In this podcast, Motley Fool senior analysts Ron Gross and Jason Moser discuss:
- Another interest rate hike and a surprising jobs report.
- Apple's first sales drop since 2019.
- Guidance overshadowing Amazon's holiday quarter.
- Starbucks struggling outside the U.S.
- The latest from Alphabet, Meta Platforms, ExxonMobil, and AMD.
- McDonald's ending the fiscal year on a high note.
- Match Group's disappointing results and layoff announcement.
- The latest from Qualcomm, Peloton, and Snap.
- Two stocks on their radar: Kinsale Capital Group and Samsara.
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.
This video was recorded on February 03, 2023.
Chris Hill: When earning season heats up, it's a safe bet. We're talking about something you own shares of. Motley Fool Money starts now. Everybody needs money, that's why they call it money. From Fool Global headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show, I'm Chris Hill. Joining me at the virtual roundtable, Motley Fool Senior Analysts: Jason Moser and Ron Gross. Good to see you as always, gentlemen.
Jason Moser: Hey.
Ron Gross: Hey, Chris.
Chris Hill: Its Earnings Palooza. We've got so many big earnings stories, we don't have time for a guest this week. But as always, we do have a couple of stocks on our radar. We begin with the big macro. On Wednesday, the Federal Reserve announced an interest rate hike of 0.25% as many expected, but the big surprise came Friday morning with the jobs report of more than 500,000 added in January, more than double what economists had expected. The unemployment rate fell to 3.4%. Ron, the last time unemployment was this low. Moser wasn't even alive. But yet we were.
Ron Gross: That's why you wanted to know what year I was born.
Chris Hill: 1969 is the last time unemployment was this low, Ron.
Ron Gross: Oh my goodness. There's a lot to unpack here. First, the market rallied significantly on the basis-point day. It wasn't because the Fed only raised 25 basis points, it was more about the press conference that Chairman Powell held afterward. It was filled with commentary about how inflation actually was coming down. The labor market remains strong. In fact, Powell actually called the labor market "out of balance". We saw that on Friday morning, as you mentioned, with the strong jobs report and a 3.4% unemployment rate. Wages also continued to increase, which is good for individuals, but that wage inflation is something that the Fed is actually worried about, so it's something to keep an eye on.
Powell said that the Fed would remain diligent, they still see more hikes to get down to their 2% target, but that they would adjust that thinking based on new data that comes out. He was saying some things that seemed rather docile and investors started to like what they heard. In fact, I think investors started to believe that a soft landing is actually possible here, especially when Powell used the word disinflation, which got everyone all excited and we saw the market really pop. We'll see if this strong job market causes the Fed to feel they have to keep their foot on the gas, or as some are predicting, actually rates continue to slow in their increasing, in their growth, and maybe even start to come down, which would be exciting for the markets.
Chris Hill: We'll start the earnings with AAA, Alphabet, Amazon. But up first is Apple. First-quarter revenue fell 5%. It was Apple's first year-over-year sales drop since 2019. A surprising bright spot was iPad sales coming in much higher than expected during the holidays. Jason, what stood out to you?
Jason Moser: A nice whole turn of events here from the aftermarket yesterday to the market today. It's being received a little bit more positively. I think it's very easy to harp on the narrative that this was the first miss in a long time. I get that, but you consider the nature of the challenges the business is dealing with and you understand this is not unique to Apple. I think the market's reaction starts to make a lot more sense. Especially in this case, when you think about ultimately this is really more about sales that are being pushed out as opposed to being gone forever. iPhones were the big story, revenue came in at $65.8 billion for the quarter that was down 8% from a year ago.
On a constant currency basis, however, it's worth noting that was flat, so there are currency impacts that a lot of these businesses are feeling right now. But the performance was really due to supply chain constraints in China and just the greater macroeconomic environment. Mac revenue, that came in at $7.7 billion, down from $10.9 billion a year ago. iPad was a bright spot with revenue up 30%. That is partly due to just an easy comp. They were dealing with supply chain issues a year ago, that crimped that iPad business, so they were able to get past that this year. But I think that also speaks to the challenges that they're dealing with in phones today and why it's reasonable to expect that to pick back up.
Wearables, home accessories, $13.5 billion, that was down 8%. Services up modestly from a year ago, $20.8 billion this year. They now have more than two billion active devices. That was double what it was just seven years ago. They have 935 million paid subscriptions, they don't see things getting a heck of a lot better in the immediate near-term, but we will see things improve as the back half of the year approaches. The stock right now valued around 25 times full-year estimates. They've grown earnings around 22% annualized over the last five years. I can think of worse places to have your money.
Chris Hill: Amazon's revenue in the holiday quarter came in at $149 billion higher than Wall Street was expecting, but guidance for the first quarter was light and that sent shares of Amazon down a bit on Friday. It was still a good week for the stock though, Ron?
Ron Gross: Yes. But you really nailed it when you say the report was OK and overall revenue was OK. The guidance was weak and Cloud revenue was weak. I think that has some people shaking their heads a little bit. Overall, the report was relatively solid with sales up about 9%, 12% if we remove the impact of foreign exchange rates, which you're going to hear from every global company, so it's almost not worth talking about, because it ends up coming out in the wash, but the strong dollar is having an impact on a lot of these companies.
North America sales were up 13%, International were up 8%. Now the Cloud business, AWS was up 20%. This is a miss that I think investors will focus on as they did by the way when Microsoft reported. Microsoft wanted to rebound and move even higher along with the rest of the tech space, but I think that's certainly what investors will focus on. The core e-commerce business was actually down 2%. But the third-party seller business which accounts for 59% of products sold was up 20%.
Prime continues to get new members, but I think most are seeing that as a very slow-growth business right now, although it is one with really high margins, operating income was down 21%, lots of charges in their net income also impacted by a $2.3 billion charge for the investment in Rivian Automotive. Guidance was somewhat lackluster, expect growth between 4-8% in net sales. I think that's mostly what people are focusing on. I remain a shareholder of Amazon, I have no desire to trim those holdings. But they've got to get on the expense reduction train. Laying off 18,000 people, for example, is certainly a good start.
Chris Hill: Similar to Amazon shares of Alphabet up this week despite fourth-quarter results that were lower than expected, overall revenue grew just 1%. Not surprisingly, Jason, Alphabet taking a charge of around $2 billion related to the layoffs that it announced.
Jason Moser: Yeah, I think the market's reaction to this one is about right, fairly muted in the grand scheme of things. When you look at the degree of the misses here, I know again, you're going to see the focus and the headlines on miss, miss, miss. These misses were very modest. They're dealing with the headwinds in the greater ad space, that's no secret either. I'm not terribly worried, I mean, this is less about Alphabet, the business, and more about the state of the actual market it serves. That I think is something that just is a bit more short-term in nature.
But you look at the numbers, revenue is $76 billion, it was basically flat from a year ago. But again, like Ron was saying, you exclude this currency effects that grew 7%. Just keep that in mind. Earnings per share of $1.05 versus 153 a year ago. Google Cloud, a very strong performance here. A quarter-full revenue up 32%, still running at an operating loss, $480 million for the quarter. Youtube ad revenue of $8 billion was up 8%. You look at the business overall though, I think a lot of these businesses are focused on efficiency and cutting costs, operating expenses for the company were up 10%, operating income down 17%, but the narrative on the call again really focusing on cutting those costs, whittling down that workforce over the year here.
We've seen Google with many other names in the space, cutting those workforces so that's something I think will continue to be a theme throughout the rest of the year. Probably the big question here as of late is regarding AI, the threat that ChatGPT poses. Pichai was quick to note they viewed Google as an AI-first company going all the way back six years now, and they continue to invest in that capability. But it does feel like AI is going to be more front and center as it becomes a bigger business opportunity for so many companies out there.
Chris Hill: Coming up after the break, we've got a decaffeinated Starbucks, a suddenly hot tech stock, and a couple of big buyback plans. It pays to listen. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Jason Moser and Ron Gross. The good news for Starbucks shareholders is that first-quarter same-store sales in the US rose 10%. The bad news is that same-store sales for the rest of the planet fell 13%. Ron, China is a huge growth opportunity for Starbucks but when things don't go well in China, it hurts the overall results.
Ron Gross: Yes, this whole report really is China focused. If you project China getting back to even somewhat normal, these numbers would change significantly, but we have to operate with the data we have, and as you say, there were some good things. Total net revenue up 8%, that's pretty good, comp stores sales up globally 5%, but as you said, 10% in the US and that's good. That was driven by a 9% increase in average ticket and then 1% increase in comparable transactions. International comps down 13%, China comps down 29%. The country wasn't really even open for lack of a better word for a long period of time here, so what are you going to do? You have to operate with the environment you're given.
International comps were actually up double digits if you exclude China, that's just an indication, operating margins were down, you have higher labor costs, store wages and benefit costs commodity and still supplying chain costs in there. We did have some price increases in North America to help offset that adjusted earnings up 4%, the loyalty program is still doing well opening new stores trading at 30 times forward earnings. But that's because earnings are depressed because of China, if we adjust for that, I think it comes down a little bit more reasonable, but the company really does have to execute.
Chris Hill: They do and I'm already thinking about 12 months from now, what an easy comp they're going to have in terms of same-store sales in China.
Ron Gross: They better put up the numbers absolutely.
Chris Hill: From Starbucks to the social network Meta platforms, fourth-quarter revenue was higher than expected and the company announced a $40 billion share buyback plan. Shares of Meta platforms up more than 25% this week, Jason.
Jason Moser: Boy, oh, boy, is the market picking up what they're putting down, Chris? It was a respectable quarter to be sure but as Zuckerberg said on the call, 2023 is the year of efficiency and that is what Wall Street wanted to hear. Business wise, yeah, like I said, it was an acceptable quarter revenue down 4%, up 2% excluding those currency impacts. Total expenses grew 22%, now that includes some charges related to restructuring that hopefully should be onetime in nature. Again much like Google, the challenges in the greater Adspace remain, you look to snaps report, which we'll talk about in just a little bit.
But I don't look at this necessarily as a bad thing for Meta, in an environment where budgets are tight, businesses are going to spend on what they know works. They know that Facebook and it's properties, they know Google and it's properties, they know those work there a bit more certain in an uncertain world. It at least gives these companies an opportunity to tread water while the greater market is witnessing some headwinds. Reality Labs unit of course is going to be the big point of focus here, that's the home to the Metaverse ambitions lost $4.28 billion in the quarter back to the repurchase plan.
They repurchased a total of almost $28 billion in shares for the full-year 2022, they announced a $40 billion increase, obviously that's going to be received very well, particularly as it brings the share count down modestly. But again, back to the theme of the year is efficiency, they're focused on making an investments in AI in the near-term, Metaverses becoming that longer-term vision. I think we heard a lot of focus on the call to about monetizing reels for all of the positive response they're getting to reels from the user perspective, the monetization levels still isn't up to par with his other features.
They're going to be working on that here in the coming year, rightsizing the business, obviously head count, which grew 20%, that was not reflective of the 13% of the workforce they're cutting. I suspect we probably will see some more cuts as the year goes on, but the business is around 23 times full-to-full-year estimates and this is a company that's grown earnings, it did 15% annually realized for the last five years. The market is clearly looking at this business with a bit more of a glass-half-full perspective today.
Chris Hill: It makes sense that shares of ExxonMobil are close to an all-time high when you realize fourth-quarter profits came in at nearly $13 billion, wrapping up a fiscal year so profitable that only Apple and Microsoft ranked higher than ExxonMobil in terms of overall profits for 2022, Ron.
Ron Gross: Shares up 80% in 2022, great for shareholders. Yes, The White House not so much just a little, look you've got some things to say there but in the fourth quarter, ExxonMobil made about $14 billion in profit up 60%, excluding one-time events, those are big numbers. But you know what, that was actually a little bit below analysts expectations, even those big numbers and lower than their results in the third quarter, it's not like the stock really jumped on the news. Their net profit margin is back to around 14% in total for 2022.
If you look back two days, maybe 2012 around that area, they were only about 10%. The company has really made a nice gain attaching themselves to lucrative projects like Indiana, the Permian Basin, they increased capacity in Texas by 250 barrels per day. They're really making investments in areas that they think will drive their business forward and the return on capital reached 25% for the year, that's their highest annual rate since 2012.
But they're spending money CapEx 7.5 billion in the fourth quarter for the full year, almost $23 billion. Share buybacks was something disappointing to investors off the heels of Chevron saying they would potentially buy back up to $75 billion of stock, Exxon holding the line there, I think that was disappointing. You got the stock trading at 10 times earnings, Chevron's 11 times earnings, these are not gangbuster growth companies here, but they are putting up significant profits. If you want energy exposure in this part of the energy market, not a bad company to own.
Chris Hill: I'm shaking my head at investors, disappointed that the buyback plan for ExxonMobil is only $35 billion, how disappointing. On last week's show, we talked about how chipmaker Intel is struggling, but that was not the case this week with rival chipmaker, AMD. Fourth-quarter profits in revenue came in higher than expected for AMD and CEO Lisa Su said she is confident in her company's ability to grow their market share this year, Jason.
Jason Moser: Yeah, absolutely. AMD is a different business to an extent now with the Xilinx acquisition fully closed and becoming a meaningful contributor to the business. No surprise, PC demand remains soft, but the company's broad portfolio and diversity of revenue streams continues to help, because if you look at the numbers, I think that shows what I'm talking about here. Your revenue was up 16% for the quarter of $5.6 billion, there were strong performance in there embedded in their data centers segments. Non-GAAP gross margin, 51% operating income $1.3 billion, and ultimately earnings per share were down 25% and that was ultimately due to lower client operating income, thanks to that PC weakness that I mentioned.
Not only PC weakness, the gaming segment of the business was a point of weakness, but you flip the other side of the coin, there are strengths that are embedded in data center with tailwinds that we've been seeing in these spaces as the hyperscalers continued to invest in their Cloud offerings, AMD is a big beneficiary of that. You are looking forward to 2023 and management does expect the headwinds to continue over the first half of the year, but we should start seeing things change here in the back half, we'll keep an eye on that. They do believe that the PC market will remain challenged, they're calling for it to fall about 10% this year, but CEO Lisa Su sees AI, as just one of the company's biggest market opportunities in the coming years. Again, back to that AI theme. Will we stop? We won't stop, because we are cyberpunk using random access memory lane.
Chris Hill: Earnings- palooza rolls on after the break, so stay right here. You're listening to Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money, Chris Hill here with Jason Moser and Ron Gross, its Earnings-palooza this week. Strong end of the fiscal year for McDonald's, fourth-quarter profits in revenue were higher than expected, but shares of McDonald's down a bit because CEO Chris Kempczinski said the company expects inflation pressure to continue this year. Ron.
Ron Gross: Yeah, that guidance didn't really please some investors, but as you say, stocks only up 6% from the 52-week high, it's been really strong since early October of last year. If we look at some of the data that came in, global same-store sales up almost 13%, thanks to things like adult Happy Meals, higher menu prices really impacting the business. Revenue to McDonald's was actually down 1% from a year earlier, up 5% if we account for the effects of currency, once again, talking about currency. McDonald's said that it's US prices were up by an average of 10% last year compared with 2021, but the company interestingly is asking franchises to not raise prices too quickly, they think that could be a mistake if they go too aggressive on pricing.
Operating margins were weaker than expected on higher-cost for food, ingredients, fuel and labor. Interesting that food and ingredients are not the same thing. That makes me a little wary about getting at McDonald's, but you do you. Adjusted operating income of five percent stock was weak on management's comments about inflation as you noted. They still expect a mild recession in the US, deeper recession and a longer one in Europe. Actually, we'll see if that bears out there pushing big into new store openings, planned to open 1,900 restaurants globally. Testing out a to-go only restaurant in Texas, which provides no public seating and uses a conveyor belt to deliver food. Interesting to keep an eye on that, 2.3 percent yield trading and only 25 times McDonald's looks pretty good to me.
Chris Hill: Drop an email to [email protected]. Any of the dozens of listeners in Texas who want to do some boots on the ground research at that new location and email us their experience. One quick thing Ron, since we touched on this with Starbucks in the previous segment, global same-store sales for McDonald's, 12.5 percent. That is just so strong in a quarter when it wasn't like everything was perfect.
Ron Gross: No, it's the value proposition. Also, as I said, some of the things they're doing to their menus to keep the pricing really attractive, to keep people coming in the door, which can have an impact on margins, but it's great for the top line.
Chris Hill: Qualcomm's first-quarter revenue fell 12 percent. The software and chipmaker company also guided for an even bigger drop in revenue in the second quarter and yet Jason, shares of Qualcomm still up a bit this week. What's going on?
Jason Moser: It's again, the market being so forward-looking. None of this stuff is a secret, and we start looking more toward the back half of the year, hoping for a little bit more productivity from these companies. But at much like AMD, this was a respectable quarter and the results fell well within the guidance management set a quarter ago. But but the near-term headwinds remain for now and I think the businesses coping well. It's very funny when you look at Qualcomm and AMD together over the last year, there returns essentially mimic each other. I think that just speaks more broadly to the challenges that we're seeing in the chip space. But the numbers look pretty good.
The revenue, $9.5 billion, that was down 12 percent from a year ago, earnings down 27 percent. I know that doesn't sound good, but again, this was well within guidance that was set. As long as you're meeting that bar, I think that's important. They are seeing a contraction in both the technology segment and the licensing business. But the tech segment was the segment that felt more of the pressure on the bottom line, this quarter's operating income fell 30 percent and part of that is due to, again, going back to Apple, the handset challenges. The handsets were down 18 percent for the quarter. That really lines up with a lot of the language that we've been seeing in the space.
The good news is automotive segment was up 58 percent and the Internet of Things, IoT division was up seven percent with strong contribution from edge networking. They're getting positive response from their Snapdragon and eight Gen 2 mobile platform incorporating more AI into their technology for smartphones. We talk about the diversity of revenue that this company benefits from. But they view IoT, the Internet of Things opportunity. They see that is poised to become their largest market opportunity here in the coming years. Makes sense to a degree when we're talking about all of these connected devices, hey, more devices is better for a company like Qualcomm.
But they're setting the table for continued handset weakness into 2023. Keeping expectations in-check there. I think always worth checking for any mention of Apple on the call with a company like this. That's always a soap opera with Qualcomm, but no mention of Apple on the call as they noted last quarter the relationships in a good place for now. They expect to have a vast majority of the share of the 5G modems for iPhones in 2023. They'll start weaning off that Apple revenue stream by 2025. But it is worth noting too they will continue to benefit from royalties for patents involved with the technology so they won't completely cut off that Apple revenue stream.
Chris Hill: Peloton's second-quarter revenue came in higher-than-expected. CEO Barry McCarthy called the results a possible turning point for the fitness company. Ron, expectations could hardly have been lower for this business, and yet over the past month shares of Peloton have doubled.
Ron Gross: Chris, there is a business here. It got way ahead of itself during the pandemic, both from a business perspective and certainly from a stock perspective. But if they can do a reset, bring the company back to being one that is reasonably sized relative to the revenue it generates then I think it can move forward. Subscription business is a high-margin business. The trick is to retain members, grow the member count. Now as someone who canceled their subscription within the last two weeks, I remain a little bit skeptical, but I'm probably one of those pandemics subscribers that under normal circumstances would have never subscribed in the first place.
You get rid of people like me, you properly size the business, you move forward for the quarter, a 30 percent decline in sales, a loss for the quarter. If you strip out some onetime charges, they actually had positive free cash flow of about eight million dollars. They're doing everything from putting in a new CEO, revamping the executive suite, making revenue come more from subscriptions than equipment, laid off half of their workforce. They're doing the things they need to do to right size this business. To it's to me it's too risky to jump in. We're going to have to keep an eye on this quarter-by-quarter.
Jason Moser: They brought on Leslie Berland from Twitter as their Chief Marketing Officer. I think that was a good move. She's a very talented young executive.
Chris Hill: Real quick Ron. We're coming up on the one-year anniversary of McCarthy becoming CEO. At the time there were questions. Is McCarthy coming in just to organize a sale of this business? The stock for as hot as it's been over the past month, it's still, this is a business that's worth about 30 percent less than it was a year ago. Do you see that as a potential outcome for Peloton in the next couple of years that some larger company comes in and buys them?
Ron Gross: Yes. It would have been cheaper to do a year ago, but the business was such in flux. It would have been very risky for a company to come in and do that. If they can get themselves to the right size where they're consistently generating positive cash flow, then it makes it easier for a larger company to come in and properly value it and see what it can bring to the table, and so then I do think that remains on the table a potential acquisition, yes.
Chris Hill: Fourth-quarter revenue for Snap was a bit lower-than-expected as was average revenue per user. Despite the fact that the social media company is still not offering official guidance, shares of Snap are holding in there this week, Jason?
Jason Moser: Yeah, they are hanging in there. I continue to try to keep an open mind regarding Snap because of its investments in augmented reality. But it seems clear that things are going to get worse here before they get better. That really is, if they get better. They are of course, dealing with challenges in the greater ad space. That aside. This is still a business really trying to find its way in a very competitive environment. Good news, users are using the platform daily active users were at 375 million at the end of year. That was up 17 percent from a year ago. Bad news revenue for the quarter of $1.3 billion.
That was flat from a year ago. They made this investment in Snapchat plus that subscription offering that gives users advanced access to features and content. They got two million subs now there. Now. Now you math that out at 399 per month, you get a run rate of around $100 million a year, which is something, but in the context of this business, it's not enough. Then further, when you look at the financials, stock-based compensation up 50 percent from a year ago, so when they say they're operating cashflow positive, that maybe so, but you account for that stock-based compensation, things start to change a little bit and it's still 30 percent of total revenue. You got to take this with a big grain.
They should be passed this by now. We've seen this before. This was an ongoing problem with Twitter. Snap needs to fix this if they want to be taken seriously, I think by investors as a real long-term opportunity. Back to your point, there are no guidance for the quarter they did note sales were already down. Their forecasts are calling for sales down anywhere from 2-10 percent for the quarter. Obviously not very good. An interesting wildcard just to keep in mind for a business like this. If TikTok is actually banned here in the states, that is a net win for Snap. The only problem there is that you got to hope for something like that, and you know what they say, Chris, hope ain't a strategy.
Chris Hill: No, but I'm glad you mentioned that because we talked before about Google and Facebook and this is the one thing they have in common with Snap. Both of those businesses would love to see Snap go away altogether, but the one thing that unites them is all three benefit if TikTok is banned in some significant way in the United States.
Jason Moser: Most definitely.
Chris Hill: Match Group's fourth quarter revenue came in lower than expected. The online dating company also lowered guidance for the first quarter and announced it would be laying off eight percent of employees. Shares of Match Group got off to a hot start for the year Ron, but cooled down a bit after this report.
Ron Gross: Absolutely now down to almost 60 percent from its 52-week highs. Still a $14 billion company though. But this was not a great report, really weakness from Tinder being the highlight and again, foreign currency revenue down two percent. Its first ever quarterly revenue decline. Payers are down by one percent. Revenue per payer, RPP, if you will, declined one percent. The all-important Tinder segment had revenue that was basically flat, which was disappointing. All the other brands saw a five percent revenue decline. Nothing really to sync your teeth into here rather, lackluster, adjusted operating income was down two percent. Bernard Kim was named CEO in early 2022 is tasked with reaccelerating the company's growth.
One example, Tinder, will be launching its first global marketing campaign in the current quarter. That's obviously expensive, but they feel it's worth it to try to revive that business, but that's going to take some time and as you said, they're cutting costs at the same time, laying off about eight percent of the workforce, that's about 200 people. Operating margins and first-quarter revenue guidance were weaker than it had hoped for, but they did reaffirm their 2023 revenue guidance of 5-10 percent growth. Trading at 18 times, Bumble's at a weird 60 times, so relative to that looks OK, but they've got to get Tinder back on track to make this an interesting story for investors.
Chris Hill: How is it that this business and Match Group, let's be clear, it is the dominant company when it comes to online dating, how is it that this dominant player doesn't really have better pricing power?
Ron Gross: They do have some pricing power. They're not the only game in town, but they certainly are the big kahuna here. Hinge is their bright spot at the moment which is focused on longer-term relationships, that was up actually 30 percent for the quarter. They have some areas that appear to be bright spots, but they've needed to get the whole company, especially Tinder back on track.
Chris Hill: Well, certainly if they're planning a big digital ad spend, companies like Snap and Alphabet are going to be happy about that along with metal platform.
Ron Gross: Yeah, for sure.
Chris Hill: We've got a big lineup plan for next week, a sneak preview of that right after the break, along with a couple of stocks on our radar. 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 with Jason Moser and Ron Gross. You can hear Motley Fool Money every weekend on radio stations across America, and you can listen to new episodes seven days a week on your favorite podcast app Stitcher, Spotify, iHeart, Apple podcasts, and more.
If you're not already following this show on one of those apps, you should, because it just takes one click of a button. Starting on Sunday, we're going to have an entire week of shows tied to Super Bowl 57. We're going to be digging into the business of betting on the game, advertising during the game, and it all kicks off this Sunday with our special guest, Dominic Foxworth of ESPN. Do yourself favor, take 30 seconds, find Motley Fool Money on your favorite podcast app so you don't miss a single episode. Jason, Ron, you're both handy in the kitchen, have you started planning your meal? I know we're more than a week out, but have you started planning your meal for what you're going to be doing on the big game?
Ron Gross: I haven't figured it out yet but I think you've got something special planned.
Jason Moser: Yeah. Well, I'm throwing a shoulder on the trigger, I'm going to cook that bad boil day. We're going to be having some pulled pork nachos with some homemade CAISO.
Ron Gross: Shoulder on the trigger, I don't know, does shoulder on the trigger an appetizing?
Jason Moser: The shoulder on the trigger.
Chris Hill: Just let me Ron know what time we should be over and we'll be there for the nachos.
Ron Gross: The invitation is always open. Rick, you too.
Chris Hill: Let's get to the stocks on our radar, our man behind the glass, Rick Engdahl is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week?
Ron Gross: I am looking at Kinsale Capital Group, KNSL, a specialty insurance carrier that provides excess and surplus, that's E&S coverage for a wide variety of unusual risks that go beyond traditional insurance. They offer insurance for small businesses, construction companies out of the norm, operators like cannabis cultivators and retailers in the entertainment space, motorsports, equestrian shows, firearm competitions. Because these insurance write unique policies, they can achieve usually lower loss ratios and higher-margins than the broader industry.
For example, Kinsale has a best-in-class combined ratio of 82 percent, and the industry average is more like around 94 percent, and they have proprietary data-driven underwriting technology that helps them achieve this. The space is fragmented. You've got some big players like Lloyd's of London, Berkshire Hathaway, AIG, and longtime Fool favorite Markel, but they are really only about a third of the market Kinsales only one percent of the market. I think because of that fragmentation, they have lots of room to grow, but trading at 34 times earnings versus Markel at 16 times, so I need to dig in there and see why there is a discrepancy in terms of valuation.
Chris Hill: The sexy world of specialty insurance. Rick, do you have a question about Kinsale Capital Group?
Rick Engdahl: Well, I had the good fortune to get a chance to visit Kinsale last summer, which is a beautiful little town in Southern Ireland, and I noticed that James Fort, which sits up above the town, the wall is very impressive, but there's no active cannons. I'm just wondering about the security. Is this company safe?
Ron Gross: I think this company has fled too safe but thank you for asking.
Rick Engdahl: It's gone with dark place man.
Chris Hill: Jason Moser, what's on your radar this week?
Jason Moser: Yeah. Company called Samsara, the ticker is IoT. This is an Internet of Things play, so you could say that the ticker is quite fitting, but Samsara has a business that's built something called the connected operations Cloud. This is a software platform that connects all of the IoT devices that a accompany may have in their buildings, equipment, cars, and other facilities, and it provides services to these companies looking to do more with this data. These services helped companies work better, save money, be more efficient, enhanced safety, and more.
Samsara sales these services to all companies, big and small. It's a subscription offering, and those subscriptions typically last anywhere from 3-5 years, so the relationships are a little bit longer. I think that bodes well for the business personally. It is a founder-led and controlled company that of course has its puts and takes. Interesting to note as well, Andreessen Horowitz owns a good slug of the company here in marquee entries and actually sits on the board, so take that for what it's worth.
Chris Hill: Rick, question about Samsara?
Rick Engdahl: Jason, you always pick these companies to just I start to lose focus. But I do look at the website, I saw that they have a lot to do with technology and tracking and stuff like that and I'm just wondering, what's the matter with CB radios? I miss CB radios. Would you say that this company is the rubber duck of tracking technology?
Ron Gross: Breaker 19.
Jason Moser: You make me think a smokey and abandoned here, Rick. Man, I'm on the cutting edge. This is all about the Internet and the capabilities that connectivity offers far better connectivity.
Rick Engdahl: You got to go run in the market and pick them up, truck on them, fancy side banned get for on the floor and they would.
Chris Hill: I don't even need to ask. I think we have our answer. Jason Moser, Ron Gross. Guys, thanks for being here.
Ron Gross: Thanks.
Jason Moser: Thank you.
Chris Hill: That's going to do it for this week's Motley Fool Money Radio Show. We'll see you next time.
