In this podcast, Motley Fool senior analysts Jason Moser and Emily Flippen discuss:
- DocuSign's latest results, and using the company as a lens for looking at other businesses.
- Good news (finally!) for Asana shareholders.
- Rough weeks for UiPath and Bilibili.
- RH taking a "Tiffany-like" approach to its business.
Emily and Jason dip into the Fool Mailbag to talk about blue chip stocks, as well as:
- Stocks they've been buying over the past year.
- Acquisitions they'd like to see.
- Uber's upcoming robot delivery tests in Texas and California.
- Two stocks on their radar: Casey's General Stores and McCormick.
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 Sept. 9, 2022.
Chris Hill: What shape will the companies you own shares of be in when we get to 2024? Motley Fool Money starts now. It's the Motley Fool Money radio show. I'm Chris Hill joining me in studio, senior analysts Emily Flippen and Jason Moser. Good to see you both.
Emily Flippen: Hey, Chris.
Jason Moser: Thank you.
Chris Hill: We've got the latest headlines from Wall Street. We'll answer your questions by dipping into the Fool mailbag. As always, we've got a couple of stocks on our radar. But we begin with one company's earnings report as a way to look at stocks in general. The company in question is DocuSign, the electronic signature company. At the open on Friday, shares pop nearly 20 percent after second quarter results came in higher than expected. DocuSign's management also maintain their guidance for the rest of the fiscal year. The stock dropped down from that early enthusiasm, Jason. Before we widen our gaze to look at stocks in general, what did you think about DocuSign's results?
Jason Moser: Chris, if I had put a bet on this the day before, I would bet we probably would have seen the stock in the red because management had guided down in this report. Pleasantly surprised, at least from that perspective, but it does feel like it was a mixed bag for the most part. This is a business in a state of flux and there's a lot of uncertainty right now as to what the future holds. It's encouraging that they maintain full year guidance with revenue and billings given the state of enterprise software today. It felt like they could have found themselves in a little bit more trouble than we're seeing. Thus we will look at some of the pros, with revenue grew 22 percent, billings up nine percent. That look not terribly inspiring, but it has exceeded internal guidance. Held gross margins steady compared to a year ago. Added 44,000 new customers during the quarter. Again, that was 22 percent increase and that brings their total global paying customer count of 1.28 million. Of that customer count, you look at the large customers and that's the customers that are generating greater than $300,000 in annualized contract value for the company.
That figure continues to grow as well up to 992 versus 852 at year end. International continues to grow taking up a little bit more of the business. The balance sheet remains in good shape. They've gotten greater than one billion dollars in cash and equivalents and they're not burning through that cash. But there are some cons that come along with this. In first and foremost, this is still a ship without a captain. We know Dan Springer step down just several months ago, the CEO search is still underway, but they feel like they're close to a decision there, so that's good. They need to make sure they get the right person in for this job. The net dollar retention rate, 110 percent, that really stood out. That's low. It's as low as it's been in a long time. Remember that metric compares the annual recurring revenue for active subscription contracts between two period end dates. Now to be fair, they pulled forward a lot of growth over the last couple of years. If you go back to 2019 in the same quarter, that number was 113 percent. It's not terribly out of whack with that, but certainly down from the recent highs that we've seen. It was an encouraging quarter, but not one where you feel like, these guys have turned the corner.
Chris Hill: Emily, this is a story we could tell about any number of stocks out there in the sense that we're seeing this pop in the stock today. Shares of DocuSign year-to-date still down 60 percent?
Emily Flippen: Yes and I had a full roast prepared for DocuSign today on the fact that the market was up 20 percent on this quarter. My opinions have been tempered a bit by the fact that the market has come down. I think DocuSign stock at the time of taping is up around eight percent now. A lot more reasonable. But to your point, if there is a narrative for what we're seeing across companies this quarter, I would say that guidance is really driving stock results. I think what we saw was a knee jerk reaction to the fact that DocuSign did not in fact lower full year guidance when maybe the market expected more of the worst, which caused that short lived enthusiasm.
But it is interesting because the narrative that we heard from DocuSign's management this quarter was that they're interested in cost cutting. That's where they're headed. Even though they grew the employee base 22 percent let's overlook that for the quarter. Management said until we get that full-time CEO and we're taking a measured approach to hiring, reassessing our expense base, and this is very much the same narrative we've heard from many companies this past earning season. Maybe they lowered guidance for the end of the year. Or they've said, look, we're cutting costs because we're not expecting much from the back half of 2022.
Chris Hill: This is where I want to broaden things because to that point, Jason, we've heard that narrative from some of the biggest and most profitable companies in the public markets, I'm thinking primarily of Alphabet, where the CEO has been talking for weeks now about how we have to get more efficient. Not really talking about layoffs, but throwing out the possibility that they could be reducing headcount at some point. Keep in mind, as big as Alphabet is, last quarter, they still grew revenue 13 percent. They're huge, they're profitable. If a company like that is talking about we need to get more efficient. I'm wondering if we as investors need to start looking at every company in our portfolio and every company on our watch list through the lens of what do I think this company is going to be doing in the next 15 months? Not the stock. In terms of the business itself, what are they going to be doing that in early 2024 what shape are they in?
Jason Moser: Yeah, a lot to unpack there. It feel like a lot of that really does center around leadership. If you can have consistent leadership with a consistent vision then I think you have a little bit more of a reliable strategy there. It does beg the question, why wouldn't all of these businesses always place such a priority on efficiency? Really that makes the most sense. But it's also understandable that in good times when everything is going up and everybody is so focused on growth, sometimes that can translate into growth at any cost. You're seeing a lot of businesses that are paying the price for that now and DocuSign is no exception here. I feel like you see their headcount up 22, 23 percent from a year ago.
To me, this is a business that feels very bloated. It just doesn't feel like it needs a workforce of 8,000 people given what they do. But here we are. Perhaps that is just a result of Dan Springer's actions leading up to this point. This does feel to me a little bit. It reminds me a little bit of PayPal. I think back to what PayPal went through over these last couple of years. What we saw with Dan Schulman, it's almost like taking your success for granted a little bit and feeling like maybe you bought into your own hype. Feeling like that all of the success is really due to these actions of pursuing growth at any cost without really fully acknowledging that the tide is rising and pretty much lifting every boat.
To me, it is something I think worth paying attention to always is looking at leadership, looking at the expenses that are involved with the business because we have a lot of these businesses today that we follow that have yet to get to that path to profitability. They're still on that path to profitability and for businesses that really ultimately need to get there. At some point, you want to have a clear vision of how they're going to get there. For DocuSign and for a lot of these businesses I'm not talking about Alphabet here, but for a lot of these businesses that are still working their way to it, you just make that assumption that they'll get there eventually. I think for investors, it's a good reminder to really in your mind when you start working out your thesis for investing in some of these businesses try to chart out. How you feel like they're going to get there and don't just chart it out based on what management is telling you on the call because that may not be the same team that you're dealing with a year from now.
Emily Flippen: I didn't get my little rant on DocuSign. Let me have a little rant on efficiency here if you'll hear me out. I think efficiency is something that's built into the fabric of companies. When the economy starts to get worse, you'll hear a lot of very inefficient businesses suddenly start talking about efficiency. Their definition of efficiency is oftentimes reducing headcount, cutting unnecessary expenses. But in my opinion, these things aren't efficient. If I could use a metaphor here, over the past couple of years, a number of us may have put on a couple of LPs myself included and that's like going out and saying, we'll look for the next month.
I'm going to exercise, I'm going to eat. I'm going to lose this extra weight. That's great. But the problem is I'm not solving the underlying issue, which is the fact that I probably work a desk job, don't exercise enough, eat fast food too much, or whatever it is. In five-years, I'm going to find that those LPs came back very quickly. We have companies that are talking about making short-term changes to generate "efficiency". But I'd be willing to bet when you're looking out toward 2024 and 2025, you're going to have businesses that are once again still bloated and inefficient. We need to make sure that companies are making systematic changes for the reason that they were inefficient in the first place and not just cutting costs for the sake of generating short-term profits.
Chris Hill: Well, and we were talking about earlier today about Alphabet and how obviously it's a massive company, all these different divisions. But it's almost like they've compartmentalized their inefficiency in the moon shot division. They basically set up a division to say, hey, look, this thing is going to lose money over here. All these other parts we want to try and be as efficient as possible get on the path to profitability. We're going to take our moonshots, we're just going to put them over there. Last thing on DocuSign, Jason, how attractive is this job? We've talked about different CEO positions being opened in the past and some are more attractive than others. Is this an opportunity where the board of directors might get their first draft pick? Or is this a job that if you're an executive at another company and the board comes knocking and say, hey, would you be interested in this? You probably got some questions.
Jason Moser: I feel like it's an attractive job for a CEO. The main reason why I believe that is because this ultimately the end of the day. They have a good product ready. They offer good services. It's not like this is a broken business from the perspective of they don't have something that customers want. Because they continue to grow that customer base and they continue to iterate and bring more to their overall offering. This Agreement Cloud that they continue to refer to them in their building product integrations with networks like Slack and Stripe. The DocuSign Notary which has introduced support now for two additional stays now that's in 25 states, man, how annoying is that they have to actually go physically get something notarized? If now you can do that already. I feel like it's a business that has a lot to offer. Consumers like it. If you've used it, you know, it's slick, it's easy, it's convenient. But it is a business that has lost its way over the last couple of years. I took some of that success for granted. From that perspective, hey, listen, I would've sent my resume and I don't think I'd have a chance.
Chris Hill: After the break, we will get the latest from retail software and a lot more. Just stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Emily Flippen and Jason Moser. Let's get to some more earnings. Some good news for Asana shareholders. Shares of the communication software company up 30 percent this week after second quarter results were better than expected and guidance for the third quarter was higher as well, which is good, Emily, because it has been a rough year for Asana.
Emily Flippen: Asana is an unprofitable business, not cash-generating, and they haven't seen a massive contraction evaluation since their highs at the end of 2021. If you're looking at the past year, it does not look good, but if you look at this quarter alone, it is still extremely stellar for Asana and Asana shareholders, I think should take refuge in what a strong quarter this was, I'd mentioned at the top of the show that stock movement as a result of earnings is being driven by guidance it seems. This is very much an example of that. Not only did they beat on the top and bottom lines in the quarter, but they also raised guidance for the year, and that's very unusually positive in an otherwise challenging macro-environment, their revenue rose 51 percent. That was six percent over their prior expectations. As Jason had mentioned with DocuSign, a lot of this growth was being driven by their highest value customers.
In Asana's case, there's customers spending more than $100,000 a year on their platform. Those are driving massive results and it's showing up in things like their dollar-based net retention rate, which has been continuously stellar. It's a great quarter, but shareholders and investors, you remember that as I mentioned, this is a very unprofitable business and their CEO and founder, Dustin Moskovitz, I'm probably mispronouncing that, but he bought 16 million more shares at an investment of $350 million and parts help increase the company's cash balances. Management believes this will provide sufficient funding until Asana can generate that free cash flow, which they're currently targeting for calendar year 2024. But that does give you an example of the type of position that Asana is going to be in over the next couple of years.
Chris Hill: From communication software to robotic process automation software, UiPath, second-quarter results got overshadowed by its guidance. Management lowered guidance for both the third quarter and the full fiscal year and shares of UiPath hit a 52-week low this week, Jason?
Jason Moser: It's been a tough 12 months for this business. This is another example of the market serving as a forward-looking mechanism. The quarter was in line, but clearly the near-term picture is a bit more cloudy. Management noted on the call they said in the short-term, we're strategically repositioning the company to increase velocity, efficiency and customer-centricity. I think we can all get behind doing that, but really isn't that what you should have been doing from the beginning. We can argue about that I guess all day long. Ultimately, ratcheting guidance down a little bit. If you look at the numbers, they are forecasting third quarter revenue at the midpoint, $244 million in analyst. I think the forecast was around 270 million. You can see how that then plays out on full-year guidance. You've got a business here that is immensely unprofitable, does not generating free cash flow. It's really all based on years down the road and ultimately how they get to that path of profitability.
Even after the sell-off, the stock is still valued at around seven, eight times sales, that's not cheap. But there are some signs that the business is doing well. They're doing what their customers want or they're doing something their customers like, if you look at the end of the quarter, customers accounting for at least $100,000 in annualized recurring revenue grew more than 30 percent from a year ago. The customer generating over one million dollars grew over 60 percent. Again, I think this is just a matter of a business with a good idea, seems to provide a good offering that customers are signing up for. Stuck in a very difficult time during the market. In anytime you see that guidance pulled back, the markets can react the way it has. Dollar-based net retention rate, 132 percent is obviously positive as well, and they remain committed to the goal of achieving non-GAAP profitability and positive adjusted free cash flow in fiscal year 2024. Now there's a lot of adjusted and non-GAAPs there, but hey, baby steps, Chris.
Chris Hill: Baby steps, rough second-quarter results for Bilibili, the YouTube of China has 300 million monthly active users, but revenue growth is slowing and shares of Bilibili down 20 percent this week, Emily.
Emily Flippen: We talked a lot about how the macro economic situation at home impacts businesses that we're invested in and it can be easy to forget that the same thing is true for businesses outside the US as well. In this case, Bilibili has been negatively affected by the lockdowns in areas like Shanghai, as advertising, as you mentioned, slow down really notably in the quarter, advertising revenue only grew 10 percent year-over-year. To represent just what a significant deceleration this is, this time last year, that revenue growth from ads grew more than 200 percent. A lot of this is the macroeconomic situation in China. The good thing is is that engagement on Bilibili's platform is still extremely strong. The fundamentals are intact. But unlike a lot of the companies we've talked about that are apparently looking toward 2024 to generate cash flows, Bilibili is still very far off from that goal.
Chris Hill: Shares of RH up a bit this week, the retailer, formerly known as Restoration Hardware, had second-quarter results that were better-than-expected. But Jason, I'm a little surprised because these were low expectations going in and RH said that revenue for the current quarter is going to fall more than 15 percent. I'm not hating on them. I'm just not sure why shares of RH are up a bit this week.
Jason Moser: Is a bit of a confounding business. If you look at the results, they weren't anything to write home about. Revenue of $992 million, that's essentially flat with a year ago they did expand gross margin, 350 basis points, adjusted earnings down five percent. They spend better than two billion dollars on share repurchases here over the last five years and their share counts up. There are a lot of things that maybe questioned why the market is receiving this stock so positively. But I think perhaps one reason is management's commitment to the brand. This is a very Tiffany-like story in that you see in the furniture world, there is discounting occurring everywhere, RH is simply not taking that approach. They are taking more of a Tiffany-like approach and avoiding promotion completely.
They acknowledge that is going to contribute to some near-term pressure because they're not going to chase that revenue, but they firmly believe in the brand and the product that they offer and they believe that this is the right strategy to go ahead and not promote and go ahead and suck it up for now feeling that maybe as times get better things will get better for the business. If you look at the way the business has performed over the last five years, we are talking about the share repurchases. The margin picture has been tremendous, gross margin up from 34.7 percent five years ago to better than 51 percent trailing 12 months, net margin up from basically 0-17 percent trailing 12 month for a furniture maker. That is actually really impressive. If they can continue to pursue that Tiffany-like strategy, then yeah, maybe it does pay off in the long term, but it is worth noting that a lot of the stocks performance here really occurred over the past year-and-a-half or so, and it's really come back to earth later.
Chris Hill: Potential acquisitions and stocks for the downturn. Are just two other questions will hit in the Fool Mailbag this week. Answers after the break so stay right here. This is Motley Fool Money Welcome back to Motley Fool Money. Chris Hill here with Emily Flippen and Jason Moser. Our email address is [email protected]. Drop us a note, would you? Like Mike in Ohio, who writes, first thanks for all you do and the encouragement you provide during bull and bear markets. Right now, I feel like Mother Abbess and keep asking myself, how do you solve a problem like 3M? There was a time when people said GE is a solid diversified business and will never falter. Is 3M in that same boat now and looking at the same destination, should I buy, sell or hold? Thank you, Mike, for the question and the kind words and for the reference to the Sound of Music. What do you think, Emily? Because he's absolutely right there for a long stretch of time, people looking at, I need the ballast for my portfolio. I need that solid blue-chip. They would go to GE, they would go to 3M. It certainly hasn't worked out lately for GE and 3M has stumbled as well.
Emily Flippen: I'm a jaded former GE employees and my first instinct when I saw this question was, well, of course it's not the same. But actually, the deeper I got into it, the more I thought, well, this is a really deep and insightful question. For contacts, Ge was, as many investors know, a highly diversified and profitable business. They had more than a century of leadership in the Dow JonesIndex before being dropped in 2018. It wasn't because the business became obsolete, like better technology came along and it wasn't because the business was a complete fraud, although there were certain question marks about their accounting. But it's rather because I think the organization just became so large and disjointed that was impossible to effectively manage. The question really is, is 3M so large and disjointed that it cannot be effectively managed now? I'm stealing some of this thoughts from Bill Gates, thoughts regarding GE and Bill Gates boiled down alive GE's failure to two things. One of which is chasing earnings. Trying to get those quarterly numbers which allowed tiny problems to fester until they became too large to fix.
As well as lots of specific niches being run by generalists who didn't understand the fundamental business. When you look at that in comparison to 3M, while 3M does not have the same track record GE once had of constantly meeting or beating expectations over the past year has been good for them. I do think it's worth noting that their business is increasingly diversified and not necessarily in a great way their decision to spin off, I believe their healthcare segment as well as their food services business, is reminiscent of the decisions that GE started to make whenever they became a little too large to handle. Right now I don't see any financial reasons why I think 3M investors should be concerned, if you're holding 3M for dividend payments, personally, I wouldn't be overly worried that a fall out like GE is eminent. But it is something that after reading this question, I am certainly keeping my ears tuned more closely for, in case, sales start to fall and management starts to make excuses.
Chris Hill: Question from Shannon in New Hampshire who writes, has the downturn in the market over the past year changed the types of stocks that you've bought during that time and if so, what types of stocks have you been buying? I don't know about you, Jason, but the answer for me to that first question is, yes, it has changed the types of stocks I've been buying.
Jason Moser: I will say the types of stocks either, but I don't think this downturn has necessarily changed it fully. I think perhaps it's accelerated a little bit. My purchasing behavior has changed just a little bit. As I get a little bit older, I focus more on bringing some income-related ideas into my retirement portfolio. I've seen the opportunities to add more to companies like McCormick and Starbucks and Home Depot positions as I continue to build out those income-generating ideas. But I absolutely still investing in growth where I see the opportunities. I've been very upfront about adding to positions in companies like Twilio and Cloudflare and Outset Medical for example. Interesting way to look at it. I think that's a great question because when you run into times like these, they can be psychologically damaging if you're not paying attention. It got to goes back to that loss aversion.
We feel the pain of those losses more than we feel the joy of those wins and it really does make you sit back and think, OK, what am I doing wrong? Am I doing something wrong? Am I focused on the wrong ideas? Am I focused on my strategy? Somehow out of whack there, because this period of time is certainly resulted in a lot of opportunities on the growth side too. We've seen a lot of growth pulled back in a material way. But the big question is, were the valuations of those growth companies garnering a year ago, where they really warranted? We were talking a lot about 2030 times sales being the new normal and we're saying that tongue-in-cheek, it's not normal. I think we're seeing that play out now. It's made me rethink it a little bit, but I think more so it's just accelerated my move toward thinking a little bit more later in life.
Chris Hill: To go back to the conversation we had at the start of the show. For me, it's accelerated my move toward companies that I'm confident in are going to be here in 2024.
Jason Moser: I think that's a great way to put it. But I even look further out. I feel like we're going to be in 2030. I feel pretty confident Starbucks and McCormick and Home Depot are still going to be your 2030. There's still going to be paying dividends. I feel very confident in holding those companies for the long haul, maybe some of those growth companies. The questions a little bit more pronounced, but I think that's where you really have to try to delineate a little bit more of those companies that are still trying to get that path to profitability.
Chris Hill: Just to be more specific, not just that they're going to be here in 2024, that they're going to be in good shape.
Jason Moser: Yeah.
Chris Hill: They're not going to like just stagger over the finish line and be in terrible shape. Question from Sean Williams. Fortinet was a previous Motley Fool recommendation and I'm wondering if this is still a stock that the team likes. It's about 30 percent off its highs and looking interesting now unless there's something I missed that would lead you to stay away. Is the thesis still intact with this one? Emily, for those unfamiliar, Fortinet is in the business of network security solutions, was recommended in our Stock Advisor service five-years ago and he's right, it's down about 30 percent off its highs, but over the last five years it's up more than 550 percent.
Emily Flippen: Yeah, I actually think that Fortinet is probably underappreciated and under-followed. I say that mainly to myself because I also work on Stock Advisor. The last time we made for net a timely opportunity in Stock Advisor was back in May, so it's been a while since I think we've put that in front of investors eyes. It has not been for good reason, Fortinet is actually performing extremely well. We'll spend a lot of time talking about the cybersecurity space, CrowdStrike in particular. I do believe that I think CrowdStrike is differentiating itself as a long-term leader, but arising tide can lift all boats and Fortinet is certainly expanding its grasp, especially in the hardware aspects, firewalls, that thing. I've been dismissive of the power of protecting a hardware infrastructures. As data centers continued to be upgraded, the need for firewalls and thus Fortinet increases as well. While the stock has sold off a bit, I think after its most recent quarter. I think it came with very little reason. The stock looks expensive on its bottom-line at 65 times earnings. But the fact that there isn't earnings, I think, is very representative of how strong this company is. They're hugely cash-generating, growing tremendously more than 30 percent in an otherwise challenging market environment. Probably an underappreciated long-term winner.
Chris Hill: Do they need to change their name? Because for me and this is my bias, but when it comes to security, I want your name to evoke security. Fortinet just makes me instantly question like, what is this business? I want a security business to have a security name.
Emily Flippen: It's so funny because I hear a fort and I hear net. I think I know exactly what they do. You know what confuses me? CrowdStrike. What are you doing with a crowd that your striking? That's confusing to me.
Chris Hill: Maybe the crowds getting a little unruly and they need to get back in line. Our last question from Adam Wisconsin, writes you said on a recent show that you expect more acquisitions to be made in the next 6-12 months. Is there an acquisition in particular that you would like to see? Jason, let's take this in any direction we want. It could be a specific company that we think maybe needs to make an acquisition or a type of acquisition that a company needs to make. Or I'll just add a third category, a company that's struggling and probably needs to be acquired.
Jason Moser: Well, I think that will continue to see a lot of consolidation in the entertainment space here over the coming years. The landscape is just getting so littered with so many options and choices is becoming really tough to even decide what you want to subscribe to and watch. Some streamers are better than others. I suspect we'll see some consolidation in that space. I'm not really sure I ever actually pull for acquisitions there just a nature of the beast, but one that I feel like probably could make sense at this point, Under Armour to me, I feel like their time is up, man. They've had enough time to try to make this work and for whatever reason it's not. They make good stuff and there was a time when the success was so obvious and fast-forward to today and it's just been some boneheaded decisions on the part of management that have put the business where it is today and they can't seem to get themselves out of this hole.
I think maybe Under Armour would be better off just under a house of brands. Now whether that's Nike or Lululemon or someone else, I don't know, but it does feel like maybe Under Armour, they could exploit a little bit more value from that business being a part of something bigger. One I think I called out, it was one of our review shows or preview shows as a wildcard. Speaking of DocuSign back to the top of the show, I can absolutely see Zoom acquiring DocuSign. To me that just seems like it would be complementary to the business. It's not something that Zoom does today. I think Zoom is here to stay. I think it's going to be something that contributes to our new way of doing business, new way of communicating with this digital transition, the ways of working in communicating. I think it's something that can be very complimentary to Zoom's business model. We know that Zoom is at least got acquisitions on the brain. They had that acquisition of what was it five or not?
Chris Hill: Five nine.
Jason Moser: Five nine. They had that acquisition that got called off because of regulatory concerns there. Maybe they're still thinking they want to make an acquisition somewhere and perhaps DocuSign could be something that would be a complementary way to spur some growth in the business.
Emily Flippen: My jaw would hit the floor if either of those acquisitions happen. If Lululemon tried to go after Under Armour, I think I'd be upset with that decision given the premium status of Lululemon's brand. How dilutive is that? But also I just Zoom. There's a lot of things that Zoom can do with their capital. DocuSign, I don't see it being to steal a word from every M&A person ever synergistic, I suppose with their core offerings. What I always hoped for and this could apply for Zoom. I'm taking it more from the approach of the company that I would like to see acquired or would be interested to see acquired, that's Discord. It's a private company. They have more than 600 employees across the globe, but it's got started as a gaming platform for people who are gaming together to connect. I always thought that there'd be more interest from some of the big gaming companies to bring that communication in house. It's a highly monetizable platform right now. While it does have its issues, it's widely used. I thought Zoom could go after something like Discord to get more to the consumer-facing, instant messaging, exposure, which I think is maybe more synergistic if I can, than a business like DocuSign, but really Zoom should just do anything with their money at this point.
Jason Moser: Yeah, it feels like there's a lot of interest in enterprise software right now, the private equity side. Thoma Bravo, in firms like that. Maybe that's a sign that they feel like a lot of these enterprise software company valuations are starting to look a little bit more attractive now given the market pull back this year.
Chris Hill: Texas and California are about to test the market for riderless deliveries, we'll dig into that, plus a couple of stocks on our radar. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser and Emily Flippen. Some folks in Texas and California may soon have food delivered to their home by a robot. This week, Uber announced a 10-year partnership with Nuro, the autonomous vehicle company, to make Uber Eats deliveries in the United States. It's going to start this fall with tests in Houston and Mountain View, California. Jason, obviously we're hoping that some of the listeners can do some boots on the ground research for us and drop an email to podcasts at fool.com and let us know how this goes. But what do you think about this?
Jason Moser: I think it has promised. I've seen one of these Nuro devices before actually tootling down the road in downtown Fairfax. It's funny to watch people get out of the way and watch it go by and they're like, "What in the world. What just happened?" I think this holds some promise. Delivery has shown a lot of value for Uber over the past couple of years. It is a money loser. This could certainly help that cause. But I think that this is something that would be very location-specific. There are places where it just didn't make sense. Part of the challenge is figuring out where it ultimately makes sense. But it's also, I think it's in line with their approach when you think about what Uber does. I'd like to think of Uber and I think of transportation as the hub. What they do is transportation. That's the center of everything that they do. Then the spokes or all of the different ways that they utilize that transportation network, all the different things that they try.
You see things like high-capacity vehicles in lieu of buses. You see them partnering with Avis to create Uber valet as an alternative to your traditional rental car. You see them even piloting person-to-person rental cars as a potential offering for the business down the line. Will they all work? No. Some of these bets won't pay off, but some of them will work. They won't on their own all necessarily have the greatest impact, but together they do ultimately strengthen Uber's network and value proposition. Like we were talking about earlier today in the production meeting, Uber has hit this status where it needs to exist. If Uber went away tomorrow, that would really disrupt a lot of people's routines and lives, convenience and otherwise. I am a big fan of what Uber is doing, and I think this is something that has the opportunity, or the potential at least to pay off. I think the big challenge is figuring out where it works best.
Emily Flippen: This is so dangerous because the only thing keeping me from ordering pizza and wings at 10:00 PM on a Friday night is just the disappointment in the delivery person's eyes when I come out of my apartment and [laughs] they have to look at me in my pj's. That judgment, it contributes to my purchasing decisions. But in all seriousness, this actually could be a game changer for Uber. You can probably playback Motley Fool Money radio shows where we sat here making fun of Uber's lack of profitability. Saying the only thing that can make them profitable is driverless cars. That reality could be coming faster than any of us gave it credit for.
Chris Hill: Let's go to our man behind the glass, Dan Boyd. Dan, do you have thoughts on this?
Dan Boyd: I have a question. How does self-driving delivery work? Do I have to leave my house to go down to the curb to remove the food I ordered from the car? It's not coming up to my door, is it?
Jason Moser: Now you'd have to assume it's either dropping it off at the front of your driveway or at the front of your building if you're in an apartment, so there is a level of work that the person will have to do, I would assume.
Dan Boyd: Corollary, what's stopping the rampaging youths in my neighborhood, [laughs] from knocking over the little delivery vehicle and stealing my panera?
Chris Hill: Security absolutely is an issue here, but I'm assuming that the folks in Nuro have figured this part-out.
Dan Boyd: I'd imagine they've installed cameras on those puppies.
Chris Hill: Let's get to the stocks on our radar, Dan will hit you with a question, Emily, you're up first. What are you looking at this week?
Emily Flippen: I look at Casey's General Stores, the ticker is CASY, they had a lackluster quarter with both revenue and earnings mildly missing expectation and growth was fueled by the price of gas, which is probably going to be pressured next quarter as that continues to come down. For context, the average price per gallon in the quarter was a 52 percent increase compared to this time last year. But even with that pullback in consumer spending, I think Casey's is still impressive. They grew their inside sales, so that's sales happening outside of their gas pumps by nine percent in the quarter. Again for the second quarter in a row, pizza and breakfast sales are really strong. While I'm personally not a big fan of breakfast pizza, of which Casey sells a decent amount of. If Mid-westerners like egg on their slices, who am I as an investor to judge?
Chris Hill: Dan, question about Casey's General Stores?
Dan Boyd: What the heck store is this? We're talking gas, we're talking breakfast, we're talking pizza, and I'm guessing there's probably dry goods involved as well.
Emily Flippen: There are, they do decent number of grocery sales as well for the Texans out there. You can imagine this like a Buc-ee's or Circle K. For the people from Pennsylvania, it's Sheetz or a Wawa? I think it's like all of those except for if I'm 100 percent honest, slightly worse.
Dan Boyd: Forget Amazon, Casey's is the everything store.
Chris Hill: Jason Moser, what are you looking at this week?
Jason Moser: Just taking a look at McCormick. If folks are paying attention, they would have seen that McCormick pre-announced third-quarter results this week and updated their outlook due to moderation of consumption trends earlier-than-expected, Chris. I think that just means that maybe people are going out a little bit more and cooking at home a little bit less, which makes sense. I think the world's opened backup and most people have moved on. Now that said, it's not a business that's in peril, they ratcheted down guidance just a touch. They expect 2022 sales growth of 3-5 percent versus 5-7 percent before they're projecting their gross profit margin to decline 280-330 basis-points versus 150-200 basis points from before. All things considered. Nothing really concerning in regard to the business. You have to understand why you own this stock. You own it for it's income generating potential because it's a dividend aristocrat. Capital gains are secondary for holding a company like this. As long as it's not something that is challenging to the actual business itself, I don't think there's really anything to see here.
Chris Hill: Dan?
Dan Boyd: I appreciate the rueful tone Jason employed at the beginning of this radar stocks here because once again, he's going back to the McCormick. Well, this is the type of guy you see him in the office, you say, "Hey, Jason, how's its go?" and he says immediately, "Hey, did you hear about McCormick?"
Jason Moser: Well, listeners know I have an affinity for it and that'll probably never change. But you know, when you cook like I do, hey, listen, you love the companies that give you the tools.
Chris Hill: What do you want to add to your watch list, Dan?
Dan Boyd: I'm genuinely curious about Casey's General Stores. I've never seen one, I've never been to one. I have to go now.
Chris Hill: Road trip. Emily Flippen, Jason Moser. Thanks for being here.
Emily Flippen: Thanks, Chris.
Chris Hill: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you next time.