In this podcast, Motley Fool senior analyst Bill Barker discusses:

  • Zoom's growth trajectory.
  • Where Zoom's revenue might come from next.
  • Are Lowe's and Home Depot too similar?

Social Security reform has been back in the news lately. Motley Fool host Alison Southwick and personal finance expert Robert Brokamp break down some myths that surround Social Security.

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 May 23, 2023.

Deidre Woollard: Zoom tries to move beyond video chat and Lowe's does not hammer home a good quarter. You're listening to Motley Fool Money. Welcome to Motley Fool Money. I'm Deidre Woollard and I'm joined by Motley Fool Analyst, Bill Barker. How are you today, Bill?

Bill Barker: I'm very well. Thanks for asking.

Deidre Woollard: Well, yesterday we got earnings from Zoom and they seemed fairly solid. Revenue was up 3%. Enterprise revenue, which is even more important up 13%. This company has been on such a ride. But does Zoom have its mojo back? I thought their earnings were good. The market DV didn't think so quite as well.

Bill Barker: Well, when you talk about the growth here and the ride here, it's worth reflecting on just where things have come from. Back in the fiscal year 2021, which ended in January, so it was really the calendar year 2020 plus January, it was growing revenue at 325% a year. That was the main COVID year, of course, and then 54% the next year, 7% essentially last year. This year, we're looking at flat top-line growth. Not really at the moment, a growth company. I think that that is playing in part to today's market reaction.

Deidre Woollard: It's evolving from video chat. One of the things they talked about in the earnings, were that it's getting 10% of its revenue from Zoom phone. That's its cloud-based calling solution. Obviously, it's looking for things beyond video chat, looking at both new areas as well, some old ones here. These are regular phone calls, cloud-based, but still phone calls. Is this just as you said, it's not as much a growth company anymore. Is it just trying to find profits wherever it can and trying to restart that growth?

Bill Barker: Well, it's looking around, it's got a lot of competition from some of the biggest players that you can have as competitors, Microsoft Teams, Cisco, Webex. It's really surrounded on all sides by the success of its technology being easy enough for major players to duplicate and then integrate into their offerings in a way that really it shuts down their further growth, certainly not the explosive growth that they enjoyed for a while there. In going into the phone elements and the call center work and things like that, the AI that they're touting, I don't know what exactly gets thrown at call centers by AI. They've got some ideas. It can't be a worse experience than it is today, can it? Maybe we need some artificial intelligence to upgrade call center experience from the nightmare that it regularly is to something that you don't recognize as a nightmare. I don't know. If artificial intelligence can do that, then it's done more than it's done anywhere else so far.

Deidre Woollard: That does seem to be the thing. Zoom, they laid off around 15% of the company. They've acquired Workvivo. They're working with another company to build that AI assistant. I believe its name is Claude. With AI right now, every company seems to be mentioning in their earnings. When you're hearing AI are you leaning in and being like yes more? Are you leaning out and being like, I don't know?

Bill Barker: In a lot of cases, it's a me-too thing. Yes, we also have AI and we can think of ways to spend money on AI if that's what you want us to be doing. Of course, it's not translating immediately into earnings. You can push out the earnings that you expect from the research and development spent there out to some point in the future and just participate in what you hope is enthusiasm for mentioning the topic. But I think that for the stock, the floor here is to ignore the GAAP earnings and to look at the adjusted earnings which are above four dollars a share for a $66 stock trading at about 15 times adjusted earnings, but the GAAP earnings are nowhere near that. They're issuing a lot of stock. They've got other expenses that they would like you to ignore when they're talking about their adjusted earnings. Until they actually start showing growth in some column, it could be earnings per share, it could be revenue, it could be something. But if they're not showing growth in any of those categories, they're not going to get priced like a growth company.

Deidre Woollard: Is this the case where they can cut their way to growth or does it have to come from somewhere else?

Bill Barker: Well, I think that they over-hired like many other companies, pretty much everybody in the tech world did during the COVID fever. They can definitely become more efficient, whether they can become enough more efficient at the same time that they are increasing spending on AI in a way that pleases the market. I don't know, they haven't come up with anything that's pleased the market in a couple of years now.

Deidre Woollard:  That is true. So much of this quarter at the market's reaction has been about guidance and Zoom, they raised theirs, but it wasn't quite what the market was looking for. Is there just too much pressure this quarter on having to raise guidance enough that the market feels optimistic about your company?

Bill Barker: Well, I think they're not even growing and they're not projecting to grow as much as inflation. If your guidance is saying, let's ignore the currency translation and ignore a couple of other things and when you do that, we're still talking about 3-5% top-line guidance for the year. That's less than where inflation is tracking right now. They're not giving a story that is leading to a growth investor being excited about what they can guide to at the moment. They're not providing the efficiency element of translating what is an impressive top-line total into a really impressive bottom-line total.

Deidre Woollard: Zoom isn't a growth company at this point. What is it?

Bill Barker: It is something that we remember being around and changing our lives during COVID. Is that a good thing or a bad thing? As a brand

Bill Barker: They are one of those companies where you just talk about the brand as a verb, that I'm going to be Zooming later or something like that whether it's on Teams, it explains an experience which is not entirely positive. I know that in the case of some of my children, they detest Zoom for what it did to their education at the time, and they will never be fans of it through no fault of Zoom. When Zoom was providing a great service that was necessary at the time, but it comes with costs and the brand is not, I think, untouched by the time in which it exploded.

Deidre Woollard: During the pandemic, we spent a lot of time on Zoom. We also spent a lot of time at home, a lot of time fixing up our houses. Doesn't look like we're doing that now. Lowe's sales were comparable sales down 4% for the quarter. Is this just the spending cycle where people are spending more on travel and less on consumer discretionary, or is there something else going on with Lowe's?

Bill Barker: No, I don't think there's anything more than that going on with Lowe's. There were a lot of home projects initiated and completed in the last couple of years, there are always additional things that are going wrong with a house that can not be delayed just because you don't feel like making that expenditure right now everybody who wants to be going off on vacation, getting out of the house. Those are the things where we're seeing the cyclical growth right now. Housing. The houses that people are in are a little bit better-taken care of now than they were a few years ago because of all the time spent in them. That cycle is somewhat played out and then you've got the interest rates which are not helping in terms of people upgrading their housing.

Deidre Woollard: Now, the housing market is pretty much stuck. We saw the same thing with Home Depot's quarter both companies talked about lower prices in lumber. They talked about the weather, they talked about consumer spending less. Looking at Home Depot and Lowe's, they're like the Coke and Pepsi of home improvement. When we look at Coke and Pepsi, they're in two different paths right now with Pepsi having all of this other snack stuff and Coke still being mostly beverage. With Home Depot and Lowe's, are they coming closer together, or farther apart?

Bill Barker: I think they're about as close together as any companies in a duopoly are. They're extremely similar to the point where they're occasionally next to each other and there are, and I was not aware of this until doing a little bit of research today, Internet rumours that go back some time that the origin of Home Depot and Lowe's was a husband and wife who got divorced and the wife started her own company, none of which is true by the way, but this is just something that gets out and gets checked out by Snopes and other places that quash urban myths, but that they are so similar that their pazz could only be explained by an interim marital situation. You can look up the rumour if you want. It's not true, but it goes to just how proximate they often are to each other and they've got very similar-sized stores, a reasonably similar number of stores. Home Depot has got a few more. A similar breakdown in what they devote to the home and garden square footage as compared to the store indoors experience. I think they're pretty similar.

Deidre Woollard: Interesting because I always tended to think of Home Depot as being more of the pros store and Lowe's as more of the consumer-friendly. But I think you're right that they're going towards each other. I know Lowe's has spent a lot of money recently trying to get the pros interested and Home Depot on the other side, they're spending more money on building home improvement centers inside the store that are more friendly for selling appliances. It does seem like they're looking to get the other part of the business that they're missing.

Bill Barker: Yeah. Home Depot is ahead on the professional services side and that's an area where Lowe's is going to want to improve and so they become more similar as time goes by. There are slightly different brands that are exclusive to Home Depot versus Lowe's. Those brands aren't going to change they're locked into one store or another depending on what brand of paint you want, you're going to be in one store or another, or whoever's maybe helping you pick out the paints is going to be advising certain colours that are done by a certain brand. The same is true of other tools that you find in one versus the other. They become more and more similar over time, I believe.

Deidre Woollard: Interesting. Wanted to talk about one more company that reported, which is Dick's Sporting Goods. They came in with sales over 3% comparable sales. The youth sports business, is somewhere where consumers are still spending money apparently.

Bill Barker: Yeah, they're getting out of the house and they're playing more games, and kids are growing up and growing into different-sized uniforms that they need and running through the equipment they have. Sports is something that people are back to and along the way, Dick's became the unquestioned leader. There was a time, not too many years ago, maybe almost a decade ago when there were significant competitors to Dick's. Sports Authority, a number of another brand name, City Sports, the things that are just no longer around and Dick's is competing more, I think, with Amazon for those categories than any other chain that you can really national sporting goods chains are just not in the business anymore.

Deidre Woollard: Yeah, interesting. Now we know we're not spending money on our houses, but we are still spending money on our kids and all of their various sports gear. Thanks for your time today, Bill.

Bill Barker: Thank you.

Deidre Woollard: Think you know everything about social security? Robert Brokamp and Alison Southwick break down social security myths that may surprise you.

Alison Southwick: Social Security reform is back in the news and for good reason. The program is the biggest line item in the federal budget, accounting for almost 20% of uncle Sam's outlays. Social Security is the foundation for most Americans retirements. According to the Social Security Administration, the program provides 30% of retirees income. Almost half of retirees rely on it for the majority of their income. Social Security is also in trouble. A decade from now, the program won't have enough money to pay 100% of benefits. But even if Social Security were fully funded, the program has another problem. It's complex and the majority of Americans don't understand how it works. In a recent quiz of true-false questions created by MassMutual, 69% of participants either barely passed or failed. I took it and got a B. That's embarrassing. Yes, the complexity makes it hard to navigate Social Security, but other misunderstandings are bound because of bad information found in political agenda talking points, partial truths, or our folks just not keeping up with how the program's policies have evolved over time. Do you really need to understand the finer points of social security? Because I'm already bored of listening to myself here, but the answer is yes. Because you could end up missing out on money, and I know you like money. Today we're going to talk about five of the most common myths and misconceptions. Henceforth, known as myth conceptions because Bro wrote the outline and is seeking revenge with me for some reason. Yes, five myth conceptions , I hate you Bro,  that prevent Americans collectively and individually from maximizing Social Security. Bro, are you ready?

Robert Brokamp: I'm ready. Let's go.

Alison Southwick: Yes. I'm glad this makes you happy. Nope. Myth conception number 1, Social Security is bankrupt.

Robert Brokamp: Yes. The belief in this myth conception, see, it's not so hard to say, it was confirmed last week in a survey from Northwestern Mutual, which found that 45% of respondents indicated they don't think social security will be there when they need it. But here's the deal, Social Security is mostly a pay-as-you-go program. The taxes taken out of a worker's paycheck today become a retiree's benefit check tomorrow. Now for decades, the taxes collected were higher than the benefits paid, and the excess went into these trust funds. However, that flow has reversed. Now the program relies on the trust funds to pay benefits in full. Unfortunately, the trust funds are currently projected to run dry in 2033, and at that point, taxes paid by workers will only be sufficient to pay 77% of scheduled benefits. Even without changes, you'll still get around 3/4 of your scheduled benefit. That stinks for those of us will be in retirement by then. But it's not as gloomy and doomy as we're often led to believe. As long as there are workers paying payroll taxes, the program will still have money.

Alison Southwick: Myth conception number 2, everything will work out.

Robert Brokamp: Even though social security isn't bankrupt, a 23% benefit cut with still hurt. There are many retirees who could not afford to have thousands of dollars less in income. Something needs to be done and there's really no painless solution. Taxes are going to have to be raised, benefits cut, the retirement age raised, or maybe a mixture of all three. Let's just take a look at one aspect of the tax angle. According to the recent Social Security trustees report, the program would be fully funded if the payroll tax rose from the current 12.4% to 15.84%. Now, if you don't like that, we could consider raising the eligibility age. When you think about it, when social security was launched in the 1930s, you couldn't claim benefits until age 65. Back then, someone who reached that age lived on average another 14 years. But nowadays, 65-year-olds could expect to live another 20 years. Perhaps the age of Social Security eligibility should be indexed to life expectancy. There are plenty of other tweaks that can be made. The American Academy of Actuaries recently released an interactive tool that illustrates the trade-offs. If you want to play around with that, you can find it an actuary.org/socialsecurity. But until our leaders in Washington figure this out, the safe assumption for workers in their '40s and younger, and maybe even early '50s, is that you'll get 75% of your projected benefit.

Alison Southwick: Myth conception number 3, you should claim as soon as possible before the program goes kaput.

Robert Brokamp: Yes. The average Social Security claiming age has risen from 63 in 1998 to 65 in 2021. This is good news because the longer you wait, the bigger your benefit. That said, 65 is still probably too early for most people because they're choosing a lower benefit instead of delaying until their full retirement age, which is 65-67 depending on the year you were born or up until age 70, at which point delaying doesn't result in a bigger payout. One of the reasons that beneficiaries get for claiming early is they feel that they have to get the money while they can and before the system collapses. But if there's any group that will likely be spared from benefit cuts, it's likely folks in their '60s and older. I have personally not seen any proposed fixed Social Security that would significantly reduce benefits for those near or in retirement.

Alison Southwick: Myth conception number 4, everyone should delay until 70.

Robert Brokamp: Various studies have shown that most people should hold off claiming Social Security until 70 or maybe close to it. There are circumstances that would warrant an earlier claiming strategy and really there too numerous to go into detail on this podcast, but here are a few scenarios. Maybe you're claiming the spousal benefit which doesn't increase beyond your full retirement age. You might have health issues that result in a below-average life expectancy. Or you might have minor or disabled children at home and they will receive benefits when you begin to claim your benefits. The right claiming strategy for you really does depend on your unique circumstances and earnings record, and that's why I can help to use tools to crunch our actual numbers or maybe illustrate the trade-offs. If you're working with a financial advisor, they definitely have these tools. Or you could start with opensocialsecurity.com, which has the benefit of being free. There are a few other good tools out there that are pretty inexpensive.

Alison Southwick: Myth conception number 5. The claiming decision is irreversible.

Robert Brokamp: Now, when people hear about how the more you delay, the bigger benefit you get, and they've already claimed social security, they may think, no, I've already blown it. But there are a couple of situations where you might be able to do at least somewhat of a do-over. One is, if you've been receiving benefits for less than 12 months, you can do what's called a withdrawal of the application. Now, you have to pay back all the money you received, including any benefits your spouse and children received. But once you resume your benefits later, social security will pay you at whatever level you're eligible for based on your age at that time. It's like you'd never claim social security before. Now the other option is only available if you've reached your full retirement age, but not yet 70. You can then request to have your retirement benefits suspended. The amount that you were receiving will then earn these delayed retirement credits. But while you're payments are suspended, your spouse and children can't collect benefits based on your work record, and you can't claim benefits based on your spouse's work record.

Alison Southwick: Bro, how about you bring us home with the biggest final bonus myth conception about Social Security.

Robert Brokamp: Well, that is, regardless of the future Social Security, it never was and it never will be a way to fund the retirement of your dreams. Unless your dreams have all small living spaces and small portions. This year, the average annual retirement benefit from social security is just $21,900. We cannot and we never could really rely on Uncle Sam to make our golden years truly golden. Keep saving and keep investing so that you will be the person who's in control of your ability to retire.

Deidre Woollard: As always, people on the program may have an interest in the stocks they talk about. Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Deidre Woollard. Thanks for listening. We'll see you tomorrow.