In this podcast, Motley Fool analyst Bill Mann and host Ricky Mulvey discuss Nvidia becoming the most valuable company, and review turnaround plans for Cracker Barrel sent in by Motley Fool Money listeners.
Plus, Motley Fool analyst Alicia Alfiere and host Mary Long take a look at Coupang, a dominant e-commerce company in South Korea.
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 June 20, 2024.
Ricky Mulvey: Don't leave your rocking chair. We're turning around the Cracker Barrel. You're listening to Motley Fool Money. I'm Ricky Mulvey. Joined today by Bill Mann. Bill. We have some very important business, and I'm glad you are here to join me for it.
Bill Mann: We have business to attend to, and I'm happy to be here as well.
Ricky Mulvey: But the first thing we're going to talk about, that's for later. We have listener ideas to turn around Cracker Barrel, because you know what activist investing is also for the rest of us. Before we get there though, Nvidia has taken over Microsoft is the most valuable public company in the world. You're going to talk about it tomorrow with Ron and Dylan on the Friday radio show. But there's one statistic I want to zone in on. Before we talk about more of the big cap tech companies, all that. That's the market cap per employee. I'm going to run through a few companies here, Bill, and then get your reaction. AMD, $7 million per employee. Google and Microsoft, they're around $15 million per employee, Apple 20 million per employee. Then we have Nvidia, low numbers. Those are low numbers. Nvidia is at $113 million per employee. These are professional athlete numbers here, Bill. What do you make of this?
Bill Mann: You know what Nvidia does. Right?
Ricky Mulvey: They design chips. That's why I included AMD.
Bill Mann: Well, but also they are at the forefront of the AI, which is going to replace employees all over the place. That's what we are told to believe, at least. I don't know that it is really a surprise to anyone who thinks about numbers, but $113 million is a lot. That is a huge number per employee and I doubt sincerely that there are very many employees at all at Nvidia that by themselves, can generate $113 million in value.
Ricky Mulvey: Each person is their own small cap company or microcap company, excuse me. Do you think it's a fair metric to compare these big cap companies on that measure?
Bill Mann: It's better. We used to joke about some statistics that didn't seem to have a whole lot of meaning when we came up with was on a price to phone number basis. Is this company expensive? On an employee basis, obviously, the issue is that companies don't do the same things as each other. Maybe that's not a great insight. But you're talking about companies that are performance enhanced by technology. I think at the end of the day when you're talking about a company that is that large that has that much valuation per person, you have to go to brass tax and say, a huge amount is being expected of in Nvidia.
Ricky Mulvey: Well, it is. But it also there seems to be a law of physics that's been breaking not only this year, but throughout the 2010s throughout the 2020s, which is that the law of large numbers seems to not be applying. It took Apple a few decades to get to 1 trillion. It took them a few years to get to 2 trillion. Why do you think it is with these companies, the larger you are, the faster you rise?
Bill Mann: I've been thinking about that a lot, and Nvidia creates a really interesting dilemma for stock analysts. I don't know that there is an argument out there that Nvidia is at the end of its rope or that it's downhill from here. But the stock itself, it's gone from a $200 billion company, which, by the way, is huge to $3 trillion in very short period of time, which means that the expectations that are built into Nvidia are just extraordinary. Now, is this an extraordinary company? Yes, but it has to be more extraordinary than expectations and $113 million per employee is a really interesting way of painting what the expectations are for Nvidia to do over the next few years.
Ricky Mulvey: Let's get to a company that is the complete opposite. Can you think of a more complete opposite company for Nvidia than the Cracker Barrel, Old Country kitchen? For context, a couple of weeks ago, Nick Sciple and I talked about management's turnaround plan for the Cracker Barrel. I invited listeners to share their own turnaround plan for the company at [email protected]. We got some good suggestions, Bill. I think what we should do, we're going to go through the plans. We got management plans, we got the listeners plans. Whoever has the best plan gets a Motley Fool t-shirt. We're going to include Cracker Barrel management in there just to keep things fair. You know Cracker Barrel Management's plan.You don't know the plans of our listeners.
Bill Mann: I love the thought of Julie Masino suddenly receiving a Motley Fool t-shirt.
Ricky Mulvey: We're fair. Also, can you tell that we're between earning season? Anyway. Julie Masino in the latest earnings call basically said, "Historically Cracker Barrel has made limited changes to our design aesthetic, and we've probably relied a little too much on what was perceived to be the timeless nature of our concept". The turnaround plan has three overarching business imperatives. It has five pillars in the strategic plan. Basically, it comes down to updating the lighting, updating the experience, a different menu, including, bee sting, chicken tenders, which are hand breaded coated in that sweet honey glaze. More media spend, they focused on basically getting food out to their customers faster, a 4:00 PM to 6:00 PM. Early diners special where you can get a meal for nine bucks. We'll start with our test case. That's management's idea. Bill, you're a value hunter. Where are we at on the turnaround plan for the Cracker Barrel as we stand?
Bill Mann: It's really important to note the cracker barrel currently is trading lower than it did during the pandemic lows. When restaurants were closed. The market is saying the fact that they've opened has destroyed capital. I agree with them that they're at the far end of the nostalgia curve in terms of the experience there. All of those things for bringing people back into the stores sound good. I might come up with a different name than bee sting. That doesn't necessarily excite me all that much.
Ricky Mulvey: Sounds swollen.
Bill Mann: Exactly. That sounds bad.
Ricky Mulvey: There you go.
Bill Mann: Do I pay money for extra bee stings? They have to do something.
Ricky Mulvey: Let's go to Motley Fool Money listener ideas to turn around the Cracker Barrel, because they do have to do something, and our listeners have ideas. One, our first one comes from Mr.Craw. My activist suggestion is to pivot the brand of fast casual. Here's what it's called fire pit by cracker barrel. Triple down on chicken and breakfast, steal little business from Chick-fil-A, from Bojangles, Popeyes, even Casey's, go all in with a communal eating feel, like an outdoor fire pit dining area, start the rollout in the approach freeways, and then move to the warmer core market cities. This strategy allows them to play with the menu and with store decor without alienating the long timers. If they increase total store locations across both banners, then closing legacy stores wouldn't cause investor alarm. Cracker Barrel needs to leverage their brand before it becomes a liability. That seems like something a venture capital firm could exploit. Mr.Craw has his suggestion on the table, Bill, you're on the Board of Cracker Barrel. What say you?
Bill Mann: It was definitely a differentiating process. It sounds really expensive.
Ricky Mulvey: It does, and we got a cheaper one. That comes from Martha. Close down one of the spaces in each restaurant to regular customers and use it as a rentable event space. Become more of an events company. This would be great for retirement parties, birthdays, church groups, etc. It's a little bit less involved than Mr.Craw's idea.
Bill Mann: Alright. I like it.
Ricky Mulvey: Then from Jeff, we have leaving the store pretty much as is, but he's going from more of a cost cutting perspective. Primarily keep the store open from Thursday to Sunday because that's where he sees the restaurant is its most packed. This would allow them to reduce staff. Jeff is ruthless out here, Bill, and he says that every time he's been to a Cracker Barrel on a weekend, it is completely packed. He's really focused on cost cutting to turn this business around. Then from Jason, this goes more in that strategic initiative direction. It's Van life. He's going to do a campaign for Route 66 to digital nomads with Facebook marketing, animated gifts, get different couples showing a younger presence at the Cracker Barrel, and recognize that the menu isn't the problem. Here's what he's going to do. He's going to put USB chargers outside by the rocking chairs. Then he's going to borrow from Walmart's model and put in overnight parking spaces, you register them with an app. It's becoming more of a camp site. You also have an app based loyalty program, rewards based payments in the app. Then after all of the above is successful, then you start looking at updating the menu based on app demand and adding electric vehicle charging, put solar on buildings, and overnight access to the bathrooms, and that really catering to the travelers. Really go all in on that. I can go to the last one unless you got to take?
Bill Mann: No, keep going. I'm taking notes.
Ricky Mulvey: We got notes.
Bill Mann: Ideally, Cracker Barrel's management has taken notes.
Ricky Mulvey: Then we have a three pillared approach from West. West's idea, for the store, really focus on home decor, go in on one area. For the food, slowly, modernize the menu in a southern way, offer a brunch menu with more modern items like chicken and waffles, biscuit, bigness. I'd love to see what that is and Mimosas. For the afternoon, we're offering barbecue ribs with a modern spin on the barbecue sauces. Look around at smaller Southern restaurants and see what's working for them. Then for the building, add in a larger patio so more people can eat in the open air, experiment with a few restaurants that are not right off the highway, but with an enjoyable view of the outdoors. Maybe even set out games like corn hole or giant Jang towers for the family. They need to embrace a family feel, not just a Southern feel. We have a lot of ideas. You are for the purposes of this discussion, the only board member that matters. The only person that will receive a t-shirt is going to be through your decision Bill. This is weighty. It could be Julie Masino, or it could be one of the listeners of Motley Fool Money. Who are you going to choose?
Bill Mann: I believe that it's going to have to be Jeff, with a very simple idea of keeping the stores closed for longer periods of time. One of the areas in which this company is being really inefficient is through labor costs right now. Now, he was being ruthless. I think that there is actually a very successful model that's a little bit close to what he's talking about. That's Texas Roadhouse, which is only open for dinner now. I guess you would put it on a very high line level as being a similar restaurant concept to Cracker Barrel, at least in the neighborhood much more successful and they have limited their opening times.
Ricky Mulvey: I'm only going to say this because I've been called out by several e mailers, Bill, and maybe I need to stop responding to them as much. Texas Roadhouse is open for lunch on weekends and they will tell you.
Bill Mann: Fair enough and that's fine. We're not being prescriptive here. You can be open at lunch just like Texas Roadhouse. I'm surprised you didn't know that, Ricky.
Ricky Mulvey: I didn't. Then as we wrap up, are there any other. It takes a certain amount of energy to look at a company and say, I can fix you. Are there any activist plans you'd like to launch before we close the segment?
Bill Mann: I think that WD40 needs to come out with another product called WD42. WD42 has a coloration on it that tells you when it is ready to reapply.
Ricky Mulvey: There you go. We got one. If you have some, you can email us hopefully with a voice memo at [email protected]. Some companies to get your brain flowing. We've got Starbucks. We've got McDonald's, Disney. How about GameStop, which now has a $4 billion cash pile. If you have any ideas for them about how they can change their businesses, send a voice memo to [email protected]. That is podcasts with an S @fool.com. Hey, Bill, thanks for going through this. Good on Jeff. You get a Motley Fool t-shirt.
Bill Mann: Well done.
Ricky Mulvey: Today's show is sponsored by public.com. That's where you can earn a 5.1% APY with a high yield cash account. While we can't say for certain it's the highest interest rate there is, we can say this. It's a higher rate than SoFi, a higher rate than Marcus, a higher rate than Wealthfront, a higher rate than betterment, frankly, a higher rate than Capital One, a higher rate than Alie, a higher rate than Barclays, a way higher rate than Bank of America and Chase, a higher rate than City, Wells Fargo discover, and it's a higher rate than American Express, too. So, if you want to get started earning 5.1% APY on your cash, check out public.com. We can't say it's the highest interest rate for your cash, but it's up there. This is a paid endorsement for public investing, 5.1% APY as of March 26, 2024, and is subject to change. Full disclosures and terms and conditions can be found in the podcast description, US members only.
Up next, Alicia Alfiere and Mary Long, to take a closer look at an e-commerce player that's not Amazon.
Mary Long: Alicia, at the end of last year, you and I were at a live recording of Motley Fool Money at the Denver Press Club. One of the questions that I posed to you and Tim White and Tim Beyers who were also there was. What stocks you were excited about? At the time, this is December 2023, you had mentioned Coupang. And now, it's June 2024 and I figured I'd reach out to you and get some more details on why you were so excited about Coupang stock.
Alicia Alfiere: Let's do it.
Mary Long: Let's dive in and learn a little bit more about this e-commerce company. When I hear e-commerce, being based in the US, I immediately think of Amazon. Certainly in the US, but also in many other parts of the world, Amazon has become synonymous with convenience. You order a package. It arrives in two days. Now that's the new norm. But there's this other e-commerce company based in Korea, South Korea, this one that you're so excited about that seems to be even better than Amazon at this whole convenience thing. How has Coupang beaten Amazon at its own game? If you will.
Alicia Alfiere: Beaten at its own game. We'll see, I will tell you and you can tell me what you think. Coupang is actually known as the Amazon of South Korea, and their customer service and delivery abilities are impressive. You talked about Amazon being able to deliver within next day and I think their status are something like 60% of their largest six metro centers, they can get 60% of those residents having next day or same day delivery. That's pretty impressive. Now, Coupang, granted, South Korea is a much smaller land mass. You're talking about a country, the size of about Indiana. But, through rocket delivery, which is similar to Amazon Prime 99% of orders can be delivered within a day. And there's also an ability to deliver packages by 7:00 AM for orders received by midnight and also same day delivery as well. Pretty impressive and part of the reason why they're able to do that is because Coupang strategically set up its infrastructure so that 70% of the South Korea population was within seven miles of one of their logistics centers. That's a key strategic advantage because it would take a lot of money and a fair bit of time to be able to catch up to that logistics power.
Mary Long: Comparisons aside, Coupang isn't necessarily coming for Amazon. Its focus is South Korea and it is the dominant e-commerce company there. It's captured nearly 90% of that domestic market, which is really impressive. But perhaps a bear case would also be that it's the dominant e-commerce company in South Korea and South Korea is a small country, and it has an aging population. First of all, are we thinking of this as a growth company? If so, does Coupang need to look beyond its home base to actually unlock real growth beyond what we've already seen?
Alicia Alfiere: That's a great question. So first, the penetration number that you cited is pretty much the number of households that are using Coupang. It is the leader in e-commerce in South Korea. In 2022, it captured something like 22% share of the market. But there's still room for the company to grow within that market, especially because they only represent something like 5% or less of the overall retail in the country. It is also looking to expand internationally. It's looking to expand it to Taiwan. They already have a presence there, and we're looking to see how the company builds its presence. One of the things I actually like about Coupang and the management team is this smart way they look at investments and expanding. They try to make sure that whatever I guess we could call them bets that they're making. Whatever new offerings they're trying to do, they're trying to make sure that those offerings have a certain amount of return on investment, are generating cash flows after a certain amount of time. Otherwise, those ideas, those offerings don't get more money and they could pull the plug. That's what they did when they tried to expand it to Japan. It wasn't performing as they wanted, and so they left that market. It sounds funny that that's something that I'm excited about. [LAUGHS]. But it is a win because it's counterintuitive, but leadership didn't throw good money after bad because they had that careful approach. You want to make sure you add monies to areas that are working and you exit the ones that aren't.
Mary Long: As an investor, as we look at Coupang's expansion into Taiwan, what will you be keeping an eye on to ensure that management is continuing with this careful approach that they had in Japan and then rolling back and stepping out if things aren't looking positive?
Alicia Alfiere: Well, continue to follow the company and follow what they say about how things are going in Taiwan. I feel like they've already learned from some of their lessons from expanding within South Korea and then also in Japan. One stat that I really like is rocket delivery in Taiwan scaled faster in the first 10 months of its launch than the first 10 months of the launch in South Korea. They clearly seem to be learning from their past. Little things like that, seeing how it moves going forward is going to be really important.
Mary Long: We've talked a lot about this market dominance and penetration within South Korea. But I have to ask because it's almost impossible for me to believe that they're the only player in the game, are there any potential competitors in that country that you're keeping an eye on that could come for Coupang or already are trying to come for Coupang?
Alicia Alfiere: There are definitely competitive forces. There have been for a while. The one to keep an eye on is Alibaba. They recently announced plans to spend over $1 billion in the next three years to try to build out infrastructure in South Korea. Remember I said that strategic logistics footprint is a competitive advantage. That's a fair amount of money and time that's going to take Alibaba to try to match them. Coupang has the lead here and it's no stranger to competition, but that doesn't mean that the company can sit back on its laurels. It has to continue to serve and delight customers and find new ways to get customers to engage with its offerings.
Mary Long: They are trying to find new ways to get customers to engage with their offerings. There's more to Coupang than just e-commerce. The company splits its revenue into two categories, one product offerings, which encompasses a lot of that e-commerce platform. Then there's also developing offerings. Those developing services include things like food delivery, video streaming, FinTech tools. Any of these that you're particularly excited about, whether that's just because it's a cool, unique offering or because it really has growth potential.
Alicia Alfiere: Yes, there is one that I'm excited about. I'm most interested in watching Eats, and it's not just because I'm a foodie. It's also because Coupang reported something really interesting last year. They said that wow members, which are like Amazon Prime members. Those members that used Eats have a higher retention and are more engaged with Coupang. That's pretty exciting, especially if that continues. If that happens with some of the other developing products, I think we could potentially see the beginning of a flywheel effect. Even though, there might be some other parts of the developing story that maybe are getting more pressed like Farfetch, I do think that Eats is going to be really something to watch.
Mary Long: You walked right into it with the Farfetch tizz.
Alicia Alfiere: I did.
Mary Long: [LAUGHS]. But I've got to ask you, Coupang acquired Farfetch in January of this year, and they dropped $500 million to save this luxury e-commerce platform from bankruptcy. Let's time travel back to January of this year. What were your initial reactions to this acquisition? Then we'll check in on where things sit now after they've reported earnings.
Alicia Alfiere: I think this is a good example of the importance of thinking slowly or taking your time and not thinking emotionally. My initial reaction was definitely skepticism. It's OK to have an emotional reaction and a first reaction. But then I remembered what I liked about this leadership team, how careful they are in their investments, how they will take a risk, but that they're careful to make sure that there's a return on those investments. New business is profitable or generating cash before they put in more money, and they're not afraid to end a bad investment. That was the mental math that I walked through when that announcement went up.
Mary Long: Then fast forward to today, how is this acquisition, still early days, but how is it panning out thus far?
Alicia Alfiere: It's still really early. Again, they've only acquired them. I think it was the end of January of this year. As of the first quarter, Farfetch helped boost revenues and gross profits, but it negatively impacted the bottom line. There are all kinds of levels of success that are possible here. I think if Farfetch can become profitable and cash generative, that would be a huge success for Coupang. We'll see how they do here and they have a goal of getting close to positive adjusted EBITDA by the end of the calendar year. I'm going to be watching to see if they're able to do that. At the same time, if Coupang simply gets to try out, selling luxury goods, gets access to inventory, perhaps even business relationships. That could potentially be a success as well. If Farfetch itself doesn't necessarily work out, because like I said, they're OK with pulling the plug and then applying learnings going forward.
Mary Long: You've highlighted this management team as being pretty savvy. I just want to point out that in 2022, Coupang was burning cash. Last year, it turned that around and generated $1.8 billion in free cash flow. That's something to celebrate right off the bat. We are diving into the details a bit. What fueled that kind of cash generation and that turnaround?
Alicia Alfiere: That was actually one of the things that got me really intrigued by this company. A big driver in this cash flow story was improved profitability. The company went from a net loss of 92 million in the prior year to a net income of over 1.3 billion in 2023, and some of that was driven by early signs of operational efficiencies as well as some logistics improvements. But I really do have a love of companies that can generate free cash flow.
Mary Long: That's all good news, and this turnaround is an impressive one, as you highlighted. But today the stock is down 56% from its highs. If you put on the opposite minded cap. Why is the market down on up, do you think?
Alicia Alfiere: These are important questions to ask. I would say that past performance isn't always an indicator of future performance, but it's still important to understand the history here. Excellent question. I think some of the reasons or some of the issues that probably didn't help prices were competition concerns, lack of profitability from before. There was also at one point a concern about Coupang being able to grow like gang busters as they had in the past. You can't grow at super high rates forever. It's just not feasible unless you could eat the world. There were also some labor scandals. But, more recently, we've seen some volatility after Coupang purchased Farfetch and after the last earnings report because they slightly missed earnings estimates. But overall, prices have been trending up since February. But here's the thing. You often, pay a premium for a really hot stock with a really rosy consensus. That's where looking deeper at companies and finding companies that are perhaps underappreciated, over-punished, overlooked can potentially help you zig while others are zagging. That's why I got interested in Coupang because they had this story where they were going from massive growth to a focus on profitability and cash generation and sometimes it takes a little while for the market to appreciate.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buyer sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
