Shares of Oatly (NASDAQ:OTLY)fall on revenue challenges. WeWork (NYSE:WE) issues its first report as a public company. Mastercard's (NYSE:MA) predictions for holiday spending include big expectations for luxury goods and apparel. Motley Fool analyst Jason Moser, with host Chris Hill, analyzes those stories and shares why he thinks physical store retail sales and related real estate investment trusts (REITs) will be worth watching.

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This video was recorded on Nov. 15, 2021.

Chris Hill: It's Monday, November 15th. Welcome to Market Foolery. I'm Chris Hill, with me today Jason Moser. Good to see you.

Jason Moser: Hey, good to see you.

Chris Hill: We've got a preview of holiday spending. We've got WeWork's first report card, but we're going to begin with the business of fake beverages. Oatly, the company built on the process of using oats to create milk, lost less money in the third quarter than Wall Street was expecting, but overall revenue was light. Guidance for the full fiscal year was lower than expected. Shares of Oatly are down nearly 20 percent today. This is a company that went public back in May and the stock has basically been cut in half from where it was on the first day of trading.

Jason Moser: Yes, it certainly seems reasonable to reaction today. It was a bad quarter if you look at the numbers. They brought in 171.1 million dollars. It was up almost 50 percent from a year ago. But the revised guidance, I think is what really has the market sour, so to speak on the company today, they guided down from 690 million just a quarter there. They were calling for $690 million in revenue for the full-year. They guided that down to $635 million, so guided well down on capital expenditures as well. They are running into some issues partly regarding capacities, some issues that were going on in the build-out of certain capacity, and then also ongoing COVID restrictions around the world. I mean, this is not just a business that makes its money here in the States. It is a global business has a relatively strong presence in Asia. Ongoing headwinds there in Asia are causing a little bit of a problem for the business. But yeah, I start looking at businesses like Oatly, it makes me think of something like Beyond Meat. These are good businesses pursuing a valid market opportunity. But it feels like to me, we talk a lot about you and I do about businesses or maybe you feel like there is a ceiling. It's not necessarily bad, this is not something going to zero, but it feels like maybe there's a ceiling. It can only grow so much. It feels like maybe Oatly falls into that category for me because they're pursuing that alternative market. Whether it's meatless options or something like Oatly that takes dairy out of the equation. 

There is a market opportunity there, but it is a limited market opportunity. What's more than on top of that, there's a lot of competition within that space. I think it just makes it difficult for a lot of these businesses to really look attractive from an investment perspective. It feels like there's a ceiling. I would imagine things will get better for them given the headwinds we're facing right now. But certainly understandable the market selling off a stock to the degree it is today.

Chris Hill: When you think about the ceiling for this business, and I'm glad you pointed out the competition because it seems like when we talk about non-alcoholic beverage companies, particularly start-up companies, some of them are very clear about the fact that right out of the gate, our goal is to get bought. Our goal is to be acquired by a Coca-Cola, a Pepsi, that sort of thing. I'm not begrudging the management only if they are feeling the same way. But I'm just wondering like, if that is in fact the case, whether that's their intention or not, if the ultimate destiny for businesses like Oatly are, at some point they're going to get acquired or they're just going to get put out of business, that to me is what prevents it from making its way to my watchlist.

Jason Moser: Yes, that's definitely one factor to consider. It does feel like this is the type of business that could be better served as a member of many brands. If it was under an umbrella that possessed a number of different brands, we do certainly see that Mediacho in the alcoholic space. That's that's a good example of a business where they have a ton of brands underneath that umbrella and have succeeded with that strategy. Maybe there's something there with Oatly. It really does depend on the optionality where they can go with this plant-based or oat-based beverage idea because there are certainly other avenues they can pursue. I'm just not certain what they are. But it is a business. There's a retail side of the business. There's also a food service side to the business as well, so they are not one-dimensional in that regard. They do have a large overall customer base when you consider the food service channel as well, something similar to McCormick in that regard. That's great that you have exposure to the food service industry, whether it's restaurants or other types of facilities. That is lower margin revenues typically though. You're taking a little bit of a hit on pricing there, which if you look at Food service for Oatly, in the third quarter of this year, food service accounted for 35.8 percent of the business. A year ago, that was just 27.3 percent. It's good to see they're getting more buying from the food service space. That certainly is something they could play out on the bottom line. For a company that is so new, so young and really trying to get its way toward profitability, that's going to be, I think, an added headwind. That definitely remains to be seen. It's really hard to figure how far they can take this while the market will look at it with continued scrutiny I imagine.

Chris Hill: WeWork issued its first report as a public company. Revenue was 11 percent higher than a year ago. The loss was smaller than a year ago. Based on those two things alone, I think that's maybe part of why we're seeing shares of WeWork up a little bit earlier today. What do you think?

Jason Moser: Yes. We know the back story. It's difficult to reset our minds and expectations, particularly if you've seen that documentary on Hulu or read any of the books in regard to what's the WeWork stories so to be. But it is worth remembering. This is a fundamentally different story now. There's new leadership, there's new culture hopefully that comes from that and frankly, I mean a new valuation which you need to consider. This is a business where you think about when they were going to go public initially. It was something like $47-50 billion. Now you're looking at around $9 billion company. Much different valuation, which I think can give you a little bit of a different perspective from the investing mindset now. I will say so revenue of $661 million, that was 11 percent up. It was interesting the way they framed this in the release. It was actually from the previous quarter, so wasn't from a year ago and that was where I thought was interesting. They were using that comp from the previous quarter. Sequential growth is good to see. That means that we're trending back toward a stronger commercial real estate space and people are going back to the office. But that was actually down from $810 million they made a year ago. It's just worth noting, if you go through their release, they would do themselves, I think, a favor by trying to make it less noisy and maybe they will do that. 

You really have to read through all of these adjustments and these metrics and trying to figure out exactly what they're trying to say. I don't know if that serves them very well. But at the end of the day, if you look at workstation capacity, 766,000 stations in workstation capacity with 432,000 memberships. The occupancy rate was 56 percent. That's up six percentage points from a year ago and up six percentage points from just a quarter ago. Again, good sequential growth, good year over year growth in regard to capacity there for the occupancy rate. But I do think it is one where they're going to have to work really hard to remind investors that this is a fundamentally different story from a number of different angles. I think that's going to take some time and I think it certainly plays into the mindset of this new work paradigm where hybrid is really going to be a valuable feature for foremost. Certainly WeWork gets to play in that same box so to speak. But again, they are still dealing with that former identity and they really need to do everything they can to shed that and explain that this is a new story, a new company and really forging their own path forward.

Chris Hill: Thank you for emphasizing that. Because that's a real thing they have to deal with. As you said, that is something that does not show up on the balance sheet, but their reputation or rather the reputation of the company that was created a couple of years ago and had to shutter its IPO plans. That inflicted damage not just in terms of the IPO and what it meant for investors at the time who had backed that company, but it is the thing they can recover from, but they really need the calendar to flip to 2022. There's no way to speed it up, but as you said, there's an actual business here. I guess they have had conversations about the brand and decided we're better off just keeping the WeWork name and writing this out. I'm assuming those conversations have happened. But if they continue to improve on the economics of the business and continue to grow it then over time, that's going to become more of a distant memory which will only help them.

Jason Moser: I think you're right and you're seeing signs that what they're doing is working. Look at the numbers. WeWork accounts for about half a percent of U.S. office inventory overall, but they gained share over the quarter through the leasing activity that they sold. They are picking up market share in the process and they also established a relationship with Cushman & Wakefield, a larger commercial real estate company that is going to work with WeWork in promoting its workplace management software. This is a business I think that has a lot of options. They can go a number of different directions and commercial real estate is a really big market opportunity in their number of different ways to play it, so to speak. It feels like they are skating to where the puck is headed in regard to this new hybrid workforce. It also feels like the optionality there with software could prove to be beneficial than online, particularly when you're establishing relationships with companies like Cushman & Wakefield. Steps in the right direction for sure, but it is going to have to be a show-me story that they're going to have to prove themselves, and that is just going to take time.

Chris Hill: This morning, MasterCard came out with their latest SpendingPulse report, and they detailed the expectations that retail in the US next week is going to grow 10 percent compared to a year ago. Black Friday up 20 percent compared to last year. Also interesting to see the expectations around e-commerce, seven percent is not a huge bump, but when you factor in the massive bump from 2020 compared to 2019, that seems pretty reasonable. We can get into where the expectations are in terms of where the sales are going to come, but I'm curious just on the surface, what was your reaction to this report?

Jason Moser: I think certainly the e-commerce numbers make a lot of sense. You're coming off of a real outlier situation there. While at seven percent number does seem low, when you look at the fact that it's coming off of the 50 percent number previously, definitely makes sense. I do feel like we are poised for a good holiday season. I think we're probably going to see a little bit of pull-forward. I think a lot of people already getting out there preparing for it now. I think we're going to see some really strong physical retail performances this season. Matt Frankel and I, we do the Industry Focus financial show every Monday. Last week we were talking about a couple of his favorite reads out there, Simon Property and Tanger Outlets. Both companies just chalked up really good quarters and their occupancy rates are on the rise. They are also seeing that tenant sales are at all-time highs in the case of Tanger on a square footage basis. 

When you have those types of numbers, when you have that kind of data telling you a particular story, it seems pretty clear that the bottom line result is that people are getting out there more. If you have their occupancy rates on the rise, you have their tenants selling more stuff, that tells you that folks are getting out and I think that's a good thing. I think just anecdotally, yesterday, my wife and I were at Tysons Mall. She operates a little shop and she's over there getting it set up for the holiday season there, and just the traffic at the mall, I was amazed. Tyson's Corner is of busy place anyway, but it was impressive to see there are a lot of people there already. To me, it really feels like this is a holiday season where while e-commerce has been very convenient and I don't think that's really something that goes away, I think people are itching to get out a little bit and and we're starting to see that, so I do think that we're going to see a strong physical retail performance this year and I'm excited for that.

Chris Hill: Along those same lines, we've also had enough stories for a long enough amount of time regarding global supply chain and container ships on the West Coast. I think for some people, that's going to tip the balance to I'm just going to go to the store in-person because if I can buy it and take it home myself, then it removes the x-factor of shipping. It's not to say that shipping is going to drop this year, I don't think it will, but I think again, it's one more factor that goes in that direction. One of the things in this MasterCard report dealt with the expectations of where the sales are going to come, what people are going to be buying next week in particular, big focus on luxury goods and apparel. When I say luxury goods, that does not include jewelry, that was backed out in this report, but part of me just wants to fast-forward and get to January so we can see what the results are because this could be, if you think about big ticket items, whether that's appliances, anything else that goes in the luxury category, maybe that goes to automotive as well, apparel as well. I don't know about you, but after reading this report, I just spent some time thinking about if people are buying, where are they going to be spending money? Do I own shares of those companies already?

Jason Moser: I think that makes a lot of sense. It feels to me like folks are going to be justifying spoiling themselves a little bit, and rightly, so I'd say. If that's the case, I absolutely could see that the luxury goods side benefiting from that. I'm wondering about the experiences side of this equation too because I feel like probably a lot of people aren't really looking to set their home up for some big entertainment system. Maybe they're a little bit less focused on the home this year because we've all spent a lot more time at home than we probably would like to do. I do wonder if just from the travel and experiences side, how well that might do, where people use the holidays as an opportunity to plan for special trips and vacations. That'll be something worth keeping an eye on as well.

Chris Hill: Jason Moser, great talking to you. Thanks for being here.

Jason Moser: Thank you.

Chris Hill: As always, people on the program may have interest in the stocks they talk about on the Market Foolery, may have formal recommendations for or against, so don't buy yourself stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. See you tomorrow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.