%), and General Motors (GM +1.27%). Ron and Andy share two stocks on their radar: NextEra Energy (NEE +1.68%) and Unity Software (U 0.38%). Plus, Ad Age's Jeanine Poggi previews the advertising for Super Bowl LV.
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This video was recorded on January 29, 2021.
Chris Hill: We've got the latest earnings from Wall Street, we've got the latest vaccine news from Johnson & Johnson, and as always, we've got a couple of stocks on our radar. But we begin with America's hottest new soap opera, 'As GameStop Turns.' This week, an escalating drama on Wall Street became front page news across America and around the world. GameStop is, by most measures, a challenged bricks-and-mortar retailer that sells video games. Because of that, it is one of the most heavily shorted stocks in the market. But retail investors, led by a Reddit community called WallStreetBets, have been steadily buying shares of GameStop, pushing up the price and forcing short-sellers to run for the exits. This week, shares of GameStop are up more than 400%, year-to-date so far, shares up nearly 2,000%. Ron, I'll start with you. There are so many angles to this story. We have hedge funds on one side, we have retail investors on the other, we have Robinhood somewhere in the middle. As an experienced investor, what do you think as you watch all of this play out?
Ron Gross: Oh boy, this is different. A few thoughts here. I love the sharing of information and how social media has changed that game. No problem with that. I love that individual investors, especially young individual investors, are becoming more interested in the stock market. Wonderful. I don't think all hedge funds are the devil, I think shorting does provide some benefits, such as liquidity and the ability to hedge your portfolio. But importantly, I don't think what the WallStreetBets folks are doing is investing. It's speculation, it's manipulation, and it's going to end badly for some. It's probably not illegal, but it's going to end up being painful for some that got in at the wrong prices and don't actually understand what's going on, because they're not investing, they're gambling. So more than ever, I think it's important for folks like us to teach the importance of being a long-term investor and what that means to own a small piece of a company for the long term. I think the market is self-correcting, institutions are going to figure out how to mitigate this. Maybe there won't be as much shorting going on in individual companies. This won't persist, but as you said, a lot to unpack, a lot of different emotions are flowing all around.
Andy Cross: Chris, for me, what's really interesting is this just continues to bring more and more light to some of the optics and some of the mechanics behind what's going on. Behind the scenes, when you place a trade, any of us place a trade, I've certainly placed trades that are just a few shares for expensive stocks, but just how market makers work, the impact of leverage, that's the real danger here for me, just the impact of leverage and concern of, well, certainly institutions. We're seeing hedge funds get crushed because of the leverage.
But when you see this stock and the short squeezes, and GameStop has 70 million shares outstanding, and almost about that were short going into this. So, you just see a lot of this short covering and continued buying of the stock that pushed the stock further and further up as market makers and investors or hedge funds or anyone who are just short in has to cover those shorts. Because so many of them are levered, that continues to make it worse and worse and worse, and you just see this play out. While it started off maybe as a Reddit WallStreetBets kind of retail investor move to get started in this and propel it, that was just a spark behind this fire that just grew as more and more institutions, and certainly, when you look at the dollars that play here, this is a lot of institutional money on both sides of the trade. They can continue to get on board and that just continues to propel the stock up as they have to cover more and more of their sure bets, and that's just the real danger of leverage. I love what Ron said in really helping people understand this. But the one reason why when we talk about things you really need to be careful of, it is using that leverage either on margin or borrowing to buy shares in any way or go short, because that can really have dire consequences. You need to be careful of that.
Hill: It reminded me a little bit of the drama we saw play out years ago with Herbalife, where Bill Ackman, billionaire, money manager, comes out and says, "I'm shorting this stock." Carl Icahn, in part because of some animosity toward Bill Ackman, said, "Oh, you're going to short that? I think I'm going to buy it and cause you some pain." This one obviously involves a lot more players. But the fundamentals, Ron, seem like they're pretty much the same.
Gross: I said I'm not against shorting, because it does provide some benefits, but we should be clear, it's not investing, it's placing a bet on something going down. It's not being happy to be a partner in a business with the folks running it and owning it for the long term. It is a more speculative thing just by definition. Very dangerous though, because when you sell something short, you're betting it's going to go down. If it goes the opposite way, a stock can theoretically go to infinity and your losses are unlimited. If you buy a stock, your losses are capped, because it can only go to zero. So folks need to understand what they're getting into.
Hill: Let's move on to some stocks that are very far away from zero. Apple's first quarter report was highlighted by revenue of $111 billion and the fact that sales in every product category rose by double-digits. Despite all that, Andy, shares of Apple down a little bit this week, but still up +70% over the past year.
Cross: Oh gosh, Chris, it's been a fantastic stock and one of the largest market companies in the world, most profitable quarter ever for Apple. As you mentioned, $111 billion in sales, up to 21% in the first time that crossed over the $100 billion mark. Blueway estimates it was the highest growth of a quarterly growth since 2015, earnings per share of $1.60, that was up 35%, they continue to buy back a lot of stock. That really helps the EPS grow. Again, [...] estimates of $1.42. Sales were in that double-digit range, Chris, in every group that you look at: iPhone, MacBook, iPad, wearables, services, above 10% growth in all those categories; iPhone, it's the largest business, obviously, up 17%. Wearables, home and accessories up 30%, services up 24%, and is now the second largest group with almost $16 billion in quarterly sales across all geographies, especially China, when they saw growth of 57%. So, a really impressive quarter by Apple.
On the gross margin side, both the total gross margin was up 160 basis points or 1.6%, and on a product, the gross margin was up 5.3% to 35%. Really nice quarter from Apple continuing to grow that install base of iPhones and MacBooks, that's now a record high for all of those devices, and that really helps propel the services business, which is a growing part of their business, more profitable. That's where they're spending a lot of energy and you just look at their Apple One product and continue to show lots of excitement and lots of growth. Record high in FaceTime calls over Christmas, they mentioned, and I thought that was interesting just thinking about those of us who are Zoom investors as well. So a really nice quarter from Apple and continued exciting product innovations with iOS 14 throughout the year.
Gross: A $2.2 trillion company trading at 35 times earnings. I'm OK with the 35 times, but as Apple is one of my largest positions, Andy, do we think that this could double? Anybody, new investor or current investor to get a double, we've got to go to $4.4 trillion, is that even possible?
Cross: Not exactly, because they are buying back some more stock, Ron, as you know. It's not similar to the market cap, it's much more like the per-share basis. Because they are buying so much, they bought back $24 billion worth of shares last quarter and paid out $6 billion in dividends. When you add the dividends and the share buybacks, that will impact the stock price. You don't necessarily need it to go to $4.4 trillion because on a per-share basis, which is what we care about the most, I mean, a double, I think, will still be a little bit tricky over the next five years. But I think from a steady performer that is having more and more impact on the S&P 500, I think you're going to be making some money on Apple over the next few years.
Gross: All right. I feel a little better.
Hill: Shares of Microsoft had a new all-time high this week; after second quarter revenue grew 17%, the Azure Cloud business leading the way for Microsoft once again, Ron.
Gross: They continue to just really put up wonderful numbers, better than expected revenue up 17%. Strong demand for corporate Cloud computing services and software that supports all of us while we're at home; 14th straight quarter of double-digit revenue growth. Just to break down some of the segments, the productivity business up 13%, that's the segment that houses the office, commercial, and consumer versions of Office, as well as LinkedIn, which was up 23%. Intelligent Cloud, that's going to be the big story, up 23%, that includes Azure, which was up 50%, continues to get it done there. Even personal computing was up 14%, which includes Windows and Xbox. Xbox content and services are up 40%. They did introduce some new game consoles. Hardware is up big too at about 86%, despite the fact that there were semiconductor supply shortages that hurt them getting that to market. The company continues to put up wonderful numbers. As a result of that revenue growth, you saw margins widened, operating income up 29% with net income up 33%. Strong guidance exceeding expectations returned $10 billion to shareholders in return in share repurchases and dividends, which was an 18% increase. They are firing on all cylinders.
Hill: Facebook's (FB 1.06%) fourth quarter profits and revenue came in higher than expected, but shares falling 6% this week as CEO, Mark Zuckerberg, made it very clear that Facebook's primary competition is now Apple. Andy, if you didn't think they were fighting before, it's clear that they are now.
Cross: He is very clear. He was exceptionally clear in the opening remarks in the press release saying, "I do want to highlight that we are increasingly seeing Apple as one of our biggest competitors." iMessage is a key part of their ecosystem, talking about how iMessage is preinstalled in all the iPhones. They also have concerns a lot around the iOS 14 ability to restrict targeted ads by requiring users to opt-in to third-party apps that collect data. So yeah, definitely, he did not mean any wars by going directly after Apple talking about their competitive advantage. Reminding me a little bit of the acquisition of Microsoft with Internet Explorer back in the '90s. But overall, a really solid quarter. Revenue is up 33% to $28 billion. Earnings per share of 52% both far ahead of the analyst's expectations. Their cost structure is only up 25%, Chris, so that really juices the operating profit by more than 44%. Free cash flow up 90% to $9 billion, so continuing to rake in the dollars.
Their ad revenue, which is the biggest part of their business, up 30%. Other revenue, which is Facebook Marketplace and Oculus Quest up 156%, with daily active users now at 1.84 billion, up 11% across Facebook. Really seeing the benefits of the shift to online commerce and the advertising growth. Ad impressions, by the way, up 25% across all their platforms. Really seeing a lot of spending going on across their platforms with advertising, as more and more of us are shifting over to commerce spending and buying online. I will just note also that they talked about how they do see more and more investments and more and more effort to work through the funnel from looking in advertising all the way down to purchasing through their Facebook ecosystem to be able to take, especially on Instagram with Instagram Shopping, being able to take benefit of people seen advertisements and going on to by it. It'll be interesting to see how that evolves. But clearly, the headline really was Mark Zuckerberg addressing Apple's competitive position.
Hill: On Friday, Johnson & Johnson announced the results of its vaccine in Phase III trials. It is 85% effective in preventing deaths and severe disease. Ron, this is a one-shot vaccine, so no going back weeks later for that second shot, and everything we've seen so far, it seems pretty promising.
Gross: I was originally conflicted when I read the headline. But I'm coming around now, and the headline was 66% effective overall, which beats the FDA threshold of 50% for an approved vaccine. But it's less than that 95% we've been hearing from Moderna and Pfizer, so I was like, I don't know. But offered 100% protection against COVID related hospitalizations, I think that's the number to focus on and your 85% number as well. Okay, we can maybe be home and feel a little under the weather, but if it's not progressing to something life-threatening, I think we're in a good place here and I've come around and I think this is really positive news as you said.
Hill: Tesla's (TSLA 0.70%) fourth quarter revenue was nearly $11 billion, but shares down a bit this week, although, Andy, shares of Tesla up more than 600% over the past year, so hopefully, shareholders aren't complaining.
Cross: Oh, yeah. Elon Musk, who's really benefited from that, that actually hurt him on the profitability side, but still a really nice quarter on the profit side. There's six quarters in a row now they were profitable, wrapped up the first year of profitability on generally accounting practices metric. Expanding their programs to increase production and deliveries by 50% long term, that's the goal, they think they will exceed that. This year, they were implying that, which is good news. Their operating margins at 5.4% for the quarter. In 2020, the operating margin was at 6.3% versus negative in 2019. That set the industry best levels, Chris. The revenues, as you mentioned, $27.2 billion for the year, up 31%, free cash flow at $2.8 billion versus $1 billion in 2019. Continue to make lots of investments in building out their capacity, their Fremont factory is almost at full production speed. The Model 3 in Shanghai is now up to 5,000 per week, and their first Model Y crossover was made in the China factory. Overall, the investments that they're making in Tesla continued to expand their lead. Obviously, their stock now is at $800 billion market cap. So a lot of growth and a lot of excitement still baked into the Tesla share price, but so far, this year, they've been able to live up to those expectations.
Hill: Shares of Starbucks (SBUX 0.64%) falling 6% this week. First quarter profits came in higher than expected, but same-store sales in the U.S. were down, revenue was light. This wasn't a bad quarter, Ron, but the bad outweighs the good.
Gross: Yeah. I'm calling it a mixed quarter. As you mentioned, some metrics, revenue fell 5%. Usual culprits there, reduced customer traffic, they had to modify the operations, reduced store operating hours, temporary store closures, all these things COVID-related. Global same-store sales down 5%, which was a worse than expected number, I think that's what investors are largely focusing on. But sequentially, we did see some improvement, so things are slowly getting better. We saw a 19% decrease in comparable transactions, but interestingly, that was offset by a 17% increase in the average ticket. Each time, folks were spending a bit more money. Regionally, the Americas were down 6%. International was down only 3%, which was helped by China, which Starbucks has long been a China story in terms of growth and expansion. China was up 5%, so that's a positive number. Margins narrowed, the lower revenue COVID costs. There's not much they could do with respect to that when revenue takes a hit. You saw adjusted earnings down 23%, which was disappointing. But the growth story continues. They opened 278 stores. They are going to open 1,100 new Starbucks stores globally, and I think the growth story will be intact once we get to the other side of COVID. They offered fiscal guidance, which puts them probably around fiscal 2019 earnings, so certainly a step back.
Hill: Sorry to see that the Chief Operating Officer, Roz Brewer, is leaving. She is going to be the CEO at Walgreens. By the way, on that news, shares of Walgreens pop to a 52-week high. She has been a great leader in Kevin Johnson's team.
Gross: For sure, and I believe the CFO was departing as well or had departed. So, some changes up at the top, especially during difficult times where you need all hands on deck.
Hill: For companies looking to promote their products and services, 30 seconds of ad time will only cost them around $5.5 million. Here to help us make sense of it all is Jeanine Poggi, senior editor at Ad Age. She joins me now from New York. Thanks so much for being here.
Jeanine Poggi: Hey, Chris, thanks for having me.
Hill: There's always a lot of buzz around Super Bowl ads. But this year, the buzz seems to be more about the companies that are not participating in the event. I'm thinking primarily of companies like Coca-Cola, Pepsi, and Budweiser. Budweiser is not going to be advertising during the Super Bowl. I think it's the first time in more than 35 years. Let me start with this. Is that a surprise to you?
Poggi: Look, anytime a Super Bowl advertiser like Budweiser who's been in, you're right, it's been 37 years since Budweiser hasn't aired a Super Bowl ad, of course, that comes up as a surprise. But the thing to remember and I think gets lost in a lot of the conversation, specifically around Budweiser sitting out, Anheuser-Busch, its parent company, is still running the same amount of Super Bowl ads that it did last year. It's just choosing to put its dollars into other brands to feature. They'll have ads for Bud Light, there'll be ads from Michelob ULTRA, and then they're also doing, in place of a Budweiser ad, a corporate spot. More of a total brand advertisement versus just focusing on Budweiser. It's not like Anheuser-Busch is not in the game, they are in the game in the same way they've been the last couple of years. They're just reshifting and refocusing their efforts.
Hill: Although as a category, automakers this year are largely sitting out of the Super Bowl. I'm curious if you think that's a reflection of the general economic climate for automakers or are we actually seeing some cracks in the Super Bowl as being sort of this last bastion of a can't miss huge television audience?
Poggi: I think that is definitely a factor of what we've seen from COVID and the economic uncertainties this year. Currently, we only have confirmation of two automakers in the game right now. Those are Toyota and General Motors. We're still waiting on a couple of others, but we've seen some big ones that are in year-after-year like Hyundai and Audi sitting out this year. So really, I think we were not surprised by this move. The auto category in particular, along with movie studios, unsurprisingly, ones that are hugely represented in the Super Bowl in typical years, we will definitely see far fewer from both categories this year.
Hill: On the flip side, I should point out that we are going to see some first-time advertisers during the Super Bowl. Chipotle, Huggies diapers, Fiverr. It seems like Super Bowl ads, in part because of the cost associated with the $5.5 million for 30 seconds, that's just the ad time, that doesn't include whatever these companies are paying to make the ad. Are there rookie mistakes that you see from first-time advertisers? I mean, if any of them come to you and say, all right, before we put our creative team together, if we're just looking to not make mistakes, what should we avoid?
Poggi: Well, I would actually start by taking a look back at last year. First-time advertiser from last year was Quibi. Quibi came into the Super Bowl in a big way. We all know how that story turns out. They launched in the spring, and shortly after, shuttered, didn't even make it a year. But they went out with a Super Bowl ad before the service even launched to get out there early, and not that the Super Bowl ad led to this situation, but they spent a lot of money, obviously, advertising the service. I think this year is an interesting one for first-time advertisers. You mentioned a couple. I think one of the ones I'm not sure if you mentioned is Scotts Miracle-Gro. I think that one speaks to the types of advertisers we're seeing in this year's Super Bowl for the first time. A lot of them are really brands that downed a bigger or new consumer base amid the pandemic and amid lockdowns. You think of Scotts Miracle-Gro lawn care gardening, not necessarily something in a prior year you would've thought to be in the Super Bowl. But in the pandemic, we saw a lot of people turning to gardening, wanting to take care of their lawns because they're home and there's nothing else to do and there's just an outside space for them and their families. Brands like that. Another one being Vroom, which is an online car dealership that delivers a car right to your door. You don't have to go to the dealership contact list, the whole thing that we're thinking about. Chipotle promoting their delivery service. Different things like that that I think this year, you will see almost all of the first-time advertisers taking advantage of maybe some new publicity that they found during the pandemic.
Hill: There are ads that are trying to drive action. Go to our website, take this survey, do whatever. There are ads that are really more about branding. Certainly, some of the ones we talked about earlier, Coke, Pepsi, Budweiser. I mean, everybody is familiar with those brands. Is there one strategy that works better than the other? Because it seems like, if you're trying to drive action, that can be a high-risk, high-reward strategy.
Poggi: The Super Bowl to me has always come across as a place where it's about brand awareness. Many times in the Super Bowl, we've seen brands come out there. You don't even know what product they're necessarily trying to sell or they're not specifically trying to sell a product, it's about a message that connects consumers to the brand. That might not be a direct message saying come buy our chips, our dip, our Cola, whatever other product they're trying to sell, it's about people remembering the brands. I mean, "Oh, yeah, I really liked that ad." So when they are in the grocery store and they see those chips on the shelf, that comes to mind. I do think that the Super Bowl, given the cost and the large amount of people that are watching the game, it's really about building brand awareness, whether it's a brand that's very familiar, we've seen year-after-year, or a newcomer that is just trying to get their company out to a larger audience.
Hill: The Super Bowl, year-in and year-out, is the most-watched television program of the year. We'll see if that streak stays alive, but it's been that way for decades. Most of us watching the game, we're watching the commercials for fun. This is your job. This is what you do for a living. What are you going to be watching for? Are there any ads in particular that you haven't previewed yet that you're curious to see?
Poggi: On the day of really, at that point, hopefully because we're not doing our jobs if not, I've seen most of the ads, so I'm really looking at social conversation around these ads, what is driving interest. I have to say there have been plenty of times that an ad that myself or my colleagues have just been like, "We don't think that's going to land." Maybe because we spent so much time looking at these. Some of them really resonate in different ways with audiences. I'm really looking to see if there's any that, like, we just judged wrong. But for this year, in particular, I think one thing that we at Ad Age are paying really close attention to is how well brands are being inclusive in their ads. I think it's an important conversation in the ad world right now. It's a point in conversation in the country right now. Really taking a look at beyond just casting and checking off a box, what the storytelling is, the inclusive storytelling. Who's working on the ad in front of and behind the camera? I think that'll be an important part of the conversation this year. I don't know if that will amount too much change. I hope it does, but I do think regardless, that will be closely focused on and watched as we see these ads come in.
Hill: If you want to know which businesses are making headlines for their marketing spend, you can follow Jeanine Poggi on Twitter, read her stuff online at adage.com. Jeanine, I know it's an especially busy time of year for you so I appreciate you taking a few minutes to talk.
Guys, a couple of more news items before we get to radar stocks. Visa and Mastercard both out with quarterly reports this week. On the surface, Ron, it seems like a similar story. Both stocks fell a little bit because quarterly revenue for both were falling. But still, we saw improvement over what we had seen out of both Visa and Mastercard earlier in the pandemic.
Gross: Correct. Things are improving sequentially, but they are still, obviously, weak and they are largely weak in both cases because of sharp decreases in cross-border volume as a result of the fact that travel is basically nonexistent, both personal and business. For Mastercard, you saw cross-border volume down 29%. For Visa, you saw it down 21%. As a result, you saw revenue fall for both companies, but as we said, improving sequentially. Earnings per share for Mastercard down 16%. Visa, not as bad, down 3%. No guidance really offered from either company. Mastercard's CEO did say, "We believe there's significant pent up demand for travel." I guess that makes sense. "We continue to expect to see improvements in the second half of the year." I'm not convinced that we'll follow through with respect to business travel, personal perhaps, that's right. We'll keep an eye on it. These will come back. These are both strong companies. You can own one or both. Visa is a little bit cheaper, a little bit better run in my opinion, but both great companies to own.
Hill: Do you think three months from now, they are going to be at the point where they are offering guidance?
Gross: Boy, let's maybe call it six months. I think we've got to let the vaccines get into arms at a little bit of a faster rate.
Hill: Second quarter profits and revenue came in higher than expected for Atlassian. But shares of the collaborative software company fell a bit this week despite that. Although Andy, Atlassian's guidance was good too.
Cross: Yeah, Chris, it's interesting. They're really making a shift, taking their customers, especially some of their large customers, from the server-based business to the Cloud-based business. They've talked a lot about that evolution. That's going to take a multi-year process to move those clients from the servers to the Cloud and to the subscription business. That's going to drive the bulk of their revenues going forward, and as now and it will be going forward. The revenue is at $501 million, up 23%, handily beat estimates. Subscription revenues up 36%.
Like I said, about two-thirds of their sales now come from the subscription business. EPS is about flat at 37% on the adjusted side, but beat the estimates again. Gross margin at 84%, up a little bit from a year ago. R&D expenses up 40%. They continue to plow a lot into people's headcount and into research and development. Free cash flow was up very nicely, almost at $180 million, that's 36% of revenue. So very profitable on the free cash flow line. They're making the shift, Chris. They talked about this, how much time this is going to take, how they have to move these clients there, but they're excited about it. They launched a new tier of service management business that's end-to-end Cloud. It helps bridge the line between IT service and software development that is really blurring. They think that will expand their opportunity to sell more and more clients and more and more tech workers over time. They hired 467 people, about 9% more to their workforce. So, they continue to make those investments. It's going to take some time for this to all play out. Price to sales at 30 times for a $56 billion company, I think you'll make money going forward in Atlassian, but I don't think it's going to be one of those stocks that's going to generate a really hefty return for your portfolio going forward.
Hill: On Thursday, General Motors said it plans to stop making gas-powered vehicles by the year 2035. Guys, I know that's 14 years away, but this is one of the largest automakers in the world that we're talking about. With that as context, Ron, I'm a little surprised by this timeline. I mean, great to see from an environmental standpoint, I'm a little surprised that they're being that aggressive.
Gross: Yes. Clearly, this is where the industry is going and it's a matter of timing, as you said. I don't know if 2035 is the right number. I don't know if it's going to be quicker. I don't know if it's going to be longer. Biden's administration clearly wants to replace the government vehicles, 650,000 of them, with all-electric models. Things like this will help accelerate the move. I do want to say, I don't think this is a winner-take-all proposition. There's not one winner here. It's not GM, it's not Tesla, it's not whoever. There's just the way there's no one winner in the car industry right now. There's going to be plenty to go around as the entire industry shifts to the new paradigm.
Hill: Andy, are you surprised by the timeline?
Cross: No, I think they have to be aggressive on this push. Like Ron said, everyone's moving there. Volvo is moving there. That's the way the direction is going. It is interesting, Tesla is about 10 times the size of GM in the market cap. Its sales are about a tenth of overall sales compared to GM. Tesla sells 500,000 cars, GM sells what? Eight million cars or so. So, much smaller. Obviously, the stock has been so explosive. Certainly, Tesla has such a wide lead in autonomous driving and that technology, which is really driving them forward, I think. But certainly, GM has to be really proactive and aggressive in making this kind of change.
Hill: Well, we've heard from General Motors. Now, I guess we're just all waiting to hear from Stellantis. With that, it's time to 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: Following on the GM story, we're going to be hearing more and more talk about renewals and alternative energy, especially under the Biden administration. I'm going with NextEra Energy, NEE. It operates the largest electric utility in Florida, but it's also the largest wind and solar operator in the world with more than 150 wind and solar energy centers. They started really building this 10 years before other folks were in it. They've got a great first-mover advantage. They've got a great growing backlog of renewable energy projects, which gives us some visibility into future revenue and earnings growth. The CEO recently said the company's share is around 20% for solar and up to 25% for wind. Skilled management, great capital allocation, industry-leading margins, increased their dividend for 25 consecutive years, and is aiming for a 10% growth rate in dividends per share through at least 2022. Your current yield 1.6%, I think you'll get a nice yield and you'll get capital appreciation.
Hill: Dan, question about NextEra Energy?
Dan Boyd: Sure thing, Chris. Ron, is NextEra in the business of actively reducing its fossil fuel power production plants by any means or is it just building out new renewables?
Gross: Well, they're certainly trying from the electric utility side to be as efficient and environmentally friendly as possible. But the big exciting, I think, part of the business, the less regulated part of the business will be to build out those solar farms and those renewable energy farms to really not just be in 26 states, and four provinces in Canada, but to really take the world by storm.
Hill: Andy Cross, what are you looking at this week?
Cross: Dan and Chris and Ron, I'm checking out Unity Software. I know it's a company that I think Jason has talked about before and he likes it. I'm still looking at it. A $42 billion market cap company, operates the largest third-party platform to create and manage and monetize 2D and 3D games. It IPO'd in September at around $52 and now is at $155. The company debuted in 2005, I think at an Apple conference as the exclusive Mac game developer. It powers more than half the most popular video games out there. There are two business segments in creative solutions and operate solutions. Creative solutions is a subscription offering of tools that allows developers and designers to create 2D and 3D games, and the operating solutions allows them to monetize that. Then Unity takes a little lick of the lollipop too in a revenue share agreement. Some large customers like Zynga, Take-Two, Electronic Arts, 740 clients now have more than 100,000 in revenue to Unity. It's up 34% year over year. Revenue is growing 40% a year with a really nice dollar base expansion rate of 144%. Very scalable business, starting to push outside of just the gaming platform, especially in Auto and CAD. That's one thing I'm watching, because it might not be as beneficial for the operate solutions. But Unity Software, a really exciting growth company.
Hill: Dan, question about Unity?
Boyd: This company strikes me as almost like a Software-as-a-Service company where it's got this really excellent scalability of adapting its products to just about any sort of realm. Andy, are there any sort of products that you're really excited about that Unity has been working on lately?
Cross: Well, yeah, they've signed this arrangement with the auto companies. It's really interesting to see how they use that technology outside of pure gaming. That's exciting, because it expands their market opportunity, but also a little bit of a concern because they don't have those extra revenues through the operate platforms. So, that's something to watch and something to learn a little bit more about with Unity.
Hill: What do you want to add to your watch list, Dan?
Boyd: You know what, Chris? I think I'm going to go with Unity this time. I think both companies are really good, hence the no jokes in this episode. But I like the idea of the scalability of software solutions for video game makers.
Hill: All right. Andy Cross, Ron Gross, guys, thanks for being here.
Cross: Thanks, Chris.
Gross: Thanks, Chris.
Hill: That's going to do it for this week's show. It's mixed by Dan Boyd and produced by Mac Greer. I'm Chris Hill, thanks for listening. We'll see you next week.
