Okta (NASDAQ:OKTA) pops on strong third-quarter results and raised guidance. Square (NYSE:SQ) is changing its name to Block. Motley Fool analyst Bill Mann analyzes those stories, reflects on a rough day for investors, and identifies a couple of businesses that are in the "too cheap to ignore" category.
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This video was recorded on Dec. 2, 2021.
Chris Hill: It's Thursday, Dec. 2. Welcome to MarketFoolery, I'm Chris Hill, with me today, North Carolina's own, Bill Mann.
Bill Mann: I am in fact North Carolina's own. In fact, I'm shocked, shocked I say, that they haven't given me a sign as you enter the state. Can you imagine home of Bill Mann people are like, who? [laughs] What?
Hill: That would actually be nice, state should do that. In this regard, in the same way that states use license plates as a way to raise revenue. You'd say look, you want a personalized plate, you're going to pay a little more for that. Why wouldn't states do the same sort of thing where like, hey, we're going to rent this out. We're going to do it on maybe a daily basis or a weekly basis. And how great would that be if your family arranged for you, they knew what highway you are going to be on so that when you drove in, it said that, it was like a Christmas present for you.
Mann: States need to to be better at raising money, driving into North Dakota, and you're like, welcome home Jim Norrod Gade, who is not loving that.
Mann: We have just started a business by the way. Right here on MarketFoolery.
Hill: Right here. You're welcome, municipalities, and states, cities can do the same thing. All right. Let's get to some stock stuff. We have another name change, and we will get to that. And we will get to what is happening with the market relative to its recent highs because I'm sure I was not the only investor at the end of the day on Wednesday to look at his, or her portfolio, and see --
Mann: Where did my money go?
Hill: Nothing but red, nothing. Well, we're going to start though. We're going to start with a little bit of green. In the case of Okta, because shares of Okta are up nearly 10% this morning, third-quarter revenue was higher than expected, the loss was smaller than expected. They raised guidance for Q4. The fact that the stock is up big seems to me because we got this news when they reported after the bell on Wednesday, and the after-hours activity didn't make sense to me. The stock was down, 8%-10% I thought, wait a minute [laughs]. What are we missing? This seems like good results over the last 90 days, and good guidance going forward.
Mann: It almost felt like after a day like Wednesday, is that any company that said something they were like it was bound to be terrible. Wait, what did you say? Wait, you said up 61% revenues, 351 million, wait, that's pretty good. Can I believe that that's good? Should I dare try? It was a great quarter for them. And not only that, I mean, Okta is being, I don't know that I'm saying anything. You try to go on any real new ground by saying, look, security is going to be big. And Okta, particularly after they made the purchase last year of Guardian. They are dominating in a segment that is not going to shrink. It could change. I'm not saying Okta is one of those "sure thing" companies, and it is a fairly expensive stock. But, you're talking about a company that is fishing in the right waters.
Hill: When you look at the fact that they are not profitable, they are in growth mode. For people that look at that and think, OK, I hear what you're saying. At some point I need them to make money [laughs]. I want them to be profitable. What is a reasonable timeline, or to the extent that the company has talked about that --
Mann: Wednesday? Is Wednesday, good for you?
Hill: What are expectations?
Mann: I don't want to be too libertine about this, I think companies that are actually bad companies will say the same thing like, oh, we can be profitable if we wanted to, but we're still at investment mode. But, when you have a company that is growing at 61% in a time frame in which the identity, and security market is both growing, and changing so quickly. It is actually very reasonable for Okta not to be profitable yet. And for it's still to be an exciting company. I think probably what you really want to see is a company that want to be, you don't want them to say, OK, we're profitable tomorrow. And then they become profitable with 2% of the market, they want the oyster. And so it is reasonable for them to invest heavily right now. And the good news with the share price, where it is, is that they can raise capital pretty cheaply. This is really what you want to see from a company that has a market that's growing as quickly as Okta's is.
Hill: It's been a busy week for Jack Dorsey. Two days after he resigned as the CEO of Twitter, Dorsey announced that the other company he is running, Square, is changing its corporate name to Block. Dorsey's fandom of all things crypto, I think is pretty well known. The blockchain aspirations of the business are now front and center. The name change is going to take effect on Dec. 10. And I will just point out that shares of Square today are down 3%. And you can say what you want about Facebook changing their name to Meta Platforms, at least on the day they announced it, shares of that stock were up [laughs].
Mann: I don't think that the two are necessarily related to each other. I feel like Block has such negative connotations, right? I know there's blockchain out there. First of all, there's 50 companies that have Block in their name in that form. Why not Cube? I think they're looking at Square. But we're Square, but we're kind of a 3D square. What's that called? Come on, you could do it with a Q if you want to be fancy. But the funny thing to me about they're doing this is that it's not even by a long shot, the worst branding within the Square-slash-Block ecosystem. Because if you look at the announcement for Block saying that they're changing the name, says Square, Cash App, Spiral BTC, which is the former Square crypto title and TBD 5456975 are now Block. Now I stopped on that last thing for just a little bit. Because that's not great branding.
Hill: I'm always curious about one of the conversations behind closed doors that lead to a decision.
Mann: This is where I'm going.
Hill: And in the case of Facebook and Meta Platforms, at least part of the impetus for that name change is look, this is going to, in a small way, diminish the heat that we get, particularly from Capitol Hill for Facebook, it diminishes it. It doesn't make it go away. But, in the same way that on a hot summer day you step outside, it can be 95 degrees, it can be 88 degrees. You'd rather be 88 degrees [laughs]. It's a little bit less, and maybe it's the timing of just two days after he steps down from Twitter. But I really am curious, and hoping that someone is going to come out with a long-form story in a month or two about how this went down, and what the thinking was, and what the end look, they can do whatever they want. They can change their name to whatever they want. My question as a shareholder is, what do you think this accomplishes? Because I haven't heard that yet.
Mann: I will say this, Square is something that is very specific, that is a point-of-sale payment system and additional architecture. They also have Tidal. They also have the Cash App. They already had a number of different things. Actually putting it under a bigger brand makes a great deal of sense. I don't know about this branding. I do, I agree with you. I love the vision of my mind. Jack Dorsey sending in his resignation at Twitter, and it's got to be like Old West-style swinging doors, coming into the room at Square saying, OK, we're going to mix some things up because that's what this feels like to me. The branding actually, it does make some sense. I just don't know that they've gotten something that is more evocative than Square by going with Block, and that's ultimately what branding is all about.
Hill: It's true. And look, they were getting some criticism, and whether it's fair or not that, oh, tech companies, stock is down so they're going to change their name, and think that that fixes things. And maybe that's a little snarky. But I think we both realize three months from now, six months from now, the business better have a story to tell that is positive for shareholders. Because if not, all we're going to be talking about in three or six months is, how's the new name working out?
Mann: That's great. Well, like when Yahoo! became Oath. Look, Oath could've been highly successful, but it certainly didn't help that they changed the name and then it was a disaster. Oath was no Tronc by the way, I think Tronc may have been my favorite/least favorite of the rebrands of a really an old-line entity, a brand that had a lot of equity behind it.
Hill: Yeah, now Tronc is No. 1 on the list because they went back. They didn't just change the name Tronc, they went back to the original negative, [laughs] which was a wonderful admission. Let's wrap up with the market. Because at the moment, it's been positive territory, but we still have a few hours left in the trading day.
Mann: Somebody could say something.
Hill: I don't want to jinx us. It got me thinking about the last time you and I were at Fool headquarters in Alexandria, it was March 19 of 2020. We were doing a live video on YouTube talking about, among other things, where do you invest in the market. It's still up on The Motley Fool's YouTube channel. I think the name of the video is "Where To Invest That $1,000 Right Now." But we were talking about, and you specifically mentioned Disney and Starbucks as businesses where the stocks were beaten down. I'll paraphrase, but you basically talked in terms of like, look, these are great businesses. They are beaten down for obvious reasons early in the pandemic. But they are, if they are not, at the moment, they are approaching the "too cheap to ignore" territory. Just like hey look, if you're going to sell me that business at that price, then the responsible thing for me to do as an investor is to buy some shares. I'm curious if you look around and you see businesses that are in a similar position today.
Mann: I would think that the company like Amazon is in that position today. You might still make that argument about Disney today. We had a conversation this morning on The Motley Fool Morning Show and we just talked about, about the power of what happens when Disney finally decides to get into the metaverse. Could you imagine having a gathering with your friends or with your son's friends saying, hey, let's all go meet on Tatooine because that is available to you through the Disney universe. Let's go wander around Asgard. I think that that is still a company that is probably too cheap to ignore. What's different right now from 2020 is that in March 2020, the stock market was dropping and everybody knew why. Everybody knew. We may not have another time like that in our lifetimes, I hope not. But it was a reason you almost got the sense that everyone didn't have to panic because they just knew what the thing was. There was no confusion. Today, I think there's a lot more confusion. People are thinking that it's the omicron strain or Chairman Powell keeps opening his mouth about the taper or not taper or whatever it is. But I do think that the great companies, if you have the opportunity to buy them when people are wondering about the market, it really takes a lot more to make the great companies not great.
Hill: I was looking at all of the red in my portfolio yesterday. I look at a stock like MercadoLibre, which in the past month is down more than 25%. I just thought, I don't know if it's in the ''too cheap to ignore'' territory, but it certainly looks like it's on its way if it's not there.
Mann: It's still a pretty expensive stock. That stock is still trading at a P/E in the triple digits. I know that price-to-earnings ratio isn't perfect. But just like we talked about Okta at the beginning of the show, if you are supporting MercadoLibre, would you say five years from now, I want you to have been as profitable as possible in 2022, or do I want you to have become as big as possible in 2022? The second option, every single time, given the market that MercadoLibre is in, that's what you'd want. That is absolutely, positively what you want. But I think that we got to the end of 2020 and a lot of people, because the stock market from March to call it February of this year did nothing but go up. We got conditioned to thinking that that's how that worked and it's not. This, what we're experiencing now is really what investing is all about. It is sometimes just tolerating a little bit of pain and I don't know what's going to happen tomorrow. I do know that MercadoLibre is a lot more exciting to me at $1,100 a share than it was at $2,000 a share, which was not that long ago because it's the same exact company.
Hill: Let's go back to Amazon for a second because Moser and I were talking the other day about the terrible holiday season Amazon had in 2013, how that helped inform their methodical investments in shipping to the point where it's basically the biggest shipper in the United States right now. Look, Amazon stock is up for the year. I think it's up 8% year to date, something like that. That is still trailing the overall S&P 500 by a dozen percentage points or more. But to your point, in terms of Amazon and the stock price, this really seems like it's shaping up to be one of those years that in 2022 or 2023 we're going to look back on and go, oh yeah, 2021, that was the year Amazon was doing a lot of investing. They were spending a lot of money. In the same way that in 2013, there were some analysts saying, why are you investing in shipping? Why don't you just keep up these partnerships with the experienced pros at UPS and FedEx? This is an investment year for Amazon. I don't know.
Mann: I love that point because looking back now and I know we have information now that we didn't have in 2013, but it's just the same exact conversation, what now would you have had them do? It's invest? That's one every bit of the way. These companies that have reasonable investing prospects in front of them, you want Okta to do it, you want Disney to do it, you want MercadoLibre way to do it. You absolutely positively want Amazon to do it as an investor. Even though it makes them look a little more expensive and a little less awesome right now, that's how business works. They are not numbers, they are entities and organisms and you got to feed them.
Hill: Bill Mann, always great talking to you.
Mann: Great talking to you, Chris. Thanks so much.
Chris Hill: As always, people on the program may have interest in the stocks they talked about and The Motley Fool may have formal recommendations for or against, 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. See you on Monday.