Big Companies Are Winning This Earnings Season

In this podcast, Motley Fool senior analysts Matt Argersinger and Jason Moser discuss:

• Amazon's impressive first-quarter revenue and the questions that remain about Amazon Web Services (AWS).
• Alphabet's $70 billion share buyback plan (and first-quarter results).
• How Visa and Mastercard beat Wall Street's expectations and provided insight into consumer spending.
• The latest from Microsoft, Meta Platforms, and Chipotle.
• UPS, advice for NFL draftees, and two stocks on their radar: Activision Blizzard and Cloudflare.

Motley Fool senior analyst Tim Beyers talks with Jay Chaudhry, CEO of the cloud cybersecurity company Zscaler, about "zero trust" security, under-the-radar threats, and Zscaler's growing opportunity in federal government contracting.

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 April 28, 2023.

Dylan Lewis: We've got earnings from Big Tech and an insider's look at cybersecurity. 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 Dylan Lewis, sitting in for Chris Hill, and joining me in the studio are Motley Fool Senior Analysts Jason Moser and Matt Argersinger. Great to have you all here.

Jason Moser: Hey, Dylan.

Dylan Lewis: We have earnings from Big Tech, Big Payments, and Big Burrito; thoughts on the state of cybersecurity from Zscaler's Jay Chaudhry; and, of course, stocks on our radar. Before we dig into the latest earnings results, I want to ask you both broadly: We're about halfway through earnings season. We've seen big company reports. Matt, how are you feeling about what we're seeing so far?

Matt Argersinger: You said the word Dylan: big. I think [laughs] that works for this earnings season. It seems like the bigger you are -- whether it's social media, technology, banking, or the big one, the big companies are winning this earnings season. They've got the right balance sheets. They've got the customer retention. You're seeing a lot of smaller companies either having liquidity issues or other customer spending slowdown problems. That's where damage's being laid. It always helps to be big, but just for this earnings season in particular, it feels like the bigger companies just have a much bigger advantage. Jason, what about you?

Jason Moser: No doubt. I fully agree there. It does seem like we're starting to see really the beginning of the end here, so to speak, as far as this move to a recession. We've been talking over the last year, year-and-a-half is a recession, when is it going to happen? More and more headlines. Businesses cutting their workforces. You just saw Lyft with an announcement. I think they're cutting 26% of their executive workforce or the workforce at their headquarters, and that is something that is continuing. Companies pulling back on spending. Obviously, the bigger companies are able to weather this storm more. We saw the gross domestic product (GDP) number come out this quarter. It was 1.1% growth, well below what was projected. It does seem like we are getting to a point here where those numbers are going to continue to come down. Probably not a bad thing. We've got to get to the bottom at some point so we can start climbing our way back up because it's always worth keeping that in mind.

Matt Argersinger: I'd say yeah, and it just doesn't feel like it's the most predicted recession [laughs] of all time. Like you said, Jason, we've been talking about this for months, and it's just like, can we get there already? But earnings have held up. I'd say my other big takeaway, I think, is earnings have held up a little bit better than I thought they would. I thought we'd see a little bit more of a slowdown. I thought guidance would be a lot weaker than it is across the board, and it doesn't seem like it's been that way.

Dylan Lewis: Well, you mentioned big. It doesn't get much bigger than Microsoft. Shares of the company are up almost 10% this week, and earnings certainly played a role. The company reported top-line growth of 7% ahead of expectations, and the company's Azure Cloud segment grew 27% for the quarter. Jason, that came in line with expectations, but it's the lowest growth that the segment has posted in its history.

Jason Moser: That seems to be a theme I think we'll cover here for the show, along with another theme. [laughs] They did not miss an opportunity to highlight the investments that the company is making in AI (artificial intelligence) and how that is driving all facets of the business. We can hold that against some companies, but with other companies, it really does matter. I think, in Microsoft's case, it's legitimate. The real strength in Microsoft is they have so many facets to this business that capture a ton of share, and you really started that out there with the cloud side of the business. But the numbers, I mean, revenue of $52.9 billion, up 10%, excluding currency effects; earnings per share (EPS) of $2.45, up 14%; operating expenses up 9%. But we go to that cloud side of the business, delivering over $28 billion, up 25%, and actually saw margin improvement in there as well. But back to that point of Microsoft having so many different facets to the business that are doing so well. Office 365 commercial revenue was up 18%. They saw strong renewals. Their paid seats grew 11% to 382 million. That's a lot of seats, Matt; Teams usage, golly, we're beyond the remote stay-at-home economy. Things are getting back to normal. But what Microsoft has done so well is made Teams an integral part of the workforce wherever you may be working -- at home, in the office, or somewhere else. Teams usage is at an all-time high. They surpassed 300 million monthly active users for the quarter. Also growing their total active market opportunity. Like what Zoom's doing in building out things like Teams Phone, Teams Rooms, Teams Premium. Look out, Zoom; I think Microsoft has you square in their sites and is definitely taking some share there. LinkedIn continues to confound. Every time I log in to LinkedIn, I ask myself the question: Why did I just log in to LinkedIn? Yet, that business continues to grow, that revenue is up 10%, record engagement, more than 930 million members. They saw 19% growth in India. I would say the one spot of weakness was personal computing, and a lot of that just has to do with these inventory channels and just the challenges that we've seen in personal computing in general. But all in all, a very strong quarter, impressive business.

Dylan Lewis: I mentioned earnings were part of the story for Microsoft this week. In addition to earnings news, this week, U.K. regulators came out in opposition of the company's planned $69 billion acquisition of Activision Blizzard. Jason, I want to stick with you here. That actually seemed to boost Microsoft shares. From the Microsoft perspective, I'm curious: How should investors be processing this?

Jason Moser: Well, it seems like they're not going to be spending $70 billion anytime soon. Maybe investors think there might be something else they could do with that money. I think that probably the response to that is appropriate. I don't know that this one is dead in the water, but it sure seems like it's pretty close. And I think Matt will probably dig into that one a little bit later for us.

Dylan Lewis: Amazon reported what seemed like a strong first-quarter revenue of $127 billion and earnings of over $3 billion; both beat estimates. But an 8% jump in shares was erased when management indicated they're seeing decelerating revenue growth in AWS, the company's cloud segment. Matt, AWS is the engine that makes Amazon go. What did you see in the results?

Matt Argersinger: Talk about raining on Big Tech's parade was Amazon late in the week. The mistake, here was a mistake, Dylan, Jason, was that CFO Brian Olsavsky and Andy Jassy, collectively, only mentioned AI once in their prepared remarks. That is a no-no this earnings season, and you're only mentioning AI once. On a serious note, though, the stock did pop coming out of it. When the results first came out, it was a conference call. Dylan, you mentioned when they just started talking about AWS, Andy Jassy used the word optimize -- should've been talking about AI, but he used the word optimized, which is not a bad word necessarily, I think, when you're talking about business and efficiencies and things like that, except when you're describing customer spending on your biggest and most profitable platform, AWS. Even though AWS net sales were up 16% to $21.4 billion. Not bad, given the size and scale of that business. It's up to an annualized rate of $85 billion. By the way, Jassy did mention that a lot of its customers are evaluating their cloud spending on AWS in light of economic conditions. Hence the word optimize. That spooked investors a little bit. You also mentioned that April revenue growth rates for AWS were running about five percentage points below where they were in the first quarter. I think that probably has investors thinking, OK, what does this mean for second-quarter results when they come? Amazon is famous for having a wide range for revenue and operating income, and they do it again for the second quarter.

That's going to come into play. Going into earnings, I was actually more worried about the core e-commerce business. I think those fears were founded here because online store sales were virtually unchanged from a year ago. Maybe not unexpected, coming off a quarter in 2022 where a lot of people were at home still buying things online, but still just flat growth there was surprising. The third-party seller services are still up 18% year over year. That was more solid there. To sum up, we're seeing, I think, a fairly large deceleration in AWS, more than we thought. The company's e-commerce business is also slowing down. Unlike Alphabet and Meta, which other are companies that reported, and Microsoft. Amazon, going in, their valuation was a lot higher than those other companies; that could be also playing a role in why the stock is selling off.

Dylan Lewis: You mentioned Alphabet; shares of Google parent Alphabet are up after the company reported $70 billion in revenue and $15 billion in net income for the first quarter, beating expectations. Jason, this is a company that was able to post growth despite a decline in its ad business, thanks to growth in the cloud segment. We look at the major tech players, and we're kind of seeing different stories and slightly different states in the cloud markets.

Jason Moser: Yes. Well, I mean, it was not a bad quarter. Microsoft stole its thunder a little bit, but certainly AI [inaudible] big theme that continues to form in Big Tech, but with Alphabet, specifically, like you said, it's nice to see the cloud business continuing to gain traction. They are No. 3, right behind Amazon and Microsoft, but they are gaining traction, and it's contributing to the bottom line finally, so that's encouraging. But with revenue growth of 6%, you got to remember that's coming off of 26% from a year ago, so a significant slowdown there. EPS is $1.17 versus $1.23 from a year ago. Worth noting, they took a $2.6 billion charge on workforce and office space reductions; that helped guide operating expenses, up for the quarter by 19%, which obviously played out on the bottom line. To your point on Search. Search grew modestly but held up in a difficult environment. But we saw YouTube revenue at $6.7 billion. It was actually down 2.5%. Their other bets -- it kind of seems like a broken record here -- revenue of $288 million, operating loss of $1.2 billion.

Jason Moser: But really the story, I think, for Alphabet this quarter was the cloud revenue. Cloud revenue was up 28%, and they were able to record a $191 million operating profit. We've been saying for a while, keep an eye on this because at some point, that switch flips, and that becomes a nice tailwind for this business, much like it is for Amazon today. Now clearly, the disparity between Alphabet's cloud business and Amazon's is very significant. But this is a positive sign, and what we'll want to look for next is just, can they do it sustainably. Let's look for this to continue. I'm not necessarily sold that they will consistently do this quarter-in-quarter-out yet, given current economic conditions. But I think they're on the right path.

Dylan Lewis: One thing I think flew under the radar with this report was that so much of the focus on cloud is adding to some of the enthusiasm for Alphabet. Matt, the company authorized a $70 billion share repurchase program. I know you have some thoughts on that.

Matt Argersinger: I always have some thoughts on Alphabet's share buybacks. So yes, it's a big number -- not so big relative to the company's market cap, though about 1.3 trillion. But look, Alphabet has spent $170 billion buying back shares over the last five years, including 50 billion, by the way, in 2021 when the stock price was much higher than today. So that's roughly 13% of Alphabet's market cap. But how much has the share count come down over the last five years? About 7%. So the rest is really just offsetting Alphabet's stock option expense, which just continues to be obscenely generous, especially given today where we are with that stuff. I really wish -- and I've been saying this for, I think, at least two years, three years now -- I wish Alphabet would pay a dividend. Stop assuming you can invest at high rates of return. Most companies can't for the long term. I think they'd do much better if they just started paying dividends.

Dylan Lewis: Facebook parent Meta had good news across the board, with its report this week, revenue, income, and daily active users all came in ahead of expectations. Shares are up 13% on the report, in large part because the company was able to post year-over-year revenue growth of 3% after three straight quarters of declines. Jason, aside from the growth story returning, what else jumped out to you?

Jason Moser: The year of efficiency, and that's what this is for them. They stated it. It's off to a good start at least. And I think this is a good response to what was a respectable quarter in a stock that really has been beaten down on a multiple basis, at least, for a number of good reasons. But one of the problems, one of the tricks with Meta here is trying to understand the focus. The longer you stretch your timeline out with this business, the more pointed those questions become because there's so much uncertainty in this whole metaverse concept. As you noted, the revenue growth is very encouraging, seeing them break that streak and get back to growing the business. Costs and expenses grew 10%, and that included some restructuring costs. They saw the bottom line with earnings per share of $2.20. That was down from a year ago but beat expectations, which was encouraging. Ad impressions delivered across the entire family of apps grew 26% from a year ago; average price per ad fell 17%.

They did note some strong performance and online spending, particularly in China with targeting outside markets as things start to normalize a bit over there. So that was an encouraging sign. But really, the story with Meta beyond this, it goes to Reality Labs. It's just this big question mark right now. I was talking earlier about Alphabet and that other bet segment. That sounds bad. But then, when you look at what they're doing in Reality Labs, I mean, this is the home to the metaverse ambitions. They brought in $339 million in revenue and booked an operating loss of $4 billion for the quarter. The thing is that looks like it's just poised to continue. So as that goes on, I think these questions are just going to get more pointed. They're going to get more heated. Can you connect the dots for me and show me really how you're going to monetize this metaverse ambition? Of course, they refer to AI and how this is driving everything. They are right, to a point. I mean, that's driving the ad business today. The metaverse is the big question.

Dylan Lewis: After the break, we've got more earnings coverage with updates from Chipotle, MasterCard, and more. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Dylan Lewis sitting in for Chris Hill and here in-studio with Jason Moser and Matt Argersinger. The payments giants reported this week. Visa and MasterCard both released earnings results, and both reported top- and bottom-line beats. Mastercard registered $5.8 billion in revenue and $2.4 billion on the bottom line, while Visa posted nearly $8 billion in revenue and a net income of $4.3 billion. We've lumped these two companies together because they are helpful as a barometer of consumer spend. Before we get into some of the broader takeaways, Matt, what jumped out to you from the Visa report?

Matt Argersinger: I mean, consumers continue to spend, I think that's, of course, the theme here. I mean payments volume was up 10%. But for Visa, the cross-border volume is really impressive. If you exclude intra-Europe transactions, cross-border volume was up 32%, and that tends to be pretty profitable for them. So it'll process transactions. 50.1 billion up 12%. On a conference call, management mentioned travel spending and dining at quick-service restaurants. Those are strong, while spending at retail and fuel were holding up or flattish. We expect that with people spending less on goods again, and maybe gas prices have come down. But clearly, consumers are spending, and they're getting out there.

Dylan Lewis: Jason, what'd you see inverting MasterCard's results?

Jason Moser: I mean, what stood out on the call? They said, I quote: "Consumer spend has remained remarkably resilient." I mean, you like to see that. We're talking about potential recession here, and apparently, people are still spending money -- and the numbers bear that out. Revenue grew 15%, and adjusted operating income was up 17%. EPS of $2.80, a 4% gross dollar volume up 15%. One thing I found very impressive with MasterCard: Their acceptance footprint has now surpassed 100 million locations globally. That's effectively doubled over the last five years. So for all of this talk about MasterCard and Visa being disrupted from the process, looks like that might've been a little hyperbole, Matt.

Dylan Lewis: Credit card companies aren't going anywhere, and neither is America's love for burritos. Chipotle is up almost 15% since reporting top- and bottom-line beats. In its first-quarter results, net income nearly doubled year over year to $290 million, thanks to price increases and same-store sales coming in at almost 11%, both significantly higher than expectations. Matt, you dug into the results. What did you see?

Matt Argersinger: Well, there was no mention of AI on the conference call, I was happy to see; but no, you hit it, Dylan. Same-store sales up almost 11%. The restaurant-level margins -- wow -- up almost 500 basis points to 25.6%. That's because they had a number of menu price increases last year, in last year's first quarter, that were coming through. Lower prices for avocados in the quarter, which always helps. But I think most impressively to me was that their labor costs year over year were lower. That's not something we're seeing from a lot of companies this quarter. So labor costs were down for Chipotle. Not really because they're paying people less, just that they're scaling across a larger store footprint. Thirty-three million rewards members in the quarter, they opened 41 new stores, bringing their total store count to 3,200 as of the end of March. CEO Brian Niccol sees a pathway to 7,000 restaurants in North America long run. That's far greater than I think anyone thought several years ago. It's not going to take them long to get there. They remain on track "to grow new restaurants 8% to 10% per year for the foreseeable future."

Dylan Lewis: Jason, I know you celebrated Chipotle earnings with a trip over to the store. What did you see?

Jason Moser: Well, I tell you. What becomes very impressive is more and more, it's less about just worrying about throughput at the store. That was the big challenge for this concept early in its inception. You go in there now, and the lines are tolerable, but then you see where you go pick up your food if you order on the app. Not only are there just bags upon bags of food, but it's not just people picking up; it's all of the delivery options as well. So it's good to see that they've separated those kitchens. They've got a customer-facing line. They've got an operation behind the scenes that is really taking care of a lot of those digital orders. The digital orders continue to be a very strong side of this business. To Matt's points, they're on operational efficiencies and labor costs. I wonder about the future for a business like this. I mean, how's chippy really going to help them save on the bottom line here. They're automating their chip-making. What else can they automate? I think that's something we'll see play out a little bit more maybe in fast food proper, but with your fast casuals like Chipotle, they are incorporating certain levels of automation into their model, which is definitely helping the cause.

Dylan Lewis: Jason Moser, Matt Argersinger: Fellas, we'll see you in a little bit. But up next, we've got an insider's look at the cybersecurity industry.

Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis, sitting in for Chris Hill. Jay Chaudhry is the founder and CEO of Zscaler, a cloud cybersecurity company with a market cap of over $13 billion. While shares of Zscaler have crushed the market over the last five years, the stock has been cut in half since last fall. Motley Fool Senior Analyst Tim Byers caught up with Chaudhry to talk about the concept of zero-trust security and cybersecurity threats that are flying under the radar at the moment. Tim kicked off the conversation by asking about Zscaler's growing opportunity in government contracts.

Tim Beyers: There are a couple of key products for Zscaler -- Zscaler Internet Access, Zscaler Private Access -- and then you have a number of products built around those. The ecosystem has been expanding a bit. But there are also some additional features that are coming into both of those. And one that I think is pretty important is FedRAMP access or FedRAMP certification for Zscaler Private Access. That is pretty fascinating to me, Jay, because that's the idea of a cloud-based security product getting into the federal government for securing sensitive information. Presumably, this does feel like a pretty big deal. What can you say about this and what you've achieved there?

Jay Chaudhry: When it comes to these product portfolios, the dream from day one was to build a platform because when I talked to lots of CSOs, they were tired of point products. They said, "I got appliance fatigue, appliance overload." Since I started with a clean slate, I could reimagine security; I could reimagine the network. You can do that if you don't have legacy boxes and legacy technology to worry about. It was natural for us to expand our business into federal government. About four or five years ago, we started to go after some of these certifications. FedRAMP certification was one of the most important ones. It took us a while. I can tell you it was a bit frustrating and tiring, but it was good because once the certification got done, it opened a market for us in a federal market. Rightfully, FedRAMP requires us to make sure security is tight, it's well done, it's making sure, for example, the code gets checked in with verification by a second person. No single engineer can check in code. Because, otherwise, you could have situations like solar events where some bad code got embedded. We have gotten the highest level of FedRAMP certifications. FedRAMP has many levels. At the highest level, the only five vendors in their entire IT space, it is vendors like AWS, Microsoft; it's IBM; it's Zscaler. I'm missing a name or so. Now, what this does for us is allow two things: One, when federal employees need to access the internet or SaaS (software as a service) applications, they go through us. They used to be their own Gateway, called tech, which is centralized, sitting at one place or two places, traffic coming back to a choke point, going out, and the user experience gets bad. Cyber can't be updated as quickly as it can be done in the cloud.

The second part, which you alluded to, which gets even more exciting, is Zscaler for private access. This is private applications sitting in either government-sanctioned data centers or sitting in a public cloud and the like. We act like a switchboard and exchange that connect our user to an application, not the network, which is the fundamental difference between us and firewall- and VPN-based companies. Today, we have 12 of the 15 cabinet-level agencies as our customers. They all started small. There's a significant opportunity for us to go to the next level. When it comes to public sector -- including state, local, and education -- we have over 700 organizations that are our customers. To me, personally, while it's a good business for Zscaler, it's more than business. In today's cyber world, we all worry about national security. We worry about securing our infrastructure, securing transportation, gas-centric companies, and the like. We're doing a lot of that. I'm so glad that the Biden Administration has taken so much focus to make sure organizations really take care of implementing zero trust, and we're playing a big role in that area.

Tim Beyers: But let's follow up on that quickly. Because, just to remind folks, so Zscaler is a widely followed company at The Motley Fool, and your specialty is zero-trust architecture. The idea is that if you are going to operate inside a network, inside a cloud-based network, everywhere you go in that network, you must be continuously verified. We don't trust you. Just when you get in the door on time, we are continually verifying that you are who you say you are; you have the credentials to be here. Which does feel very important for something like a government network where you're dealing with very sensitive data. I wonder, Jay, this idea of zero trust, which you've been advocating for years -- I understand that I have listened to your conference calls and heard you bang the drum for this -- I wonder if this idea of zero trust and now finding your way into these big cabinet agencies, does that, to you, reflect the maturity of the cloud, maturity of zero trust? What do you think this signifies, or is it just, frankly, what you've been able to achieve with Zscaler?

Jay Chaudhry: It's a big change. Technology incrementally changes all the time. But every 20 to 30 years, there's a disruptive change that takes us to the next level. The network security we do today was invented 30 years ago. It's the same firewall technology. It's the same VPN technology. Yes, there are some incremental changes to it. But the zero-trust approach we pioneered when I started the company basically said we don't put people on the network; we don't do network security. Networks should be simply plumbing and transport. You really need to secure data. Data is sitting either with applications or sitting with users. We'll make sure the right user talks to the right application, the right workflow talks to the right workflow. You rightfully said, in this architecture, we are constantly verifying and checking. It starts with zero trust -- trust no one. But zero trust is a misnomer. It trusts no one; trust someone with minimal trust, you need to grant them to do a specific application. Not being on the network means this: If I come to see you at your headquarters, they're going to stop me at the reception and say, "Stop. Who are you? Show me your ID, and I'll give you a badge." That's authentication, the starting point. In the old world, they'll say, "Take this badge, go to the seventh floor, meeting room 23."

Jay Chaudhry: I'm in. I can be wandering around the hallways, go into any room that's open. That's what can happen in today's world of VPNs and firewalls. You own the network. Then you try to do a segment here, segment here -- it's a mess. In our architecture, once they give me a badge after checking my ID at the reception, they say, "Stop. You'll be escorted to your meeting room and meeting room only; you can't go anywhere." I get escorted to the meeting room. They only allow me to go there. They're very fine to make sure I'm not trying to get anywhere else. Once the meeting is done, they escort me out. That's like connecting a use-to application. I personally believe that the whole world is moving in this direction. The legacy architecture will fundamentally change. Now, unfortunately, there are forces that are trying to hold it back. Who would that be? The vendor who's getting disrupted. These firewall and VPN companies are claiming we got zero trust too, which is doing a disservice. But what's helping us is that seesaw organization that the Biden Administration put in place. It is an agency whose focus is to make sure security gets done. Zero trust gets implemented properly. It's really helping us. We got to do this to protect our country, our organizations; otherwise, you see so many attacks on all these healthcare organizations, banks, and whatnot. Our customers are far safer than people who aren't using Zscaler.

Tim Beyers: Last question for you before I let you go here. What security threats are we not talking about that we should be talking about? Because you've talked about platform; you've talked about zero trust. I am certain -- because I've been around this block a few times -- that there are new and creative attacks constantly. What are we not talking about that is a threat we should be paying attention to?

Jay Chaudhry: They keep on innovating; we need to innovate. In fact, I think the biggest risk is inertia. Some of these, even large companies, they're slowly embracing new technologies. They need to do that, and we're seeing faster adoption of that. But from tax point of view, we all have seen brands somewhere and phishing, Tupper stuff happening over and over. I think the next big area for us to worry about is some of the AMLB stuff, ChatGPT stuff. Imagine what all can be submitted to ChatGPT. In fact, a number of customers I talked to recently with a coverage of ChatGPT, their developer is submitting source code and saying, "tell me how good is my source code." They don't think that source code now belongs to ChatGPT, it's out there somewhere. We had to develop a feature pretty quickly to identify something being submitted to ChatGPT, and it's not just one. There are so many versions of it out there to protect the IP and all that stuff. ChatGPT can become a tool by bad guys, to find information that could have been much harder to find. We are working in many of those areas. But ChatGPT is also helping us to identify things and build better protection. It's a new big area that all of us need to leverage in a proper way.

Dylan Lewis: Coming up after the break, Jason Moser and Matt Argersinger return with a couple of stocks on their radar. Stay right there. 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 Money may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. I'm Dylan Lewis, joined again by Matt Argersinger and Jason Moser. Matt, when we were talking credit card companies before, we hit on this theme of softness in the goods category, seeing a lot of that spending going elsewhere. It seems like that's flowing through to the results that we're seeing this week from UPS.

Matt Argersinger: That's right, UPS came out with results that kind of got lost in the shuffle with all the big tech noise and things like that. But this told, I think, a bigger story about what's happening in the economy. Revenues for UPS were down 6%, steep drop in operating profit. But it's a volume story. Their average daily volume in the U.S. was down 5.4%. It was down 6% internationally. On the conference call, CEO Carol Tome noted that "Volumes were as expected in January and February, but were significantly lower than our plan in March." UPS blamed the shift in consumer spending. Customers are spending less on discretionary items and more on grocery and consumable items and the company's had an overall shift, as you mentioned, Dylan, away from goods to services. Something that really doesn't help UPS. This meshes with a first-quarter report from Packaging Corp of America, another company I follow. It's one of the largest corrugated packaging producers. Their shipping volumes were down 12.7% in the quarter as well. This is a shift away from goods to services. That's why I wasn't surprised when Amazon reported really flat growth in their core online stores. Business people are just ordering less online and spending more out there beyond the home.

Dylan Lewis: Putting this together with what we're seeing from the credit cards, it seems to me like it's bullish to be spending on travel and we should probably see some decent results from travel companies. We're seeing some service spending. But is there anything else that really jumped out to you trying to put these two together and find some narratives around what's going on?

Matt Argersinger: Well, I think if you want to make a call on, gosh, we've been predicting recession forever, as Jason mentioned, I think you can make a case now that we probably are in a recession in the goods space. How long can this services side of the economy, which is the bigger part of consumer spending, how long can that sustain? That is the big question. If that falls off, then I feel like we're finally in that recession that we've been predicting for years.

Dylan Lewis: The NFL draft began Thursday with the first round and because everything in sports is a spectacle, will continue into the weekend. All told, over 200 college players will join the rank of professionals, many of whom will be seeing a million-dollar or six-figure check for the first time in their lives. Jason, any advice for folks that are now joining the workforce as professional football players?

Jason Moser: Very easy to forget when you see those big numbers, but just remember the tax man is going to get his shares, so whatever that number is, cut it in half and put that money aside so that you can make sure to cover that tax obligation. Maybe it doesn't require all half, whatever you have leftover, you can just put into a savings account for a rainy day.

Dylan Lewis: Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd is going to hit you with a question. Matt, you are up first. What are you looking at this week?

Matt Argersinger: Well, we talked about this company earlier in the show, Activision Blizzard ticker, ATVI. Of course, we know the UK has rejected the acquisition by Microsoft; that caused shares to drop sharply this week. I think, as an investor and I'm a holder of shares of Activision Blizzard, you've got to start looking at the company now independently again. If you look at Activision's first-quarter results, which came out right away this week after they learned that the transaction was going to get blocked, first-quarter bookings up 25%. Call of Duty Modern Warfare II, launched last October, still paying dividends this quarter. Blizzard's revenue, which is more of their online subscription business, up 62%. They had monthly active users of 368 million. Diablo, which our man behind the glass Dan Boyd knows and plays well. One of the most massively popular games, the fourth version of the game is coming out in June. The growth there is tremendous, and I think as an investor, you have to look at it this way. The transaction might still go through, and therefore you've got to $95 stock, probably in the next year. If it doesn't go through, you still have a business that's growing really well and it's going to get a three-billion-dollar breakup fee if this deal doesn't happen, and if you believe CEO Bobby Kotick who spoke on CNBC this week, that means by the end of this year, Activision Blizzard could have $18 billion in cash on its balance sheet, 15 billion if you net out the debt,. That's about 25 % of its market cap probably will resume the dividend. I think as an investor, you can win either way by owning shares today.

Dylan Lewis: Dan Boyd, our man behind the glass, and noted Diablo player. Any questions about Activision?

Dan Boyd: Yeah, Matt, why does the U.K. get to jump in here and say you can't merge? Can't Microsoft and Activision just tell them to go kick rocks?

Matt Argersinger: I would think so Dan, but the way the regulatory system is set up and because they do so much business in the UK, the CMA there in the U.K. does have a say over this transaction, so yeah, they're the blocker right here.

Dylan Lewis: Jason Moser, what's on your radar?

Jason Moser: Big drop on Friday for Cloudflare ticker NET. We say it often when a company revises guidance downward, the price is almost sure to adjust based on those new expectations. With a business like Cloudflare that's still in full-on investment mode, it's going to be even more pronounced and that's what we're seeing. Unfortunately, on the one hand, the results for the quarter met or exceeded targets management set out a quarter ago. That was encouraging. However, the market, as we know, is a forward-looking mechanism, and clearly, there are some clouds on the horizon. They guided down for the year about 4% on the top line. That's still going to grow about 31.5% from last year based on what they're saying today. But I think it's fair to say that right now the market just doesn't fully trust that given language in the release, like increasing macroeconomic uncertainty and lengthening of sales cycles. We also see DBNRR, right, that dollar-based net expansion rate that's down 5% for the quarter to 117%. I think that this company and I'm a shareholder, by the way, it's fair to say this leadership team is aggressive. I think that's probably putting it lightly. I think they lack a certain level of humility. Maybe this opens the rise a bit, but the market right now is saying, I don't believe you. Prove it. It's saying show me with this new guidance and I think that's more than fair.

Dylan Lewis: Dan, a question about Cloudflare.

Dan Boyd: Am I allowed to combine the word Cloud with literally any other word and start my own tech company?

Jason Moser: Well, there's no question at all. A $1 billion market cap just for coming up with that idea right there.

Dylan Lewis: Well, and especially if you throw in AI somewhere there, Dan, you got a home run.

Dan Boyd: I was just thinking of starting a company called Cloud AI and then just, I guess printing money.

Dylan Lewis: You throw Diablo in there, big boy, then you got a stew. One question I do have, Jason, on Cloud business and Cloudflare is, is this what we're seeing a little bit with bigger getting big and smaller players suffering a little bit?

Jason Moser: Well, there's no question, we're seeing the bigger companies that are able to deal with a little bit of that pullback in Cloud spending. We saw Amazon, Microsoft, and Alphabet all to an extent, right there, they're portending headwinds in that Cloud space, and again, going to that language in Cloudflare's release they're talking about the increasing macroeconomic uncertainty and lengthening of sales cycles. It's just going to be a little while longer.

Dylan Lewis: Dan, which one is going on your watch list?

Dan Boyd: You know what? I think I'm going to go with Diablo and Activision Blizzard. Matt, you convinced me.

Matt Argersinger: There we go, Dan.

Dylan Lewis: Matt Argersinger, Jason Moser. Thanks so much for being with us today.

Matt Argersinger: Thanks, Dylan.

Dylan Lewis: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.