In this podcast, Motley Fool contributors Travis Hoium, Lou Whiteman, and Jon Quast discuss:
- Netflix offering all cash for Warner Bros. Discovery.
- Tesla FSD monthly subscriptions.
- Google's new AI products.
- Bank earnings.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.
A full transcript is below.
This podcast was recorded on Jan. 16, 2026.
Travis Hoium: Earning season has begun, but the drama at Netflix is where we're going to start. Motley Fool Money starts now.
Welcome to Motley Fool Money. I'm Travis Hoium joined by Jon Quast and Lou Whiteman. Guys, we got to start with the drama at Warner Brothers Discovery this week. Paramount is begging the EU for help. Netflix has reportedly considered changing its bid to all cash. Remember, there was a piece of that value that they're saying that shareholders are going to get through the spin off of the cable assets. The early trading at Versant has not gone very well. That's a spin off from Comcast. Lou, what's going on here? Because it seems like there's a lot of moving pieces. The board at Warner Brothers is pretty resistant to Paramount. Depending on how you look at it, they either make sense or you just want the most money, and that's where they should go.
Lou Whiteman: I'm going to make a bold prediction here, because you're right. There's a lot going on, a lot of moving pieces, but really, it's very simple. One of two things is going to happen. Either Netflix is going to end up buying Warner Brothers discovery or there's not going to be a deal done.
Travis Hoium: You don't think Paramount can actually get a deal done?
Lou Whiteman: Look, Warner Brothers Discovery's Board has already decided what they think. For the upstart acquirer to try to poison the well in Europe and try and just salt the fields, that's not going to help. Going scorch search really only helps when you are the bully. When you are the one that can dictate terms. If you're an underdog, you can't overwhelm this opposition. I don't see this going well. I think this is only going to get uglier. It's possible that what Paramount's trying to do will work and the deal will get blocked, but it is going to be a long time, I think, before the WBD Board says, Oh, you know what? Never mind, Paramount is the right choice.
Travis Hoium: What is the thinking there? Because it seems like you should just take the higher bid, and if Paramount actually has the higher bid, that's what you do. But there's execution risk here. What is the argument for just sticking with Netflix through thick and thin?
Lou Whiteman: Well, for one thing, higher bid is up for the bait, because as you said, the Paramount bid is for the whole company. The Netflix bid is the whole company minus the cable assets. It comes down to what you might think those cable assets are worth, what is going to give a shareholder more value. The other side of it, you never know on the back like, just behind the scenes. It could be relationships. It could be golden parachutes, or it could just be.
Travis Hoium: You're saying there's egos involved in Hollywood.
Lou Whiteman: There are. It could simply be is that we've talked about this offline. Paramount is a much smaller company than either of these. They are doing everything they can to look big and to present themselves as a good option. But look, there's risk anywhere you go here. I think there's real risk there. Netflix, look, this is a big deal for them, but they can handle this. They are more, I think, of a known entity, a trusted partner. If all else is equal, I can see the board saying, let's go with this. Let's go with this trusted partner. Whatever the cable upside is, we're preserving it for our shareholders and get a deal done.
Travis Hoium: The analogy that we were talking about was taking the higher offer on selling your house, but you're selling to somebody that isn't yet approved for a mortgage. You just increase the risk of that deal actually closing. I want to just bring some stats in here for Versant, which is the spin off from Comcast. That started trading about a little less than a month ago. That is a $4.8 billion market cap. The shares have gone from about $45 per share down to $33 per share. That's the, maybe these cable assets aren't worth anything. Paramount has actually argued that the equity will be worth zero, which.
Lou Whiteman: Wait, 4.5 billion isn't nothing, though.
Travis Hoium: Yeah. It's something. John, what are your thoughts when you look at this deal? Because there's just so many not only egos involved, but weird financial implications as well.
Jon Quast: Now, I get it for Paramount. It's homecoming in the streaming service space, and Paramount's running out of dance partners. There's consolidation happening, and Paramount doesn't want to be the smallest player. I get why it wants Warner Brothers. But it's very hard for it to pull off because it is such a small player. Netflix is going to be a lot easier. It's going to have much easier access to the capital to get this deal done. I'm still not convinced though this is a great move for Netflix, and I will give an example here of Disney acquiring Fox back in 2019. Disney stock has underperformed since it did that move, and a big part of that is how much leverage it took on to make it happen. This would be a big move for Netflix. I don't know where it's going to come up with all the cash either, maybe some debt in that mix, maybe some equity. I'm not sure where that all comes from, but it's the one that can get the deal done for sure, and it's going to be able to do it a lot faster. I think that's what it's trying to do by potentially switching that bid to all cash. Get the deal done as quickly as possible before too many people ask questions or a dark horse comes in with a competing bid.
Travis Hoium: Well, let's talk about some of those potential downsides if Netflix does get this deal done and they do it with cash. Let's say they have to take on a whole bunch of debt. Your analogy is that, yeah, Disney the hamstring itself for a while there, they paid down some of that debt. The operations have gotten a little bit better coming out of COVID. But there are downsides of having that interest payment and that leverage. Maybe you can't bid on the next big football deal coming up. By the way, that's going to be in the next few years. Disney's big advantage in the media space right now is they have all these theme parks. Netflix is trying to move into this physical experience world. Do you still have the cash to do that, build out a 5, 10, $15 billion theme park if you've got $80 billion worth of debt? Is that the risk that you just reduce your flexibility or what should you be worried about if you're a Netflix shareholder taking on a bunch of debt, John?
Jon Quast: I think that that was the exact word I was going to use is flexible. You're just so much more flexible when you don't have a high debt burden and when you are generating a lot of cash. You have a lot of options on the table. You boost that debt up. You take the options off the table a little bit, and I'm not saying that it can't be a market beating stock, but your attention really becomes more divided on maintaining and running the business rather than how are we going to invest into growing the business for the next big thing?
Lou Whiteman: I don't want to be too Polyana here, but let's look at this. For one the original deal was about 60 billion in borrowings for Netflix. They've already signed deals to get rid of the bridge on about 25 billion of that, which is going to help their interest rates. They generate 7-8 billion in free cash flow a year. Disney, it was a third of that or a quarter of that back in 2017 when they announced the Fox Deal. I'm not going to say this is easy for them, obviously. I agree that no debt is better than debt, but I think they can handle this. Look, yes, I think what Netflix is telling us is they need this. Look, this isn't a luxury. They are looking at the world. Yeah, Travis, they may want to compete for sports. They've done a pretty good job transitioning from a world where everyone was desperate to sell them their content because it was added revenue to nobody wants to sell them that content because everybody's got a streaming service. They've done a good job adjusting to that, going to Korea, going elsewhere to find content, but that's hard. I trust this management team. It's the smartest management team in the business. I don't think they would be doing this for Empire Building, doing it Willy Nilly. They know, yes, this is going to change our profile. But I think as a shareholder or I'm not a shareholder but if I was a shareholder, I would trust this management team to set the course, and they are saying, this is something we really need to make our lives easier, to make the company better versus this would be fun to own.
Travis Hoium: That seems really shocking to me because even when this deal was announced, I think we talked about on Motley Fool Money that this seemed like a defensive move from Netflix, and they have not been playing defense for 20 years. What they really need to think about and investors need to think about is that it's not really Paramount that they're probably worried about, it's YouTube. The random deal that came out yesterday that caught my eye was Sesame Street is going to now be on YouTube. If YouTube is already very popular for kids, there's more people streaming YouTube than Netflix. There's more revenue at YouTube than Netflix. But if the default for Sesame Street for sports, for award shows now moving to YouTube, that seems like an issue for Netflix. What do you think, John?
Jon Quast: It's so crazy to even imagine that we're underestimating YouTube right now because of how big it is and how popular it is, but I think that's the case with a lot of Google things. We'll probably talk about this later in the show, but it has such a massive scale in reach and distribution that there are a lot of options at Alphabet's disposal, and I think that the Sesame Street with YouTube is just another example of that.
Travis Hoium: Quick question for both of you. I'll start with you, Lou. At what point is Netflix stock a no brainer? Because I'm starting to get interested. We're down about 33% from the highs $400 billion market cap. Where do you start going, Man, this is too cheap to pass up.
Lou Whiteman: There is risk here. I think if you're a long term investor, though, I do think Netflix, like I said, they have the best management team. They have a huge customer base. I think if you've got a long enough time horizon, then you're willing to ride out the volatility, I don't know when it isn't a no brainer. I think if you're interested in buying, then yeah, I do think whatever happens in the next six months a year, I like the chances of them making it work in the long run.
Jon Quast: I'd say it's probably lower to be a no brainer. I think it's probably a brainer here, though. If you take some time to look at it, assess the risks that we are talking about, it could probably turn out to be a good investment today.
Travis Hoium: When we come back, we're going to talk about the changes at Tesla and FSD. You're listening to Motley Fool Money.
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Travis Hoium: Welcome back to Motley Fool Money. FSD has had an up and down year for Tesla. Robotaxi has began testing in Austin last summer. By now, we were supposed to see FSD driving fully autonomously all across at least the US. That clearly hasn't happened, but the big news this week, Lou, is that pricing is changing. They're getting rid of this $8,000, you own FSD forever, to go into a monthly or yearly subscription so I think the most common would probably be paying $100 per month for FSD. What should we take away from this not only for people who own a Tesla, but also Tesla shareholders?
Lou Whiteman: I'm going to focus on the shareholders because, if you're a customer, you either have it or don't. But think about it this way, you very rarely see a company trade 8,000 upfront for 8,000 over what, 6.5 years or so, which, 99 bucks a month is. You don't do this because you want to. You do this right after Nvidia at the consumer electronics conference came out with basically what looks to me like Android for autonomy, where instead of this closed system and everybody has to develop their own IOS, you suddenly have just a system that anyone can take on. That changes the costs and the economics for everybody in the industry, and I think it puts Tesla on the defensive. This price has always been just a bogie that changes. It was as high as 15, as low as five at various points. This has always been aspirational, I think, to charge 8,000 for it. We have a long history in the automotive business of things that are perks or safety features that just become standard over time. They've become commoditized, and I think that's what's happening here, and Tesla is on the defensive realizing, OK, it's going to be harder to get eight grand for this in the future. Let's get what we can and the $99 price point is an easier sell, I think.
Travis Hoium: John, the interesting thing is that the $99 option was there, so they're just taking away the other option, which it just seems a little bit strange from an optics perspective, but is this a big deal or just kind of a nothing burger in the long run?
Jon Quast: Well, as Lou points out, who knows if this is the final offer, either. There are many, many changes to Tesla's pricing over the years, so who knows if this is the final deal. But I think it is more of a nothing burger. Tesla is interested in the monthly subscriptions, and you do look at Elon Musk's new pay package, there is incentives tied in there to how many subscriptions that they have, and I don't know, maybe this is a way that it boosts monthly subscriptions and helps them reach that milestone. Maybe not. I guess that's up for debate. But certainly, I get Lou's point, and it's well taken.
Travis Hoium: Let's move on to Google. We talked a lot about them on Wednesday, if you want to go back to the Wednesday Motley Fool Money Show. But since then, and the announcements just keep coming so quickly from Google. They announced personalized AI. Gemini can now understand your personal context. If you use Gmail, Photos, your YouTube history, and more, some of the examples were things as simple as, what are the best tires for my car? You don't even put in what your car is, AI has to figure out based on your history what your car is. Then I love this one. What's my license plate number? Because I couldn't answer that question for either of our vehicles. Meanwhile, Claude showed Co-work, which can clean up your desktop. That was the first example. John, does Google get AI better than anybody else? They seem much more incremental. But the products, when I look at these announcements, they just seem like, I can actually see myself using that, whereas, Claude, I don't have a messy desktop. Give me a better example.
Jon Quast: Well, I think it's a little bit strong to put it that way, Travis, that Google gets AI better than the other players. What I do think that Google has that is extremely valid here is that it can execute at a higher level because of how many billions of people are already deeply embedded into the Alphabet/Google ecosystem.
Travis Hoium: I believe it's nine products with over a billion users right now.
Jon Quast: That's incredible distribution and scale. If you're looking to do personalized AI, and I think that a lot of these players do want to do this, but Google can execute better because it does have more personalized information about you. I think this is really Google's advantage here.
Lou Whiteman: I think I agree with you. Let's be honest. Some of it's a parlor trick. Travis, you may not know what your license plate is. I don't either. I take a picture of it when I need to pay something later. But I do know what kind of car I have, and I can Google and search right now, best tires for a Honda Insight or something like that, whoop dee do. But like John said, Google is playing to its strength. It has been spying on my email and my photos and everything to suggest products forever. [LAUGHTER] This is just a natural extension. Hopefully, AI makes them better. I love the fact that I like one team in English soccer. They think I must want to buy stuff for every team in that league.
Travis Hoium: It's like you buy a toilet seat once and Amazon thinks you want toilet seats forever.
Lou Whiteman: They're playing to their strengths. I thought the Cloud Cowork thing, I thought that was actually pretty ingenious, whether you need it or not. Bottom line here, what's really going on, everyone is experimenting, everyone's trying new things. Everything's flexing. Google is this consumer focused company, so they can do all these things that seem really cool and relatable. I don't know if anyone is better at it, but I think what this does show, I keep coming back to this is that as all of these companies try to get their AI out to the world, Google's real advantages, they have so many more just natural avenues for monetizing. They are in so many homes, so many phones, so many consumers already, it is just a much more natural thing to see them adding AI as a bolt on versus a Claude or open AI or all these trying to basically have to win every customer from scratch.
Jon Quast: I think the proof of that, Lou is, just how quickly, for example, Gemini is gaining market share right now. This company launched Bard. Does anyone remember Bard? That was a stumbling.
Lou Whiteman: Even the launch of Gemini was terrible. They had those images that were just completely inaccurate, that was a huge black eye, and that was Gemini. People forget that.
Jon Quast: For sure. But how quickly Google has been able to recover and take market share because it does have the advantages of distribution, vertical integration. Now, OpenAI is making deals to try to better compete, but Google just has such an amazing amount of muscle that it can flex here.
Lou Whiteman: This isn't a prediction, because I think that, I already talked about Google's natural advantages, but I think that the important thing there is how quickly this can change. I don't think anything is set in stone yet. This is still the Wild West. I think Google looks great right now. Maybe it will two years from now, or maybe it'll be another even crazier ship.
Travis Hoium: When we come back, we're going to talk about stocks that are either values or potentially value traps. You're listening to Motley Fool Money.
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Travis Hoium: Welcome back to Motley Fool Money. One of the things we often talk about as investors is values versus value traps. Let's see what Lou and John think about some of the potentially down and out companies. It might be great values that we look back on being obvious opportunities in hindsight. They also may be value traps. Let's start with a really popular one today. That's Adobe. John, I want to start with you, $127 billion market cap. The price earnings multiple on a trailing basis is just 18. This is a company that has grown revenue over the last three years at a 10.5% clip. But shares are down 57% from their high. Is this a value or a value trap right now?
Jon Quast: I think it's a value. I'm so glad you brought this to the table, Travis. I don't normally look at Adobe, so I wasn't really familiar with the numbers at the moment. But as you point out, it's down a lot. Trading at 13 times its free cash flow, and you look at some of the things going on with Adobe's business, gross margin is at an all time high. That's a strong signal. We also have double digit revenue growth. Granted, it's just a hair north of 10%, but that's still double digit at this scale. The share count is down because, as I mentioned, the free cash flow, and it does have things to reward shareholders. I think this is a value stock right here today.
Lou Whiteman: The obvious concern is AI is going to eat their lunch. To some extent, I think we've seen this. The bullcase for Adobe a few years ago was all of us normals, we're going to use a cheaper version of their product.
Travis Hoium: The Canvas of the world or even like Gemini to make images.
Lou Whiteman: That business has been wiped out. If I am not a professional user, I'm just going with Nana Banana or whatever. But I do think that the professional class that relies on Adobe, Adobe is applying AI to that. I do think that they can stay ahead of the wolves, at least for now. I don't know if this is going to be a home run stock, but I do think the market is overreacted, and I do think it can be a long term market beater just on the strength of their products and their ability to serve customers that are really the free stuff is going to have to get really, really good before professional users abandon Adobe.
Travis Hoium: I think that's the thing I struggle with the most with Adobe is I think you're absolutely right. I use Canva. I use some of these free tools. I do not use Adobe products. But Dan, behind the glass, does, because he is much more of a professional producer than I am when I make a video. My question would be, can they increase the number of people using their products, Lou? Is that a fundamental challenge? If you can't increase that number, really the only lever you can pull is price increases, and if that's the case, then what do you want to pay for a stock like that? Are we at that territory, because this isn't 10 times earnings, it's still almost 20 times earnings.
Lou Whiteman: But as John pulled out, is that they are a cash flow generating machine and that they can. I think you can win that way over time, too. Again, I don't see this as being a slam dunk, but I do think that whatever that boogie is, a 7% market average, I do think over time they can outperform the market.
Travis Hoium: Let's go to another one that has gotten a lot of attention. The trade desk down 74%, and this is just in a little over a year, crazy decline for the company. Priced earnings multiple on a forward basis still over 20, enterprise value to sales is six. Lou, is this getting to be a value, or is this a value trap or this can still fall?
Lou Whiteman: I am a long time holder who has not sold or added to the trade desk. I think it is a market beater from here, but similar to Adobe, I don't think we're getting back to where it was before. I think I was wrong. I saw this huge opportunity, and I saw them just capitalizing on it, and I didn't factor in the fact that, yes, Amazon and a lot of other people were going to come into this market opportunity too. I think the trade desk has great products. I think the products are getting better every day. I think they can hold share and slowly grow share. I do think that it is value here, but I just think that it's always going to be they're going to be elbowing with other deep pocketed competition so it's not going to be as Gaga, as easy as just to the moon as we once thought it was.
Jon Quast: I think that's a really good way to put it, Lou. I would agree I would lean value here, but I'm not screaming value necessarily because of the fact that revenue growth has slowed down. Its gross margin trend is down a little bit, too. Those are a couple of signals that I look at here from the competitive landscape point of view that why isn't it growing as fast as it once was? Now, obviously, as it scales up, it's going to slow down some, but it seems a little extreme, especially considering that big players such as Amazon are ramping up. You look at that and you say, is this a long term fundamental risk. I think that there's still a place for the trade desk, and in which case, yeah, relatively speaking, it's a decent value, but is it necessarily a no brainer? I wouldn't go that far. I wouldn't say that I'm convinced of the trade desks long term ability to compete right here in a changing landscape.
Travis Hoium: Let's go to PayPal, which has been on the value investor watch list, I'll say, since at least 2022. You might remember this is one of the hottest stocks in the market. 2021, 2022, shares fell about 75% by the middle of the year. But guess what, since then, shares are down another 5%. This is a $53 billion company. They're a household name. Not growing real strongly, three year growth rate, 6.7%, but they're profitable. Price earnings multiple is just 11. John, there's got to be value here somewhere, but are we there, or is this still a trap like it's been for the last three years?
Jon Quast: I would also lean value here with PayPal. But as you point out, what is interesting right now with PayPal is, there are so many players in this space. It feels like it is a pioneer, but it feels a little bit stodgy at this point, and so it's like, is PayPal losing its relevance? It's single digit revenue growth. That said, it still is a free cash flow machine, and it is reducing that outstanding share count by a material amount that can move the needle over the long term, so if it can just hold on to what it has and maybe even grow a little bit from here. I think it does work out OK for shareholders.
Lou Whiteman: I think that's it exactly. Share Count is down about 20% over the last five years. That's good. PayPal is a mature business in a really, really competitive industry. Everywhere they want to go, there's a ton of other options. This is not one that I personally want to lean into because I do think it is what it is. But I don't think that it's a trap, as in it's destined to fail. I think that this is a market performer at worst, and look, they have some good assets. They have good products. I just don't know if I can get a wow out of this one. I'm more open to the idea that Adobe and The Trade Desk can outperform from here than I am PayPal.
Travis Hoium: That growth rate is always what sticks me. It looks like a great value, but the new single digit growth rate. I don't know. We'll see about that one. Let's get to one that's very high on the volatility list. Hims and Hers shares are down 54% from their high. That was in early 2025 $7 billion market cap, but enterprise value to sales is just 3.5, and the five year growth rate, Lou, 76%. Is this a value or a value trap?
Lou Whiteman: How can we even have this conversation with a company that's valued at 65 times forward earnings? This is not a value, period. It may work out as an investment, I may not, but it is not value. You can give me enterprise value to sales all you want. But look, this is a company that is still in the point of its life where it's, let's try everything and see what sticks. It could work. I compared this company to Icarus before. They are trying to fly but not too close to the sun. It could work out, I could not, but I don't even know how to look at this as a value or a value trap, when relative to what the business actually is, the stock just isn't there. The stock is pricing in them figuring out a lot of things from here. They may do it. I'm not saying they won't I just have to say neither. I reject your premise, Travis.
Jon Quast: That's so good. I think if you look at, yeah, Hims and Hers, the business, if you're looking at the stock and saying, oh, I want to buy shares because it's so cheap, I don't think that's the right thesis. I think that you have to say, do I understand what this business is attempting to do? Do I understand the risks and the hurdles that it's going to have to climb over to get there? I think that needs to be your fundamental approach to s and hers, so I would say that if you're looking at the valuation, that's leaning more toward TAP. You really do need to understand this business because it's not a no brainer. It's not a for sure thing to happen.
Travis Hoium: Lou doesn't like unprofitable companies being values, so let's talk about an unprofitable company, six flags entertainment. They were hot at least for a week in 2025 when Travis Kelsey announced he was taking a stake in the company. Only a $1.6 billion market cap. Enterprise value to sales is two. But like I said, not profitable, even on a forward basis. The price earnings multiple is 67. John, is there some value here somewhere in shares that are down almost 75% from their peak?
Jon Quast: I wish there was. I really do. I like six flags as a customer, but I think this is a trap all day long. Normally with these companies, at least you have a nice dividend, right, that you have and it's low growth, and it's total returns, a thing. You don't even have that with Six Flags right now, so I think that it has a lot of things that it needs to do in order to just execute on the strategy. It combined with Cedar Fair, all the things that it's trying to do. I think it has a lot to figure out, so I'm saying trap here.
Lou Whiteman: It should work, because real estate matters. They have all of these properties, what? 40 something 50 properties. It should work. Again, I haven't necessarily felt compelled to buy in myself. I don't know when, but I do think that I probably believe they're not going under. It's not a trap, and that they will figure out a way to make this work eventually. I just don't know how long that would take. I guess I'll squint and say value, but, it should work, darn it, and it so far has not.
Travis Hoium: This is the hard thing with companies that seem like their values is you have to look at not only revenue growth, but also margins and then what's the catalyst to go from a seemingly low valuation, whether it's price to sales multiple or price to earnings multiple to a higher valuation, and with some of these stocks, it's not always a clear picture forward. That's why they're potentially values or value traps. When we come back, we're going to talk a little bit about bank earnings and get to the 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. All personal finance content follows the Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our showns. Big banks were on deck for earnings this week. They always start off the earnings season. Lou, what did we learn from the big banks that we heard from this week?
Lou Whiteman: Very cautious. Not terrible, but cautious, I think, is what we would say. We like the banks because the banks are a barometer for the economy. Let's focus on loan growth, Travis. Bank of America loans up 8%. JP Morgan Chase 9%, city 7%. Glass half full, that's a confident consumer. Glass half empty. That's a desperate consumer putting everything on their credit card because they can't afford to pay their bills. We don't really know the answer there. JP Morgan made headlines a huge, huge boost in their provision for credit loss up to 4.6 billion.
Travis Hoium: Explain what means?
Lou Whiteman: Basically, you have to, and as a shareholder, you don't necessarily mind this because they are required to set aside funds just in case the loans go bad, so they can still pay their depositors, and it's based on what they're seeing. A big uptick would normally suggest something. They're seeing things turning south. They're getting worried. But they are also buying the Apple Card, so part of that, and maybe much of it is just trying to get ready for that. Everything looks OK but not great, which is, I think what we knew anyway. The banks had a great year last year. The stocks all sold off after announcements. I think that is almost expectations got ahead of themselves. They're fine, but there's a lot to at least, let's keep watching this.
Jon Quast: Yeah, I don't think that banks necessarily are the best indicator for what the consumer is feeling and what they're about to do. Going back to Lou's point, just a couple of years ago, we were watching bank balances drop and credit card balances skyrocket at the same time, so that was screaming, hey, consumers are running out of cash, and you would think logically, that's going to translate into not as many vacations on cruise ships or not as many premium purchases for these discretionary brands such as Yeti Coolers or something like that, and what we saw was the consumer was absolutely fine. The consumer continued to spend money. In fact, they spent more money than what we were expecting, so I think that banks paint a logical picture, but the consumer is not always logical. We are emotional people, and that's just how it is.
Lou Whiteman: I keep coming back to this. We tend to want to look at it as a binary thing like the consumer is healthy or the consumer is not. Really, each one of us make our financial decisions based on how we are doing, and all you need is a critical mass of people who feel OK enough to keep spending, to keep doing trips, and the consumer is fine. The thing is, you never really know if that critical mass is 65% of consumers or 50.1% of consumers. I think that's what needs to play out over this year is we're going to find out if that number or if the number of people who feel comfortable, if that total is eroding, if so how fast and by how much?
Travis Hoium: The other one that I'm keeping an eye on that I don't know if you guys have thoughts on is some of these buy now pay later companies, and it just worries me that a company like Sezzle is seeing nearly 100% revenue growth year over year. But maybe some of those that spending is going from credit cards to buy now pay later, and it's just the same thing, just a different format. But Lou, are those canaries that you're looking at, as well, or am I overthinking this?
Lou Whiteman: I think we'll only know that in hindsight. It can be a better deal, especially if you're putting it on a credit card paying 25% or so. It could be just a shift in preferences or it could be a sign of trouble, and also, remember, 100%, there's a denominator thing there, too. These are small companies, so they are growing fast. But, yeah, I think it's worth noting, but I can't draw.
Travis Hoium: Let's get to the stocks on our radar, bringing Dan Boyd for his thoughts. John, what's on your radar this week?
Jon Quast: This week, I'm looking at Toast. This is ticker symbol TOST. This is a restaurant technology stock, and its products are used by over 156,000 restaurant locations, so think of ordering at the table, payment processing. They can schedule employees. The programs integrate with delivery partners such as Uber, and I was really doubtful about this business when it went public initially, because it was used by a lot of small restaurants, and that seemed like a very inefficient go to market strategy to me. I thought they were going to have to spend a lot on sales and marketing in order to get into one little tiny restaurant here and there. But it's been surprisingly efficient. It gets a lot of word of mouth advertising from its customers, and so it's growing fast and not spending a ton. What's really cool is this gets better just like an aging wine. As it goes, the hardware is a negative gross margin upfront, but the recurring revenue is high margins over time. Just passed two billion in annual recurring revenue, growing at 30%. It hopes to get to 10 billion in annual recurring revenue within a decade, so stock down 30% from its all time high, trading at 3.5 times sales. I think that's reasonable.
Travis Hoium: Dan, what do you think about Toast?
Dan Boyd: I feel like this is a business that's going to go with restaurants. If restaurants are doing well, Toast is doing well, and vice versa, well, not vice versa. If restaurants aren't doing well, then Toast is probably not doing well. What do you think, John?
Jon Quast: Well, I think that it is an enabler of restaurants to do better, and so it's going to ride the success of its customers.
Travis Hoium: Lou, what's on your radar this week?
Lou Whiteman: Dan, there's been a lot of saber rattling from the White House about the defense industry, and earlier this week, there was finally action. L3Harris, ticker LHX announced it's going to spin off its missile solutions business, which is basically the rockets that power missiles as an independent company, backed by a $1 billion investment from the Pentagon. The idea here is best of both worlds. L3 will continue to hold a majority of the business, but the government will fund basically an increase in R&D to spark more sales. There are a lot of details to be ironed out, but, Dan, I really like this setup. It allows L3 to focus its resources on other potentially faster growing parts of his business, while using the government funding to turn an OK but not amazing part of the business into a new growth engine. I see a lot of upside from here, and I'm excited about.
Travis Hoium: Dan, thoughts on rockets?
Dan Boyd: Well, it seems like there's a lot of corporate governance problems with L3Harris, Lou. Are we looking at any changes at the top there, or are they going to keep moving on with who they got?
Lou Whiteman: You know what? I really like their CEO, so maybe I know he had a checkered past with Lockheed Martin, I like him there. I hope he stays on.
Travis Hoium: Dan, what's going on your watch list? Rockets or restaurants?
Dan Boyd: Well, I'm not much of a rocket customer, Travis, so I'm going to go toast.
Travis Hoium: Toast is one of those companies that I'm always happy to pay with Toast because you don't have to necessarily hand over your card, so that's all the time we have for Motley Fool Money. Thanks for listening. We'll see you here tomorrow.
