Latest news with #AsitSharma
Yahoo
27-05-2025
- Business
- Yahoo
There Is No (Convenient) Alternative
In this podcast, Motley Fool analyst Asit Sharma and host Dylan Lewis discuss: Moody's downgrading U.S. debt, and why it's somewhere between a symbolic and a substantial update for investors. Whether the downgrade and "sell America" thinking mean international investors are rethinking whether there is no alternative (TINA) to the U.S. Coinbase joining the S&P 500, and crypto's continued march toward legitimacy. David Henkes, a restaurant industry expert and senior principal at Technomic, joins Motley Fool host Ricky Mulvey to talk about why more people are brown-bagging it for lunch, and what successful restaurants are getting right. 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. Before you buy stock in Coinbase Global, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Coinbase Global wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $804,688!* Now, it's worth noting Stock Advisor's total average return is 957% — a market-crushing outperformance compared to 167% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 This podcast was recorded on May 19, 2025. Dylan Lewis: Moody's joins the crowd on US debt. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst Asit Sharma. Asit, thanks for joining me today. Asit Sharma: Hey, Dylan, thanks for having me. Dylan Lewis: As we catch up on the news this Monday morning, the macro picture stays very much in the headline. Market starting up to week down a little bit after ratings agency Moody's downgraded US debt on Friday. Asit, SMP Fitch head downgraded US debt several years ago. Moody's finally joining them. Is this a symbolic change or is this a substantial change? Asit Sharma: I think it's in between, Dylan, so they changed the debt rating from A to as or AAA to Aa1. That's a slight difference, but it is a notch down, and it does join its peers, which had already taken VS out of their top-tier rating bucket. What does it mean? Well, Moody's pointed to higher interest rates and, of course, the burden of our increasing debt as a country. These are long-term things. Interest rates have been elevated now for a few years, and the debt has been around it feels like it's been around since I was born, only gotten more out of control. This shouldn't be a surprise to investors. In fact, after some initial I think Sellof in the futures this morning being stabilized a market realized, well, everyone knows the situation the US is in. It is still by far, the preeminent currency. In the world, the reserve currency, and there's still a lot of advantages to the US. It's not like it's a terminal problem, but one more sign that really from a policy basis, and this is going across multiple administrations from both parties, we've got to address our debt, and there are some other things you can read into it as well. A little bit of the volatility in the rollout of the tariffs that the Trump administration has passed through is playing into this as well. Dylan Lewis: I like that you talked a little bit about the long arc there. Moody's in a statement said, Hey, this is successive US administrations and Congress failing to agree on measures to reverse the trend of larger annual fiscal deficits and growing interest costs. This is a problem that has been building for quite some time. It seems like both the rating agencies and the market are looking for some sign that deficit will get under control, and that would rebuild some of the confidence in US debt and make a little bit easier for the US to operate. Asit Sharma: I think that's exactly what the market is looking for. When you go back to the last time the US got its ratings cut from basically just flawless credit where it is today, which is still pretty good credit. It's just not thought of as being risk-free anymore. It was more about the inability of policymakers to even pass resolutions so that we can fund our own government. That was really what shook the markets last time around. Now this is acknowledging that we can't run these deficits forever. As a country, we've got to find a way to bring our debt relative to our GDP output back in line. It's a little high just now, and it's not something that we can't solve. We could do this, but what it's going to take is some pain. One thing that politicians don't like to pass downstream is sacrifice, pain, burden because they feel like they might not make it back into office when they're up for reelection. This is the key problem in the US economy. It's not really about the deficit. What it is, it's about politicians who are scared to come clean with the American public and say, Hey, we've got to make some sacrifices somewhere because this isn't sustainable. Dylan Lewis: When creditworthiness comes into question, we typically see yields on debt go up. We are seeing that the 30-year treasury spiked above 5% in the wake of this news. We talk about the federal government being the foundation for borrowing and for debt in the United States. What does it mean when something like this happens for companies and for borrowing in the grand scheme of corporate finance? Asit Sharma: It's tough because corporations utilize debt in two ways. We're all familiar with companies issuing bonds to finance expansion or maybe just to reshape a balance sheet. Everyone understands that only the best companies can access the bond markets at will when interest rates get elevated. But corporations use a lot of commercial paper, too. These short-term interest rates rising has made commercial paper more expensive. Even the everyday functionality that lots of corporations use as a form of liquidity becomes more expensive, which means then downstream, they've got to keep more of their own capital in their treasury accounts, which means the CFO somewhere is saying, I don't know if we can spend all this on capital investment this year, I need more money in the bank because I'm not paying X percent more interest on our overnight paper. It has all these weird follow-on effects that we rarely think about as investors, but it's just a slow drip drab of problems just as in the real world, for us, you see that 5% threshold being crossed for the 30-year, and then you're trying to buy a house, and you look and you're like, Whoa, what happened to long term mortgage rates? It looked like it was getting better. This is way too much. I'm going to hold back now, and maybe I'll keep renting for a while. We all feel it. Corporations feel it and citizens feel it. Dylan Lewis: It's the financial Rube Goldberg machine. It starts off in one spot and just works its way through everything else. Asit Sharma: Totally, you can't understand how it works looking at it. Dylan Lewis: After the tariff escalations in early April, there was this sell America concept, the Sell America trade that got a lot of noise in the market. This seems to have stoked that a little bit. For the longest time, for certainly most of my investing life, the acronym has been TINA. There is no alternative to investing in the US, and that the US market in particular is risk-free debt. Even with all these concerns, Asit, is there really an alternative? As people are seeing these headlines, is there somewhere else that investors are going to be looking to park their cash other than US treasuries, other than the US stock market? Asit Sharma: Dylan, there is no convenient alternative. Let's put it this way. If governments want to take the trouble, if corporations want to take the trouble. If the US public, which is a big buyer of US debt wants to take the trouble we don't need to buy these bonds. You can go buy German bonds, which are perfectly safe and almost seem attractive because while the German government has its share of political problems, it doesn't seem near as chaotic as we have been over the past six months or so. It's just something that as technology increases, corporations find it easier to look elsewhere. The markets are pretty liquid in Europe, and even some investors are looking to Asia to place money. I think in the future, what we're going to see is countries like China, which has for a long time, said they wouldn't mind breaking the dollar's dominance, cooperate with other brick nations. There's a whole chain of countries that want to be in on bricks, by the way. I think you'll see that, especially on the sovereign level, governments will take the trouble to utilize other currencies, A, for trade and B for what you're talking about, which is to park assets, to park sovereign assets instead of in the United States, do a little work and spread them out among a host of other countries that in the past just didn't seem viable, but a global trade, which is not going backwards, even albeit temporarily from US tariffs, the long term mark of that it's a very globalized society that we're going to live in from here on out. It is something that governments can consider. Now, to our advantage, you can't do this overnight. We got time to fix the problem, but come on, people. Come on, policymakers, we need to solve this and soon. Dylan Lewis: It's been a busy week for Secretary of Treasury Scott Bessent. He has been taking questions on the country's debt, but also talking to leadership over at Walmart after the company made it clear in their earnings release, tariffs mean higher prices for consumers coming soon. As we were talking before we got on air, about how the tariff story and Walmart ties very directly into the deficit story and what we are seeing with US debt. Walk me through that. Asit Sharma: Walmart is a company that does about $680 billion worth of business in a year. That's the top line number, the revenue number. It also enjoys a really favorable tax rate as all US corporations do. Corporations got a tax break in the previous Trump administration, and that was set to roll back. What's happening now is, of course, we have this year's legislation, and it looks like those tax cuts will actually stay in place. There are some theories out there that point to how tariffs are related to the deficit, and that the imposition of tariffs is one way to bring money back into the country. I would say that Secretary Bessent would argue that it's not really about taxing the consumer, but it's having corporations pay their fair share once tariffs are imposed, which actually brings up something that many of us miss. When you read the headlines, it's all about China should eat the tariffs or the US citizens are going to eat the tariffs. Actually, there's that party, there's the intermediary between this foreign country that exports the goods and us who buy them, and that's a place like Walmart. By the Trump administration's eyes, Walmart should absorb this. I think President Trump used the word eat that they should eat the tariffs, and he points out that they have billions of dollars in profits. Now, before I get to those profits, we'll just take a step back here and say that this is one part of the puzzle to potentially reduce a deficit, which is to raise money by the imposition of tariffs. Now, it's not going to solve the problem because there are so many trillions involved, but it's one more way to bring in some revenue to the federal government. The two are related in that way, getting back to Walmart, though. This is a disciplined company that didn't get to be the biggest company buy sales on the planet by being undisciplined or not being focused or bending to anyone. It just asked Walmart suppliers. They know how to play hardball. I'm thinking about this. I don't know what the future is going to bring, Dylan, but I will say that Walmart has a very good argument to hold the line here, maybe, and push back against the Trump administration. It's about just basic economics. Walmart may sell so much each year, but their operating margin is only 4.3%. What that means is the Trump administration is very correct to say they're making billions of dollars, but they got this absolute scale where the revenue is so high, just a little bit of profit brings in billions of dollars to the bottom line. What happens if you break that equation and suddenly Walmart has to absorb 30% increases from the biggest flow where it gets its goods that we buy? They don't have a lot of wiggle room and very quickly, you could see if they just yielded wholesale to this proposition, all of that would evaporate, and they would be negative. They'd be losing billions of dollars. I think this sets up a very interesting dialogue. I don't know how much of it is going to be public. I think Walmart would prefer as you and I were chatting, before the show, for this not to be in the public eye, they would have these conversations behind the scenes with the US government, but it does set up an interesting push-and-pull to see where that line is where I think Walmart may concede a little bit and telegraph to the administration. Okay, we'll try to absorb some of this, but they have to stop at some point because ultimately they understand who really calls the shots, and that's the shareholders there. They're not going to like that share price going down. They're not going to like seeing profits evaporate. Dylan Lewis: Closing us out today on the news roundup. The S&P 500 is welcoming a new name today, crypto exchange, Coinbase joining the index. This feels like a little bit of a milestone moment for crypto, another step in legitimacy, and it's fitting in a way. Coinbase is joining the S&P 500 because Discover is leaving it. An Old Guard financial services company being acquired by Capital One, I love the symbolism of that, Asit, and just in terms of narrative arc, it is as Chef's Kiss Perfect as I could possibly structure it. Asit Sharma: It's like the thing that was the technology back in the day is being urged out the door. Come on, Grandpa. It's time for you to go you got the new thing here. Coinbase, you have to hand it to them. Whether you're a believer in crypto, this market over the long term, they have been very key in driving the industry forward, and they talk a lot on their calls about just this driving not just their top line, but utility across the whole ecosystem. The fact that when they discuss their earnings now, they talk not just about a global spot market for crypto, but also a derivatives market for crypto and the growth of stablecoins. All of the language of their earnings call, Dylan is just showing how far they have come as a business and how there's become a financial asset in the crypto world. We always thought that and we, being myself, maybe, and a few other people that I talk to because I'm not super knowledgeable about crypto. The folks that I have conferred with this on. I've always thought that utility was going to be the greatest driver in that all the crypto assets, derivative assets, digital assets that would make it would be very useful in some ways. But I think that the fact that coin base has joined the S&P 500 is a testament to just having a financial asset, something that people can turn to instead of, say, gold, had its own existence out there, and not everyone saw that. The trading volumes prove that out. Now, let me just argue against myself for 1 second. Even though you can say they've made it. Let's congrats to them. They've joined the club. I still think so much of this is driven by the success of Bitcoin and the trading volumes associated with that one asset. That's a risk with this business. It always has been. It may be that way for a long time. If you see another crypto winter could this be one of those companies that joined the S&P 500 and very quickly, just it felt like it was plateauing or even sagging a bit? That could happen, too. Dylan Lewis: I think the reality is, if you are a crypto lover, if you are a crypto hater if you own the index fund, you now own crypto exposure. It's as simple as that. Asit Sharma: Totally. Whether you like it or not, you're also a crypto investor, so there. Dylan Lewis: You and I, fellow crypto investors, Asit Sharma, thanks so much for joining me today. Asit Sharma: Thanks a lot for having me, Dylan. Dylan Lewis: Coming up on the show, times are tough for restaurants. Industry expert and principal at Technomic David Henkes joins my colleague Ricky Mulvey to talk through why more consumers are brown bagging it and what successful restaurants are doing right. Ricky Mulvey: David Henkes, senior principal at Technomic, and a global food and beverage industry trend watcher. Thanks for joining us again on Motley Fool Money. David Henkes: Sure, thanks for having me, Ricky. Appreciate it. Ricky Mulvey: So it's a tough time for restaurants. And I wanted to get you as soon as I saw this story last month in the Wall Street Journal, especially, I think it's continuing to play out in earnings for a lot of the large restaurant chains, which is that people aren't going out to lunch. Nationwide, the number of lunches bought from restaurants and other establishments fell 3% in 2024 from the year before to 19.5 billion. But that is important in context because that is fewer than were purchased even in 2020 in the middle of the pandemic. Now, people are going back to work, but fewer are going out to eat. David, any reflections on what's happening here? David Henkes: Well, I think there's a couple of things that you have to take into consideration, and the context for this is that the restaurant industry is struggling right now. There's been a lot of traffic issues. And so when you talk about the decline of lunch and the absolute number of meals consumed for lunch, you've got to look at it in the context of the broader industry. Where last year, if you look at the numbers that we publish or I think most other industry trend watchers, last year finished very weak for restaurants in particular. Big players like McDonald's had significant issues with traffic. Their sales numbers were much lower than they were in the last couple of years. And so, I think focusing on just lunch muddies the broader context, which is that consumers have really pulled back from restaurants over probably the last 12-18 months. When you look at the inflationary environment and menu price increases, menu prices are probably about 30-35% higher than they were pre-pandemic. What that's caused consumers to do even before the current situation that we've been in with the tariffs and all of the economic uncertainty that we're sitting in here today, is that over the last 12-18 months, consumers have really noticed higher prices and have pulled back. When you talk about lunch, lunch is one of those, I guess, easy day parts where you can replace it with a meal brought in, if you're brown bagging, if you're going into work. Certainly, when you look at office occupancy, we're getting back to pre-pandemic levels, but we're still not back there. There's a lot of bigger dynamics that are going on, and I think I've said a number of times that it's harder than ever to profitably run a restaurant in today's environment than in the 29 years that I've been doing this at Technomic. The lunch part is concerning, but I think the broader concern is just the consumer pullback that we've seen across the entirety of the restaurant industry. Ricky Mulvey: I have a theory on the consumer pullback, and it hit me when I was at, like, a fast-casual Mexican chain that is not Chipotle. I went up to order, and there was a screen that I was ordering at. There was one cashier on the other side, but I was ordering at a screen, and then I do my order, and it says, do you want to tip 18, 20, or 22%? This is being asked to me by the screen, and now I'm doing an algorithm in my head, algebra would be a better way of putting it, where I'm ordering at a screen, not with a human, but I know there's people making my food, and I know someone has to bring my food, but I also have to bus my own table. I think the food away from home cost may not account for the wider spread tipping culture, especially for fast-casual dining, which increases it I think even more. I don't know if tips are considered in the 30% from five years ago. David Henkes: No, actually, those are just menu prices. You're absolutely right. I think the US has a tip fatigue problem among a lot of consumers right now, and I think that happened during the pandemic when every restaurant that was open and we wanted to support restaurants and service workers, and so people were willing to tip extra, and so we developed this tipping culture during COVID, which really has stayed with us. When you talk about menu price increases, and listen, labor costs are one of the Top 2 costs that restaurants have, and they've continued to rise, and minimum wage pressures and all of that that are going up, and so there's no question that restaurants, if they can, they'd love to push a little bit more of that back onto the consumer. Historically, though, fast food or limited-service restaurants haven't been a tipping establishment. Tend to find it in full-service sit-down restaurants. I think where people 3, 4, 5 years ago were happy to tip, they've gotten very fatigued by that, and I think that's an additional pullback that we're seeing, where in addition to all of these higher prices that you're seeing just on the menu, and maybe some additional fees or things that are now on the menu, you are also being asked to tip everywhere for a coffee, for a muffin. Obviously, you're tipping the machine basically when you're ordering at the kiosk. I think a lot of people certainly look at the economics of running a restaurant and say, why can't you pay a living wage to your workers so that it's not being pushed back to me? It's challenging because the economics of running a restaurant are really hard. To the extent that you can offer those tips and, hopefully, drive some of your employee satisfaction to a greater extent, then that's a win for the restaurants. But it really has turned off a lot of consumers, for sure. Ricky Mulvey: The winners and losers are not even here. Is this still a big problem for the major chains that you follow a Technomic is the pain more acute for the smaller restaurants that don't have that ability to negotiate with suppliers quite like a Chipotle can? David Henkes: Listen, I think the pain is being most acutely felt by the smaller mom-and-pop independent restaurants. Just because you're right. They don't have the financial wherewithal, the negotiating power, they don't have the ability to invest in technology, and some of the things that help alleviate some of these cost concerns. But listen, we just released our chain data. In 2024, we tracked over 1,500 chains. We published the Top 500 of them in what's called our Top 500 Report. Chains had probably one of the worst years that we've seen in the last, I don't know, decade. Chains were only up about 3% last year. It's a substantial slowdown from what we've seen. I think this consumer pullback is real and it's impacting certainly the independence, and I think from a margin in profitability, we're seeing that from independence, but it's certainly hitting the chains. Last year, you had over 30 restaurant company bankruptcies. That's continued here into the first quarter of 2025. The big chains aren't immune from it. Really, then I think the exception proves the rule when you see great performers like a Texas Roadhouse or a Chili's who are just killing it. Those are really the standouts, but the rank and file of a lot of chains, up to and including McDonald's and some of the other ones are really struggling in this environment, and the consumer pullback is real. Ricky Mulvey: Even Chipotle was surprising to me. I want to get to Texas Roadhouse and Chili's in a sec. I probably at Chipotle once a week, so I'm definitely biased there, but I can get a good bowl of food for 12 bucks, I know what I'm getting, and yet fewer people are going there because of the price increases. Now, I know they've increased prices, but that one, even where there's a really strong perceived value there, at least for me, and I think for a lot of people, is experiencing that decline. Are you seeing any traffic numbers or same-store sales data that is surprising to you as a trend watcher here? David Henkes: Well, I think we're increasingly seeing winners and losers. Some of the things that have been most surprising to me, again, Chili's, the last two quarters have posted basically right around 31% same-store sales. That is unheard of for high-flying chains, much less a legacy casual dining chain. Chili's is one that we just continue to look at as executing on all cylinders. They are doing phenomenally well. I think Taco Bell is one that they posted 9% same-store sales this most recent quarter, first quarter after being up 5%, 4%, but they've been doing really well. McDonald's was down about 3.5% last quarter, Starbucks continues to struggle, they were down 2%. A lot of what are the biggest chains in the industry are having value issues, they're having traffic issues. Some of the smaller chains, and some of them don't publicly report, but we've been very high on a lot of these beverage players, Dutch Bros, some of these non-Starbucks coffee or beverage chains that are doing really well. Last year, we saw, a bunch of these chains that just did really well, 7 Brew and Swig, which does the dirty sodas, things like that. I think it's a tough time for legacy brands, and I think consumers are voting with their wallets, and they're trying to say, I have fewer dining occasions today than I did a year ago, and so I want to pick those establishments that are my favorites or that I know I'm going to get a great value. Value, by the way, is not necessarily lowest price, but they want a great value. We're not in a situation where rising tide is lifting everybody anymore, we're in a situation where the industry is flat to maybe slightly down, and you really start to see those winners that are standing above and beyond everybody else because of what they offer to the consumer. I think, same-store sales are certainly part of it, and you can look down the list and see who's performing. But, again, Chili's, Taco Bell are the ones just as I'm looking at. You can look at maybe a handful of chains that are outperforming in this market. But for the most part, it's flat to down when you look at most of the big public company chain reports and what their same-store sales are. Ricky Mulvey: Dutch Bros is the one that continues to surprise me. I went there one time, I think I got a chocolate-covered strawberry mocha. Saw on the menu, they have a 911 drink, where you can get six shots of espresso in one drink. But people like it. I see lines outside the door at eight o'clock. Anyway, Chili's. Chili's is the incredible one to me, 31% from a year ago. I think they were growing since then, too. Three for me deal. Can't go wrong with that. I think you get chips and salsa, burger, fries for 10 bucks. I was pretty happy with it. You look at Chili's versus Applebee's. Applebee's is not enjoying a similar level of growth, even though on the surface, you would think they're having a pretty similar offering. What has Chili's been able to figure out in this environment that many other chains have not? David Henkes: We've done a fairly deep dive into Chili's, and actually, some of our sister publications have awarded the CEO with Restaurant Tour of the Year. Obviously, they're doing a really great job. They are relevant to, I think, the younger consumers. I've got a couple kids in their 20s who Chili's is now on their radar again. Ten years ago, if you asked a younger person to go to a chain, they would have been like, no way, there's no chance. They've become relevant again. A lot of that is through their social media marketing. Certainly, the value promotions, the margarita promotions they run are really successful. But they do a great job of having a barbell strategy. They do have a lot of low-priced or value-oriented type things, but you can also have a premium experience if you want. I think there's a lot of chains doing that, and I don't want to over-commit to that's why they're doing well, but I think they've just remained relevant. I think the big part of what they do is, I've talked a lot about the general manager and how important the general manager is in setting the tone for the service, the overall experience that patrons have when they come in because a lot of your experience is not just how much you paid or what the food was because a lot of these casual dining chains are in that ballpark, but it's also the experience you have through servers. Chili's has done a great job of really giving their general managers the ability to fix things within their own restaurant. They've invested heavily in their GMs and the labor situation, and training, I think, in different ways than some of their competitors have because you're right, Friday's, Applebee's, some of these other casual dining chains that you would say, they all play in the same sandbox, if nothing else. They are not doing nearly as well. Chili's last year was up 15%. If I look at Applebee's, they were down 6%, Friday's was even lower. Chili's has done a great job through relevance, through marketing, social media, menu development, menu relevance, and service and ambiance to really set the tone for what a casual dining restaurant should be in 2025. Ricky Mulvey: Then as we close out, I saw on your X account that key lime pie is in your Top 3 desserts. Citrus with dairy, a little controversial. I was surprised to see that. Key lime pie, happy to see it show up, but it's not something you really crave. I guess, you got a wild mind here, David. What's your Top 3 desserts? David Henkes: I love a good cheesecake. In my mind, that key lime pie is an elevated, I know they're not the same, but it's the same type of experience with a little bit of a sour. I was down in Key West about a year and a half ago, two years ago, and I had some of the fresh key lime. Birthplace of key lime pie, and it was just delicious. I think if I had to look at my Top 3, that's a great question. I'm not a big sweet guy. I'm more of a savory guy. My wife really loves the sweets, and I'm more of a salty, savory-type things. Brownies ice cream, I like, I'll eat it. But I think key lime pie, it's definitely up there for me. Obviously, it's controversial, you don't appreciate it. What's your top dessert or there are tight up there . Ricky Mulvey: I appreciate it. I'm a sweets guy, so I appreciate the key lime pie. No disrespect to the key lime pie. You know what? I don't think Dulce de leche gets enough, love. I love Dulce de leche. Great. I'm going to take Jenny's Take 5 great ice cream. Very specific. Then the classic s'more. When you're building up to that outside time and you got a campfire going, s'mores are coming, that's when the hype cycle is coming. I'll go with those Top 3. David Henkes: I'll tell you, one other thing that I will throw in, and I was just in Europe on vacation a couple of weeks ago. The gelato in Europe is phenomenal. I might put that. It's got to be a very specific gelato because the stuff you get here in the States is not as great. But if you're over, and I was in Portugal and Spain, and some of the gelato that I had there was just second to none. It was phenomenal. Ricky Mulvey: I really got to travel to get the desserts to you like. I got to go to Key West and I got to go to Europe. [laughs] You're making it tough on the listener. David Henkes, Senior Principal at Technomic. Thank you for your time and your insight. Appreciate you joining us on Motley Fool Money. Ricky Mulvey: Thanks for having me, Ricky. Dylan Lewis: Listeners, a quick programming note as we wrap up today's show. This is my last Monday episode here in the host seat. I'll be wrapping up my time here at Fool later this week and I have one more radio show ahead of me with the team this Friday. I've been lucky enough to be here over a decade and been honored to be one of the many voices here at TMF that you turn to for a Foolish take on what's going on in the market, whether it was here on Motley Fool Money or way back in the day on Industry Focus. I'm going to miss chatting with our analysts and hearing from you all in our mailbag and on our voice mail, but I'm excited to flip over from host to listener. We talk about it often here, time is the most valuable thing you have. The biggest tool in your investing life, and it's the most valuable resource in your personal life. Thank you for all the time you spent with me over the years. As always, people on the program may have interest in the stocks they talk about, and Motley Fool may have formal recommendations for or against, so don't buy something based on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content provided for information purposes only. See our full advertising disclosure. Please check out the show notes. For the Motley Fool Money team, I'm Dylan Lewis. We'll be back tomorrow. Asit Sharma has positions in McDonald's. Dylan Lewis has no position in any of the stocks mentioned. Ricky Mulvey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Coinbase Global, Moody's, Starbucks, and Texas Roadhouse. The Motley Fool recommends Dutch Bros and recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy. There Is No (Convenient) Alternative was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
05-05-2025
- Business
- Yahoo
Is Starbucks Serving Up Promise or Peril?
In this podcast, Motley Fool analyst Asit Sharma and host Mary Long discuss: What to do with 2 extra minutes. Earnings from Starbucks. What's cooking at Wingstop. Then, Motley Fool analyst Yasser el-Shimy joins Mary for a look at Warner Brothers Discovery, in the first of a two-part series about the entertainment conglomerate and its controversial CEO. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » 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. Before you buy stock in Starbucks, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Starbucks wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $623,685!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $701,781!* Now, it's worth noting Stock Advisor's total average return is 906% — a market-crushing outperformance compared to 164% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 5, 2025 This video was recorded on April 30, 2025 Mary Long: A dollar saved is a dollar earned, so a minute saved is what? You're listening to Motley Fool Money. I'm Mary Long joined today by Mr. Asit Sharma. Asit, good to see you. How are you doing? Asit Sharma: I'm great, Mary. How are you doing? Good to see you. Mary Long: I'm doing well. We got reports from Starbucks today, that's the coffee chain that most listeners are probably pretty familiar with. They're in the midst of a turnaround. They dropped earnings yesterday after the bell. I want to kick us off by focusing on Starbucks' measurement of a different currency, not dollars, but time, Asit. A big focus of Starbucks' turnaround is returning the chain to its golden age of being a neighborhood coffee house. But as a part of that, there's also a focus on efficiency. Management seems to think they're making good progress on that efficiency front. The company shaved two minutes off its in store wait times thanks to the help of a swinky ordering algorithm. If you had an extra two minutes in each of your days, what would you be doing with that time? Asit Sharma: Well, I'm not giving it back to TikTok and YouTube shorts, I'm done with you guys. I'm grabbing the cast iron bookmark, breaking out of that house, and I'm getting two minutes extra to read Orbital by Samantha Harvey, which is my Middle Age men's book club read of the month, and I'm behind, I need it finished by Saturday. Mary Long: It sounds like you're being very productive with those extra two minutes. Asit Sharma: Living my best life. Mary Long: There's a detail here that's very interesting to me because notably, this algorithm that's shaved off these two minutes of order times is not powered by artificial intelligence. Instead, it follows an if then structure. This is fascinating to me because it seems like every other company is going out of their way to highlight its AI capabilities, build themselves as an AI company, even if they don't really play in the tech space. What does it say about Starbucks that they seemingly have an opportunity to do that with the rollout of this algorithm and yet they're not? Asit Sharma: Well, on the one hand, I think they would love to be able to float some great AI stuff to the market, but truthfully, everyone knows that it's going to take more than AI to solve Starbucks' problems, so let's get real here and go back to some very elementary type of algorithmic thinking to solve some of the throughput issues they have. Mary Long: Again, Starbucks seems pretty proud of these shorter wait times, but that doesn't necessarily seem to be translating into great sales numbers quite yet. I'm going to call out some metrics from the report, including same store sales, which is closely watched here, and you tell me how you're interpreting these numbers. Do they spell to you, Asit Sharma, promise or peril for the coffee company? We'll kick things off with same store sales. In the US, that's down about 3% for the quarter. What do you say, Asit, promise, peril, something in between? Asit Sharma: I think that's an easy peril. This is the trend at Starbucks. They're losing a little bit of traffic. They're trying to turn it around to get people to come back into the stores or come back to the drive throughs. They have a strategy for this, back to the good old days. We can chat about this. But this is emblematic of Starbucks larger problem, so this is a peril call, easy. Mary Long: Two hundred and thirteen net new store openings in the second quarter, bringing the total store count to nearly 40,800 around the world. Promise, peril, something in between? Asit Sharma: Promise. I like that. Brian Niccol, turnaround artist. Let's slow this puppy down. Why should we be expanding when we don't have the unit economics right? Why should we be expanding when CapEx, capital expenditure is one of the things dragging this company down? Most people don't realize Starbucks has a pretty big debt load because it has invested so much in its stores over the years. Why don't we try to figure out how we can solve some of our problems with operating expenses versus capital expenditure? Let's also try to renovate stores at a lower cost. All of this points to taking it very easy on that new store development, so I like that, it's promise. Mary Long: Just to be clear, you're saying that that 213 net new store openings number sits right at the sweet spot of, Hey, you're still growing, but it's at a small enough clip that it's not distracting from the real focus, which is improving throughput at existing stores? Asit Sharma: Yeah. It's also a signal that the new management isn't taking the easy way out. Conceivably, one way you could solve Starbucks' problems would be to take on a little bit more debt and to speed up new stores and to say, We're going to actually increase revenue, but traffic will take a bit of time to come back to the stores. We know people of our brand, so we're going to throw a bunch more stores out in places where we don't have this dense concentration and cannibalization. We're going to map this great real estate strategy out. They could have easily said that, but I don't think the market would have liked it too much, so they're doing the sensible thing, which is like, we're not really worried about adding new stores right now, that's not the problem that we have to solve today. Mary Long: Our next quick hit metric, GAAP operating margin down about 7% compared to a year ago. How do you feel about that one? Asit Sharma: It's a little bit of peril situation going on there, Mary. Starbucks is doing something which I think should help the business, which is to say, we've got a couple of pain points for customers. One is the time that it takes for customers to get through their order, average wait times of four minutes. You pointed out going this algorithmic route, so very old school. If a drink is very complex to make, don't make that the first thing you do, or in some cases, maybe you should if it has x number of ingredients, so that way it's ready and the stuff isn't melting on top when the customer gets it. Don't just do first come first serve. I think that is a really insightful way to start from scratch if you're a new CEO. Starbucks has these problems which they're thinking can be solved by labor. Then bring more people in so that we can satisfy customers, we can keep that throughput moving, but that increases your operating expenses, and they've got leftover depreciation from all of the investments they've made in technology. Under the previous CEO, they were trying to solve their problems by having more components like the clover vertica which make things automatic, and they had a cool brew system, which was very expensive, so now we're seeing that work through the profit and loss statement. What we're seeing in the GAAP numbers is that net income is going to be pressured. Number 1, they still have a lot of depreciation that they have to account for, and Number 2, to keep customers happy, which should be the first order of business, they're going to have to hire more baristas, keep those shifts occupied. That is not a clear out type situation, it will take time to resolve. That's a peril. Mary Long: Last but not least, we got GAAP earnings per share. That's down about 50% compared to a year ago. I think I know where you might land on this one. What do you say? Asit Sharma: It's a peril. Something that was a little iffy in the earnings call is both Brian Niccol and his new CFO, who's actually a veteran of the retail business, Cathy Smith. They were like, don't worry about earnings per share too much. We really think you should focus on us taking care of the customer, us becoming that third place again, us becoming the brand that attracts people, us being the place where you can have these day parts like the afternoon where we're going to revive your desire to come into the store and maybe have a non alcoholic aperitif, mind you, I'm not sure that's what investors want to hear. Investors will give a long line to Brian Niccol because he has been successful in the past, and so has his new CFO. But I didn't like that, don't pay attention to this because we're investors, we want money. We give you money, you make money, you give us back money in terms of dividends and share price, so a little bit of peril there. Mary Long: Another data point that I do think is relevant to the Starbucks story and just like the consumer story more broadly is GDP data, which we got out this morning. That showed a contraction of 0.3% down from 2.4% growth a quarter ago. This is the first decline since the start of 2022. Starbucks can improve wait times all they want, they can implement this back to Starbucks strategy, but if we are headed toward a recession and the company is already still struggling, how does that macro picture affect this chain that sells seven dollars drip coffees and $10 lattes to people? Asit Sharma: Mary, the first thing I'm going to ask you is, I actually throw circumstance Kanata Starbucks once every two weeks, and I buy drip coffee and sometimes hot chocolate, and we'll buy a pastry here and there. Where are you getting these seven dollar drip coffees from? Is that some venti with adding some special milk? I don't get that. It is expensive, stop, but seven sounds excessive. Mary Long: Okay, Asit. I was at a Marriott Hotel earlier this month for a latte. Asit Sharma: Here we have the first qualification. Like, well, I was at the airport Starbucks. It's not the airport Starbucks, but everyone listen to Mary. It was at Marriott Hotel. Go ahead. Mary Long: There are some asterisks attached to this example, but it fired me up, so I'm going to use this platform to share it. I'm at Marriott in Collierville Tennessee for a wedding earlier this month. There is no free coffee in the lobby at this hotel, which was my first red flag. I go down searching for coffee, and all that there is is a Starbucks Bistro, so I say, Okay, I'll go to the Starbucks Bistro, buy my coffee. It was a large, but it was a drip coffee. No fills, so easy, they turn around, pour the cup, and it cost me $7.50. I was so enraged, I was ready to throw that coffee across the lobby. I did not. I held it in, but I'm using this moment to share that. That is a real number. Though, again, perhaps that's not the price at every Starbucks. Asit Sharma: Well, I want to extrapolate from that. Which is to say, if it's seven bucks at that Marriott, that tells us something about what's happened to the price over the last few years because in all honesty, that entry level drip coffee, a tall order with nothing on it has increased. I'm going to guess it's 30-40% more than it was just two years ago. Now, some may say that this is taking a little bit advantage of commodity inflation and inflation in general, that Starbucks took an opportunity to bump up those prices, even though it has tremendous purchasing power, and it should be one of the first places to say, Hey, we're going to hold your price steady because we're Starbucks, because we buy from I don't know how many coffee providers across the globe. It's interesting Brian Niccol is saying, We're not going to raise prices anymore this year. I think he's sensing the winds and maybe realizes that Starbucks took a little bit of advantage of its most loyal customers by bumping up these prices. This is yet another thing that makes this very hard. But all in all, I do want to give the new team credit for leaning toward, again, OpEx people versus machines because under the previous management, Starbucks was really thinking that it could solve so many things by having automation. They could improve the rate at which people are going through the drive through lines and the wait times that you have even if you ordered in advance on your mobile order app, and it became something where they lost connection with the customer, and management, of course, is well aware of that. But it reminds me of something that Ray Kroc said years ago, the man who bought McDonald's when it was all of two restaurants, I think, and turned it into what it is today, he said, Hell, if I listened to the computers and did what they proposed with McDonald's, I'd have a store with a row of vending machines in it. Under the previous leadership, I almost felt like that's where they thought they could go, it's just a really automated format without this customer connection. Bringing that back, even though it sounds a little iffy, Mary, whoever is going to go back to Starbucks as a real third place when so many great community coffee shops have sprung up and our consumption preferences have changed? I still applaud management for getting that, that you've got to do right by your customers, price wise, ambience wise, connection wise, brand wise. Maybe there's something in there. Of course, this is a harder problem to solve than Brian Niccol had at Chipotle. Mary Long: I want to close this out by getting another look at the fast casual business from a different company, one that really is leaning more into this digital landscape, and that's Wingstop. Not even a year ago, this chicken wing joint was flying very high, indeed. Shares have dropped significantly since then, down about 45% from their high in September 2024. We're going to get to their earnings that dropped this morning, which were more positive in just a moment, but before we get them, let's look at the past several months. Why that drop? What headwinds was this company up against? Asit Sharma: Wingstop created its own headwinds in a way, Mary, because it had been so successful improving same store sales. The company has a really light real estate footprint, stores are incredibly small compared to some of their wing competitors, and they're meant for just going in, maybe sitting down, but mostly picking up and taking away. They really started to get a deeper concentration, some good metropolitan markets, not huge ones, but decent markets. They saw such an increase in traffic that their comparable stores went through the roof on what's called a two year stack. You compare what you sold today versus not just one year, but two years ago. When you lap great results, it becomes really hard. You can't keep increasing those results exponentially. This year, it turns out what they're doing is holding the gains over the past two years, but it's not like they're having another year where you're seeing same store sales increase by 25%. The projections were, this year we're going to grow those same store sales by mid digits to single high digits, and with this latest report, they're saying, Well, they could be flat this year. The market like the report for different reasons. But that's what happened to the stock because investors were like, Wait a minute. You're spending more on marketing. Yeah, because we're getting to the NBA. We're the official wing of the NBA. But I want those profits. Well, you're not going to get them because we're scaling, and people are just lining up to develop new franchises, and we're going to build this business out globally. Investors were a little bit confused last quarter. We're not getting profits that we want or as much profit as we want. We're not getting the growth that we want to see. But in the grand scheme of things, those were very understandable pauses in the business model and the economic model, and I think over time, it's destined to pick up. But you had some questions about the earnings today. Mary Long: Help us make sense of this most recent quarter because, OK, we saw a teeny tiny improvement in same-store sales. That number only ticked up by 0.5%. But there are some other numbers that seemed pretty impressive. You've got systemwide sales increasing almost 16%, hitting $1.3 billion, total revenue up almost 17.5%, net income increasing, wait for it, 221%. That's all in spite of what's obviously a very tricky, very uncertain macro environment. We've already seen that impact trickle down to other fast-casual chains. Domino's, for instance, reported a decline in same-store sales earlier this week, which is pretty rare for them. What's working and what's not in the Wingstop model, as we've just seen it reported today? Asit Sharma: Wingstop has been a company that's invested a lot in its technology. They've moved digital orders to some, I think, 70% now of their sales. That helps them with a leaner cost structure. Also, Mary, the company has its tremendous cash on cash returns. If you're an investor, let's say, a franchisee in a Wingstop business, you can make 70% cash on cash returns, 50% if you use financing, and that's just a stellar type of return in the QSR, quick service restaurant industry. What they have is tremendous demand in their development pipeline. Their franchise groups are like, we love this, we want more, and that's propelling a really fast store growth count. With Starbucks, they're slowing down. Wingstop is trying to build out new units as fast as possible, and that's where the growth is coming from. What investors are seeing is, I can live with this equation. You have a lean operation. You don't really own your own supply chain. You work with partners, so you've got less exposure to that. You seem to be able to manage all-important bone-in chicken price really well and not pass those increases on to customers for the most part, so I want in and I want to develop more stores. I will note that the company, one of the things that investors did like earlier this year, is the company keeps increasing its total advertising spend based on systemwide sales. It used to be 3%. Then it was 4% of systemwide sales was advertising budget for local markets. Now it's something like 5.5%. But look, with these big brand partnerships, like I mentioned with the NBA, and a lot more advertising in local markets, that's only increasing the flywheel of returns for the franchisees. This is a company that just looks destined to grow, almost like Dunkin' Donuts did in the early days. That's. A powerful equation for investors who can withstand the volatility of angst over same-store sales in any given quarter. Think of this as like, I'm going to buy this business for 10 years, and I'm going to watch it expand into Europe, into the Middle East, here in the States, and I'm going to watch you take market share from some of the bigger competitors who have larger store footprints. Of course, there's a lot that can go wrong in that. They have to keep executing and they have to make sure that they do manage those all-important bone-in chicken cost over time. But I like their chances in this environment. Mary Long: Asit Sharma, always a pleasure to have you on the show. Thanks so much for giving us some insight into coffee and bone-in chicken wings today. Asit Sharma: Thanks a lot, Mary. I had a lot of fun. Mary Long: Two of the biggest movies of the year, a Minecraft movie and Sinners, both came out of Warner Brothers Studios. But there's a lot more to this company than its movie-baking business. Despite the success of those two films, the stock WBD has been far from a winner for its shareholders. Up next, I talk to Fool analyst Yasser El-Shimy about Warner Brothers Discovery. This is the first in a two-part series. Today, we talk about the business. Tomorrow, we shine the spotlight on David Zaslav; the character charged with leading this conglomerate into the future. Warner Brothers Discovery came to be as a result of a 2022 merger between Warner Media, which is the film and television studio that was spun off from AT&T, and Discovery, another television studio. Together, today, this is a massive entertainment conglomerate, and it owns the likes of HBO, Max, CNN, Discovery Plus, the Discovery Channel; a mix of streaming services and traditional cable networks. One of the reasons, Yasser, why I find this company so interesting is because you can't really talk too much about it without hearing all these different names, all these different services, a fascinating history of mergers and acquisitions and spin-offs, etc. I want to focus today mostly on the person who has been tasked with leading this massive conglomerate into the shaky future of media. But before we get to David Zaslav, let's talk first about the company. Again, WBD is a big conglomerate. What are the most important things about this business as it exists today that investors need to know? Yasser El-Shimy: Well, thanks, Mary. To tell the story of WBD is to almost tell the story of entertainment itself in the United States. We're talking about structural challenges that are afflicting almost all television and film studios across the board, as well as TVs on TV networks. On the one hand, you have a structural decline of linear TV viewership. That is your basic cable, basically people, paying a monthly fee for whatever provider there might be to get a whole host of channels that they flip through at home. We've heard of the phenomena of cord-cutting. It has almost become a cliche at this point. It has been going on for years, at least over a decade at this point, but recently, it seems to have accelerated even further as people migrate more and more toward streaming options, subscribing to such channels as Netflix and Disney+ and Max and others. This has created quite a dilemma for a lot of studios like Warner Brothers Discovery, where much of the profits and the free cash flow has traditionally come from those very lucrative linear TV deals that they have had with the likes of Charter Communications and others. They have had to effectively wage a war on two fronts. They are being disrupted by the likes of Netflix, they're losing subscribers on the linear TV site, but at the same time, they can't go all in on streaming, at least not just yet, because so much of their profit and so much of their sales actually come from that linear TV side that is declining. What do you do? You try and just be everything to all people, and that has become a challenge. Warner Brothers is no different here. We're talking about a company that started off in 2022, as a result of that merger. You talked about between Discovery and Warner Brothers. Since then, they have focused on two main objectives. The first one is to pay down as much of the debt on the balance sheet as possible, and we can get to that later, and the second goal has been to try and effectively promote and develop their streaming business. Initially, it was HBO Plus, now it's called Max, and try and actively compete with the likes of Netflix and Disney. They've actually done rather OK on that front, as well. Mary Long: Let's talk about the debt before we move on because this is a big gripe with the business as it exists today. Warner Brothers Discovery carries $34.6 billion in net debt. That's as of the end of fiscal 2024. You get to that number because there's $40 billion gross debt minus $5.5 billion of cash on hand. How did they end up with so much debt? $34.6 billion is a lot of debt. How did they end up with so much of that in the first place? Yasser El-Shimy: That is a lot of debt. Let's just say that David Zaslav who was the head of Discovery, he was very enthusiastic about putting his hands on those assets from Warner Brothers. As a result, he actually saw that merger with the Warner Brothers assets from AT&T. AT&T took a huge loss on the price it had originally paid to acquire Time Warner, a 40% loss. However, what they did do is that they effectively put all the debt that they had from that business, as well as some of their own debt, into this new entity that was to merge with Discovery. Warner Brothers Discovery just was born with a massive debt load of $55 billion or so. That was nearly five times net debt to EBITDA, or earnings before interest, taxes, depreciation, and amortization, which was very high leverage for this new company. From the very beginning, Warner Brothers Discovery had to deal with paying down that huge debt load. Luckily, a lot of that debt was in long-term debt effectively that most of it will mature around 2035. Can be easily rolled over. It has an average interest rate of about 4.7%. It's not the worst in the world. Considering how much cash flow per year that Warner Brothers Discovery is able to produce around, again, the $5 billion range or more, you can see that the company has been able to effectively navigate this and pay down that debt. David Zaslav has paid down over around $12 billion since that merger took place. That leaves them with the $40 billion you're talking about. Still more to go, but at least you can see that they are able to accomplish that feat. Mary Long: Let's also hit on the streaming service because that's an essential part WBD and where it wants to go in the future. Max, which is the streaming service that's basically HBO plus others allegedly has a clear path to hitting, this is per their most recent earnings, at least 150 million global subscribers by the end of 2026. At 150 million global subscribers, that would make it about half of Netflix's current size. What metrics and what numbers does Max have to post in order to be considered a success? Yasser El-Shimy: I would say that Max has to, again, focus on growing that subscriber base, and they have done an excellent job at that. They've almost doubled subscribers year over year, reaching around 117 million subscribers currently. They accomplished that through a strategy that had two wings to it. The first is that they effectively bundled a lot of content into the Max service. The previous HBO Plus service, it merely had some TV and film IP that the studios produced from the namesake HBO, but also from the Warner Brothers Studios. But then they decided to expand that to include also shows and other content from the reality TV side of the Discovery side of the business. Think of your home network, HGTV, or Food Network, and so on. They accommodate a lot of that content in there. They also introduced live sports and live news into the Max. That made it a lot more appealing to be a place where you can have almost all of your viewing needs met. That has been a successful strategy for them. They have also struck a partnership with Disney to bundle Disney+, Hulu, and Max together for a reduced price, but that has definitely also helped with the increase in their subscription numbers. But I would also be remiss to say that they have successfully and actively sought to expand their presence in international markets. They are still at less than half the markets where Netflix is, so the opportunity is still pretty vast on there. However, as you started your question with asking about the metrics that we need to be watching out for, obviously, we need to be watching out, as I said, for subscriber numbers, as well as the EBITDA operating margins that will come from the streaming side. They are targeting around 20%, which would actually very good if that turns out to be the case, long term. But also we need to look at things like average revenue per user or ARPU. How much are these subscribers contributing, both to the top and bottom line for Max? I think on this metric, there might be a little less confidence because especially when you expand internationally, you're going to get a lot of subscribers who are not paying as much as a US subscriber might, so you might be looking at a decline there. On the bright side, they've introduced advertising as part of the package, but the basic package that you get. That strategy we have seen it successfully play out with Netflix, and I think that they may be able to increase or ad revenue on Max, and that can be a big contributor for their profits as well. Mary Long: 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 Motley Fool editorial standards and is not approved by advertisers. For the Motley Fool Money Team, I'm Mary Long. Thanks for listening. We'll see you tomorrow. Asit Sharma has positions in Marriott International, McDonald's, Walt Disney, and Wingstop. Mary Long has no position in any of the stocks mentioned. Yasser El-Shimy has positions in Warner Bros. Discovery and Wingstop. The Motley Fool has positions in and recommends Netflix, Starbucks, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Marriott International and Wingstop. The Motley Fool has a disclosure policy. Is Starbucks Serving Up Promise or Peril? was originally published by The Motley Fool
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01-05-2025
- Business
- Yahoo
Tesla's Rough Quarter, Alphabet's Resilience, Chipotle's Burrito Slowdown, and More
In this podcast, Motley Fool analysts Jason Moser and Asit Sharma and host Dylan Lewis discuss: Alphabet's resilient ad business, and what parts of the company might be most interesting if a breakup happens. Tesla's rough quarter, and why the Model Y release is a key moment for the company's auto thesis. Chipotle's burrito slowdown. How ServiceNow's government contracts are holding up. The latest with Intuitive Surgical. Two stocks worth watching: Nasdaq Inc. and Adobe. Financial planner, author, and market commentator Malcolm Ethridge talks big tech and his favorite recession-resistant stocks. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » 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. Before you buy stock in Alphabet, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Alphabet wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $610,327!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $667,581!* Now, it's worth noting Stock Advisor's total average return is 882% — a market-crushing outperformance compared to 161% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of April 28, 2025 This video was recorded on April 25, 2025 Dylan Lewis: Got a look at big ads and big burrito. This week's Motley Fool Money radio show starts now. It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me over the airwaves, Motley Fool senior analyst Jason Moser and Asit Sharma. Fools, great to have you both here. Jason Moser: Hey. Asit Sharma: Hey, Dylan. Dylan Lewis: We've got earnings with the side of guac, some recession resistant stocks, and of course, stocks on our radar this week. We're going to kick off with some quarterly updates from Alphabet and Tesla. Asit, for right now at least, the ads are alright. Google parent, Alphabet, reporting better than expected results this week. They're the first of the big tech companies to report. Our first look at the big health of ads and cloud markets. What are you seeing in the results? Asit Sharma: Dylan, but for one legal wrinkle that we'll get to, [laughs] the results look great to me. Alphabet added about 10 billion bucks to its top line in the first quarter of the year to $90 billion. That's a 12% increase versus last year. Also, just looking at operating margin, very healthy 34%. The company also grew its net income by about 46% to 35 billion bucks. These are big numbers. What happened to all this competition from AI that was supposed to take out Google Search? Well, it hasn't really materialized. The advertising business was pretty healthy. Dylan, it grew about 8 1/2% to $67 billion this quarter. One of the things we're seeing is that Alphabet is doing a good job of using generative AI and those AI search results to keep people interested in that platform, and it's also helping advertisers reach customers with its AI tools. It's coming full circle at the problem that its own legacy, Google Search, isn't as in demand as it has been, but it's still generating a lot of revenue. I thought it was a fun quarter from the perspective of AI. Sundar Pichai, the CEO of Alphabet, talked about the successful launch of Gemini 2.5 and how much traction its AI tools were getting in the marketplace. But Alphabet talked about something very interesting, which is nerdy, I have to go here, because I was waiting for one CEO to talk about this. They started signaling that their depreciation expense is growing because they're investing so much in these data centers. Alphabet confirmed that it would spend about $75 billion this year for data infrastructure, CapEx, GPUs, all that stuff, Dylan, and depreciation expense. Think of the non cash expense associated with the wear and tear of all this stuff, grew by a billion bucks versus this time last year, and it's going to keep growing. What the company is saying in advance is like, we're in if you build it they will come mode. We're building it, they will come. But if you start to see our net income, our operating income decline in the coming quarters, it's because we're spending money on all this AI stuff in advance of getting a really big yield out of it. It's growing, but not quite enough to cover the depreciation. I found that pretty interesting. Dylan Lewis: Spoken like a true accountant, Asit, I love it. Thanks for digging into the details on that. You teed up the fact that there are some other non-earnings stories related to Alphabet. The big one, the fact that they are in remedy mode with the DOJ, with their antitrust case, looking at different ways to break up what the government has determined is a monopoly. There are a lot of different ways that this business might get broken up, Jason. I am curious, if we see a broken up Alphabet, what part of it is the most attractive to you at this point? Jason Moser: Wow. The most attractive, I don't know. I mean, there are a lot of pieces to this business that really strike me as worth investing in. Asit didn't even hit on the cloud segment of the business. I think that was up 28% for the quarter with operating margin of 17.8%. That was up from 9.4% a year ago. It's really encouraging to see them making a lot of progress on the cloud side. Again, I think Gemini is really starting to pay off, 1.5 billion AI overview users per month. Those results, YouTube up 10%, subscription and device revenue up 19%. There's just a lot of things this business does very well. It seems like one of the remedies that's being band aid out there at least is splitting off the Chrome side of the business, and I get that. Chrome is the market share leader in browser, somewhere the 66% range globally. I thought it was an interesting headline we saw this week with OpenAI saying, hey, you know what? We would be open to buying Chrome if it were out there. I bet you they would. ChatGPT chief Nick Turley said in the court hearing, they would absolutely be open to acquiring because they feel like they could offer a really incredible experience in introducing users to what an AI first browser looks like. I'm certain they could do that, but the thing is, I think Alphabet and Google are able to do that as well. Again, we're seeing so much success with Gemini. It just flies under the radar because ChatGPT is the one that continues to dominate the conversation. Asit Sharma: OpenAI is so altruistic, Jason. Jason Moser: Let us help you with your little problem. Dylan Lewis: In addition to quarterly updates from Alphabet, also got to look at what's going on at Tesla. Asit, this was maybe one of the most anticipated earnings releases of the quarter. A lot of people saying it was a make or break report for the company. The numbers weren't great, but the market didn't really seem to care either. Asit Sharma: The market was looking for a signal that Elon Musk will focus his attention back on Tesla. At the beginning of the conference call, Dylan, that's just what he said he would do. He said he would reduce his time with DOGE to maybe one day a week. I think he's got actually some time limit, if we look at cumulative days. But that aside, even four days out of the week, devoted to Tesla, shareholders seem to appreciate. It was a break quarter in terms of recent performance. Automotive revenues were down 20% to $14 billion. Net income dropped 71% to $409 million. Many people pointed out that if you look at the automotive regulatory credits that Tesla receives, those were about $600 million, it would have been a loss quarter, so they got bailed out by the credits, and the same, if you look at the statement of cash flows, barely above water there. This is due to production being down by 16%, deliveries stalled by 13% year over year. What we're seeing here is a few things. Tesla did say that it's been retooling some of its production facilities, and it also pointed out that the first quarter often is tricky for consumers as they're plotting out when to buy their vehicles. But it's undeniable, some of the brand tarnish that is on Tesla is really sucking some of the deliveries out of this business. Here I just have a question. Elon Musk talked a lot about an autonomous future; autonomous vehicles, autonomous robots. He promised millions of optimist robots maybe one million robots in production a year by 2029 at the earliest. But you need capital for that. Up until now, Musk has had this great talent for issuing new shares, raising capital when the price of Tesla was high. The company's also generated a lot of free cash flow in the past several years. But if that free cash flow goes away because of decreasing demand from Tesla, it's not all brand damage, some of this is competition from some very formidable Chinese vehicles, what happens if it doesn't have the ready money or the capital on its balance sheet to provide for all the GPUs and infrastructure and tooling for a robotic autonomous future? It could really call into the question, the thesis that this is a software company that's going to turn out bots and autonomous cars in the future. Dylan Lewis: As you talked a bit about the year over year declines with deliveries, this is not exactly a new trend for Tesla. Deliveries have been flat, essentially since Q4 of 2023. As you noted, a lot of different things that work into that picture, some people have theorized there might be a little bit of a delay in purchases happening because the company had not updated their lineup in a long time. We have the Model Y out. Deliveries began in March. How much leash are you going to give the Model Y and the early delivery numbers that we see, before you start being a little bit more concerned? Asit Sharma: We'll give it some leash, Dylan. To me, what's really important here is perhaps a bit of a missed opportunity, and Tesla can still make up this opportunity. But for years they promised a low cost vehicle, an entry level price vehicle, and never delivered on that, and actually pulled back on that last year, and we keep hearing in calls that, no, we are going to eventually come out with this vehicle. That would be something that could lift volumes up enough to get that marginal incremental profit per vehicle up and hit that cash flow statement for them to do this other stuff. We'll give it a little bit of leash, a couple of quarters. Dylan Lewis: Coming up after the break, we're checking in on the burrito indicator. Stay right here. This is Motley Fool Money. ... Welcome back to Motley Fool Money. I'm Dylan Lewis. Here on air with Jason Moser and Asit Sharma. Jason, it's officially burrito season. [laughs] Late spring is when Chipotle tends to do its best business. According to management, we have fresh earnings from the company. What is the state of the burrito eating public? Jason Moser: Well, let's hope that this spring brings a little bit better results than this first quarter of the year. We talked about it before. I mean, for all of the outperformance Chipotle's chalked up over the last several years, we've also noted those comps, they don't just go straight up forever, and that certainly was the case this quarter. It was a bit more of a positive reaction from the market than probably most of us anticipated. But the numbers were OK, I guess, sales up 6% to $2.9 billion. But back to the comps numbers there, comps down 0.4%. That is a problem for a company that we have just gotten used to reporting these just massive comp numbers. Restaurant level margin was 26.2%. That was down 130 basis points from a year ago and adjusted diluted earnings per share of 29 cents. That was up just 7% from a year ago. They did open 57 new restaurants with a big focus on the Chipotlanes. Tariffs, of course, got some attention on the call. They see an ongoing impact of around 50 basis points to operating costs. But again, that, of course, can and likely will change as the tariff conversation continues. I do think it's important to note, they said this on the call, recent price increases. We've seen them bumping prices up a little bit here and there. Those recent price increases, the benefit from that was more than offset by inflation, and I think it's reasonable to assume that will likely continue as well. We may be going through a little bit of a lull here for Chipotle. Dylan Lewis: Yeah, Jason. You know that you're in a Chipotle lull when management goes back to talking about throughput. Chipotle [laughs] always talks about throughput every conference call. But they seemed especially keen to point out the little details to serve customers faster. I mean, they're talking about the roll out of new kitchen equipment, the dual sided plancha, the three-pan rice cooker, and the high capacity fryer. I like those days because what you're trying to do when traffic declines is make sure you can adjust on the restaurant margin side, and throughput helps you do that, get people through the line faster, watch those costs, maybe you can offset some of that commodity pressure. That's the ticket. They're back to basics. Jason Moser: Something else to keep an eye on too, because we know Chipotle is relatively a domestic story today, but they have a new partnership agreement with Alsea, which is the leading operator in Latin America and Europe. They're actually going to start opening restaurants in, wait for it, Mexico. Dylan, I'm going to be fascinated to see how this is received. Dylan Lewis: Me too. I can't wait. I think they have some stiff competition there. Over at ServiceNow, a great week for Bill McDermott and company. Shares up over 15% following earnings from the software business this week. Asit, if these results are any indication, private and public software spend hasn't really slowed down too much yet. Asit Sharma: Well, this is one way we can all try to insulate ourselves from tariffs on the corporate side. It has become more automated, cut costs, and this is what ServiceNow is really good at. One number I follow is current remaining performance obligations. This is just like revenue backlog. That grew at a healthy 22%. To me, that's almost always more important than subscription revenues, which is the recognition revenue that still was healthy at 19%. The customer is just as strong in the enterprise as ever. If you don't know about ServiceNow because it isn't a household name, they basically help with digital transformation, and they sell to the Fortune 1000 and just huge companies globally. Also, Dylan, as you said, in the public space, so governments. This is something we should talk about, the US government. I thought from Accenture and Deloitte that governments don't want to deal with these big companies that help with transformation. Well, it turns out that if you're talking automation, if you talk software robots, then the government wants to talk to you. Bill McDermott did point out, Dylan, that the US federal contracts grew this year, 30% year over year, the public sector US business in ServiceNow. This is one of the tent poles of success, and I found that just so interesting because the government is slashing costs everywhere, but this is a vendor apparently they like very much, and it did the hard work of getting the clearances to work throughout so many government agencies over the years. That was a big payoff this quarter. Dylan Lewis: ServiceNow is one of those sleeper big tech companies. I bet a lot of people don't know, $200 billion market cap. They are also a little bit of a sleeper AI and agentic AI company. A lot of people think of Salesforce in this territory, but they have been focusing a lot there too. Any comments from management that has you excited in that zone? Asit Sharma: Well, just continued focus on that. One of the things that ServiceNow did very quickly was to partner up with Invidia a few years ago, and they basically wove generative AI into the fabric of this app-based platform that they give folks. They made it really easy to use agentic AI. They didn't have a lot of hoopla about it. It's called now Assist. This was their first iteration, and it's really good. It's simple to use. This is the way it should be. Enterprise has just gobbled it up, and they are seeing a lot of traction out of their AI, but it's not something that they had to wrap up in this big, shiny bow and call out as agentic AI, it's the real thing. It works, and so customers are buying. Dylan Lewis: Last up here on the earnings beat Intuitive Surgical. Jason, this one's a Fool favorite. What'd you see diving into the results? Jason Moser: It is a Fool favorite. But just going back real quick there, is that just a fail safe in case of emergency break glass, and hey, guess what? We partnered with Invidia? [laughs] I mean, that is the move. If you're having some issues there, you know what? Hey, we're partnering with Invidia, seems to put a positive spin on everything. Dylan Lewis: Jason, for a lot of companies, it is. Bill McDermott too, he's a talker, as you know, so there's a lot of hyperbole here. But he legit made those connections. But for so many companies, it's some window dressing, isn't it? Jason Moser: It is, but I don't think that's the case with ServiceNow. In regard to Intuitive Surgical, long time Foolish wreck here, an outperformer. They reported a good first quarter revenue of $2.25 billion, was up 19%, non GAAP earnings per share of $1.81. That was up better than 20% from a year ago. The key performance indicators we measure with this business all indicate they're doing a lot of good stuff. Worldwide, DaVinci procedures were up 17%. Installed DaVinci systems grew 15%, as well. To quantify that a little bit better, they placed 367 DaVinci systems for the quarter. That now puts them over 10,000 systems worldwide. They have 50,000 surgeons across 70 countries performing procedures with their equipment in the quarter, which I think is just really impressive. Their Ion system continues to gain traction. That's their platform for minimally invasive peripheral lung biopsies. They saw approximately 31,000 Ion procedures for the first quarter. That was up 58% from a year ago. In the quarter, they placed 49 Ion systems. That compared to 70 from a year ago. It's important to note that much of that, though, is just due to getting clearance for international placements, so there is a lot more room to run there. They, of course, continue to talk about the tariff climate. They noted that in 2024, they manufactured 98% of robotic systems in the US, 70% of endoscopes in Europe, and 80% of their instruments, accessories in Mexico. For 2025, leadership expects tariffs to be an additional cost of sales of approximately 1.7% of revenue, +/-30 basis points. Dealing with some challenges, but with such a massive installed base and an obvious buy-in from the physician community, I think Intuitive is in a pretty good spot. Dylan Lewis: Jason, digging into the commentary, management was basically saying, we're going to assume what has been announced will go into effect when it comes to tariffs. What do you think of that approach? Jason Moser: I think that's the way you have to play. You expect the worst and you hope for the best. It's a great life philosophy, Dylan. [laughs] Dylan Lewis: There you go. It's not just financial wisdom. It's general life wisdom coming from Intuitive Surgical. That's exactly it. Jason, Asit, guys, we're going to see you a little bit later in the show. Up next, friend of the Fool, Malcolm Ethridge, takes a look at Big Tech heading into earnings and the recession resistant stocks that are on his watch list. Stay right here. Just stick to Motley Fool Money. [MUSIC] Dylan Lewis: [MUSIC] Welcome back to Motley Fool Money. I'm Dylan Lewis. Big Tech was investors favorite place for the last few years, but 2025 hasn't been quite so kind to the biggest companies in the world. Joining me to talk about the state of the Giants, Malcolm Ethridge. Is a financial planner, author, and market commentator. Malcolm, thanks for joining me back on Motley Fool Money. Malcolm Ethridge: Man, glad to be here. Thanks for having me. Dylan Lewis: I think most investors know, but Big Tech basically drove the market. 2023, 2024. A lot of the big names were a very large part of what we saw in terms of overall market returns. You look at that MAG7 list for 2025, though, and not only are they not looking great, but they're underperforming the market. What are you seeing here? What's going on? Malcolm Ethridge: Well, firstly, I'd be remiss if I didn't get my congratulations in there, too. I understand that's in order, so congrats on the nuptials. Dylan Lewis: Oh, thank you. Malcolm Ethridge: Walking to the old Marry Dudes Club. It doesn't really matter what age you are when you get married. You are officially an old dude when you get married. Dylan Lewis: Proud to be there. Malcolm Ethridge: Man. It's nice over here. But yeah, so I think it's interesting that Tech led the way that it did for so long and then all of a sudden ground to a halt. Obviously, there's some man made reasons why that happened, as well as momentum and everything else. But I don't think that the trade within Big Tech is completely over. I think that it's important to be specific about which companies we look at and which sectors and maybe even products those companies sell when we talk about Big Tech, but I definitely think there's more room to run within the overall tech ecosystem. Dylan Lewis: It's a good point. We're looking at companies here that have big Cloud businesses, big advertising businesses, chip businesses. It's easy to lump them all into one spot. When you think about some of the different markets that Big Tech serves, where do you think there is room to run still? Malcolm Ethridge: One of them that you just outlined I really love, and it's the Cloud computing space. If we think about the fact that many of the hyperscalers have taken it on the chin to the tune of somewhere north of 20% from their February highs. I won't get into each individual company specifically because we'll be here forever. If we think about a Microsoft, if we think about an Amazon, just those two, specifically, let's say, all of the investment that those companies have made 100 billion, 80 billion, 60 billion for Meta, that they've committed to spend at least before this fiscal year is over, you're getting all of the growth that comes along with those investments. With a 20% discount now, if you think about buying today as an investor or adding additional shares to your portfolio, if you already believed in those companies, and now artificially, you've been given an opportunity to get into those names or add to those names. That's the way I would think about it. I'm not necessarily buying the company worried about what happened in the past. I'm focused on the idea that I can get that future growth now with a pretty decent discount on it. Dylan Lewis: I think one of the concerns folks have had is, a lot of investment going into the Cloud to support AI workloads, a lot of exploratory AI work being done. Is that spend going to continue if we hit some roadblocks in the economy? Is that going to be an area where a lot of businesses ratchet things back a little bit? How are you thinking about that? Malcolm Ethridge: I think it's absolutely necessary that companies reassess now that they know what they know, now that we're here, right? We're two, three years into the development phase, and they know what they know. But I also think that they shouldn't be dinged for that spend simply because not spending those dollars would have been more tragic long-term than had gotten there and then realized, Oh, we should have spent to compete with, insert name here. And so I think that we should at least consider the fact that these were necessary investments, one, just to protect their mood, but two, to find out if there's some there there and how they can monetize it. I think that we will get, the second order effect. You had the Microsoft, Google, Amazon and the like who actually invested the dollars to build their own large language models, which took several billions of dollars to do that. Most companies didn't have the free cash to be able to commit those dollars to doing that. But then the next secondary effect that I see coming is you're going to have to hire somebody as mid tier, large tier enterprise to come in and teach you how to apply AI. We've been using this buzzword for three years almost now. You see all the commercials on TV, AI is everywhere. But I don't think anybody, not nobody, but not enough people really know what they're referring to when they say AI. Then in the context of their own direct business, what does that mean for them? I'm a person who runs a financial planning firm. AI means something different to me than it does for a guy who runs a podcast or, for a investing service. All of those different use cases will require someone with some expertise to come in and actually teach you what that means for you. I think that's where there's an opportunity to invest now in the additional piece of, an Accenture, for example, or IBM is another one that comes to mind. Those companies that will add billions of dollars to their revenue mix simply by now coming in and teaching you what the heck AI means for you. Dylan Lewis: Accenture has been very quick in their conference calls to highlight the AI consulting business and what they see there because they know that's an exciting area, and it's a spot where they have a lot of billable hours coming. Malcolm Ethridge: Again, if the client doesn't necessarily know what they need, a lot of the upfront cost is just helping them even get to, what does this mean for us? Then you bill, again, for the implementation of whatever that strategy ultimately becomes. It's a business consultants dream. This is why people go get their MBA is for moments just like this. Dylan Lewis: I want to stick with Big Tech, but talk about a different market here, move us away from Cloud computing. Over on the advertising side. In addition to a little bit of the market uncertainty baking in here, both Meta and Alphabet under a lot more scrutiny from regulators, FDC looking at Meta's ownership of Instagram and WhatsApp, Google in the news because of their digital ad business and search, looking like that will have some remedies in anti trust with the DOJ. Does any of that factor into your outlook for those businesses and the thesis for those businesses? Malcolm Ethridge: I know I'll get some hate mail for saying this, but both of those businesses scare me as a would be investor. I don't own shares in either of those companies personally for two separate reasons. I think that the only way that Google gets anywhere from here is to cannibalize their own business for the sake of going to phase 2. How can we move people away from two pages full of blue links to get them to that single search answer that ChatGPT has now taught us we should be looking for without cannibalizing the thing that gets us paid like 90 plus percent of our revenue comes from search ads. That scares me about them. But I definitely think that it's a dangerous time to be investing in anything that's ad based in that way, if you have any semblance of concern that we might be headed for a recession. Because the first thing that goes, the first line item that gets cut is the advertising budget. Why would I want to own shares of a company like that that's on the chopping block the moment it looks like the road isn't going to be all that smooth? Meta similarly, but my bigger concern there is the antitrust piece, because I don't know that breaking up Facebook, Instagram and WhatsApp will be as a creative for shareholders as maybe YouTube as a separate stand-alone property would be for owners of those shares. Dylan Lewis: It's an interesting time for Google and Alphabet because, on Meta's side with antitrust, they have TikTok as a competitor, but, there's a lot there in terms of TikTok's access to American users. In Google's case, they have this large existential threat coming for their cash cow business. At the time that they are being explored for antitrust, the timing is probably something that will be made into a movie at some point, I'm guessing. It has that dramatic flair to it. But that has been a big question for us looking at this company for a while is, can they change with consumer behavior fast enough, and can they figure out how do you layer ads into that model? Because it's a totally different user experience. Malcolm Ethridge: I don't know that there is an obvious answer, and I don't know that there's not more pain to be had by holders of those shares longer term while they figure it out. Dare I say it may even take a different CEO at the helm who's more focused on product development and not so much on operations. I don't say that because I want to see anybody lose their multibillion dollar paying job, but I just feel it's going to take a shakeup of thinking within the organization to get to a place where we can reinvent ourselves. We can ideate out of this rut that we're in. To get on the other side of where AI has taken the search business. Dylan Lewis: Those are some markets where you have some concerns. Looking out at the macro picture, there's I think a lot of reasons for investors to be a little cautious right now. Where are some corners of the market that you're excited to put dollars to work? Malcolm Ethridge: Yes, so two things that I really love that I'm looking at right now are cybersecurity, which would be no surprise to anybody who's listened to my voice. Dylan Lewis: [OVERLAPPING] We've heard you pitch cybersecurity before. Malcolm Ethridge: [OVERLAPPING] It was a little bit early, apparently, but now all of a sudden I hear that more often than I used to where I think the rest of the street is waking up to the fact that, where I just mentioned advertising is the first thing to go from the budget of any enterprise that's figuring out how do we weather this storm. The one thing on there that is a do not touch is the security budget. If anything, it needs to be increasing. You can't afford to be decreasing, and it's like car insurance. You cannot operate a vehicle in the United States without car insurance. You cannot run a small, medium or large scale enterprise without some cybersecurity protection. I think that is a really great place be looking at recession resistant defensive type places to deploy capital, whether it's CrowdStrike in Palo Alto or, at the very top end or coming downstream and looking at an ETF, even maybe BUG or CIBR, however you decide to play that space. Then separately from that, as counterintuitive as it to say it out loud, I think that Netflix is a very defensive play right here, as well as Spotify, simply because if we are indeed headed for recession, that means that people are pulling back on spending on things like travel on leisure. Brunch doesn't have to happen every Sunday on schedule the way it used to. But what am I not going to reduce my spend on or what may I maybe even be inclined to sign up for in that time period? Netflix, because it's going to help me occupy more of those hours that I would have spent finding some other way to entertain myself. I think that obviously, based on the streets reaction to their reporting, a number of investors out there agree with me, but if you think that Netflix looks too expensive, Spotify is another way to play that same theme that's probably a couple of years behind where Netflix has already built out their paid user base. Dylan Lewis: We have this concept internally, we talk about a lot of the snap test for business, and just, if that company goes away, do people riot? Do people care? I think for Netflix and Spotify, absolutely and for the amount of money that it goes each month, you don't think about it too too much. I would feel it, though, if my subscription went away. I say it as a shareholder and also as a user. I need the tunes. It's a lot easier to get through some bad times. Malcolm Ethridge: The real test for Spotify was back in, I think it was 2021 with the Joe Rogan experience, literally and figuratively. The time for people to revolt and go away was when that whole hubbub came to be. That's what showed me just how elastic the demand for Spotify really was because at a moment when the rest of the country is in crisis and there's social movements against everything else, the one thing that people weren't really willing to do any work to leave was Spotify because they've already built their playlist. The algorithm knows them personally. They feel like, this is my service, and I don't want to have to start over from scratch in a place like Apple Music or Amazon music or whatever else might exist that I can't even think of. This is my service. When I saw that and the fact that they barely lost a single subscriber from that, I said, That is a defensive service, and they have a mote that they're building. Now looking at their paid user base, I think that they're following the Netflix subscription model. They're probably just a couple of years behind on, Netflix is now talking about doubling their revenue mix, doubling the paid subscriber base. I know that that has a lot of global reach to it, and that's how they're planning on doing it. I think both of those are trend going in the same direction. They're probably a lot of overlap in their users, between paid users on Spotify and paid users on Netflix. Dylan Lewis: What I hear in both of your looks at companies is you're looking at the way that the spend fits into the consumer's mind or the business' mind. That's one of the main filters in how you're looking at companies and how they're going to succeed in this market in this environment. Any other things that you're keeping in mind as you're looking at businesses right now? Malcolm Ethridge: One thing that I am interested in and I don't have a good answer on just yet, because there's so many other dynamics out there in the market today, where one tweet away from the market tanking or surging 10% in a day. One space that I'm keeping an eye on, though, is the real estate market in the sense that I think that the moment there's a catalyst that gets us a roughly 50 basis point cut in the 10 year treasury that obviously sends mortgage rates down with it sustainably for more than a week, let's say, so that the mortgage markets have a chance to adjust. I think that that's going to be a great time to be buying and owning the larger wholesale mortgage service companies like United Wholesale, Rocket, and whoever else they compete against that are in, the third and fourth seat. That's an industry that's been asleep for a very long time and is waiting on its catalyst moment. I think because we look at the cycle, it usually is about a two year lull and then a two year surge and then a two year law. We've had our two year law already because interest rates have been so restrictive in the mortgage market. Now is time for us to be ramping up for that surge on that side. That's a place I'm keeping my eye out. Dylan Lewis: Malcolm, as always, awesome to talk to. Thanks for joining me. Malcolm Ethridge: Glad to be here. Dylan Lewis: Listeners, you can catch more of Malcolm on X. He's got his Malcolm on money and weekly newsletter. You can get the info for that on his site, We've got more stock ideas ahead. Jason Moser and Asit Sharma will be back with me after the break to talk about stocks on their radar this week. Stay right here. You'll listening to Motley Fool Money. [BACKGROUND] 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. Don't buy or sell anything based solely on what you hear. All personal finance content follows Mount Fool Editorial standards. It's not approved by advertisers. Motley Fool only picks products. I personally recommend to friends like you. I'm Dylan Lewis joining in by Asit Sharma and Jason Moser. Jason, we are jumping right into our radar stocks this week as he does every week, our man behind the glass stand Boyd is going to hit you with a question or perhaps a comment. Asit, you're up first. What are you looking at this week? Asit Sharma: Dylan, I'm looking at NASDAQ, symbol NDAQ. This is the company that owns and operates the NASDAQ Exchange. In volatile times, they tend to make money as trading volumes increase, folks look to use derivatives to manage risk. Also, it's been a great company in terms of stealing listings away from the NYSC. It gobbles up most of the tech IPOs. I think that I like about this business, why I'm looking at it again after many years is that CEO Adena Friedman has really taken the company away from just relying on trading volumes. It's a much more diversified business now with the financial services unit. They make a lot of money licensing brands within their portfolio. They even have a financial crimes unit. I think this is a very interesting company to watch in terms of something that can keep up with the market. This is a company that's growing now organically by 10%-11% a year. It used to grow only by acquisitions, and this was her strategy when Friedman came in. But she's made it into a company that can stand on its own, even if the market goes down and those trading volumes decrease just a little bit. NDAQ, NASDAQ is a company that I've put back on my radar screen after a few years away. Dylan Lewis: Dan, Asit's getting Meta with it, putting an exchange here as his radar stock. A question or a comment about NASDAQ. Dan Boyd: At the end of another financial podcast that's really big that might rhyme with Marketplace, they always talk about the NASDAQ being up and down. Is this the stock that what they're talking about, or are they talking about something else? Asit Sharma: They're talking about the exchange, the NASDAQ exchange. This is the company that operates that exchange and brings new listings in. If you have an IPO and you're a tech company, you want to be on that exchange, the NASDAQ. They run that exchange. But as I was just saying, they do a lot else, as well. Dan Boyd: But it's not the stock they're talking about. They're talking about the exchange itself. Asit Sharma: They're talking about the exchange, but it's very Meta here, as Dylan says, The stock is the holding company. The business is the holding company for that exchange. Dylan Lewis: Jason, you are fighting not only a stock, but an exchange with your radar stock this week. What have you got? Jason Moser: Tough stuff. But hi, listen, I felt the timing here was appropriate, given that it's draft week. Adobe has been named an official partner of the National Football League, the NFL and expanding an already established relationship. The league and all 32 teams are going to use Adobe applications to continue generating fan content. The NFL is big business, so this is a noteworthy partnership as Adobe continues to invest in AI at a rapid clip in order to keep up with all of those other heavy hitters we were talking about earlier in the show, Dylan, so I think it's going to be really fun to see what they can build together. Dylan Lewis: Dan, this is one that needs no introduction for you. You use it. A question about Adobe? Dan: I use Adobe products every day, and, Dylan, when I think Adobe, I think football. Hi, now. Asit Sharma: That's the first thing I think, too. Dylan Lewis: They have to look to see what they can do to expand. They're looking for partnerships. They're looking for other ways into other markets, Dan. As a regular user of their products, Dan, how do you feel about them? Dan Boyd: Adobe is a necessary evil, but, yeah, it could be worse. I'm a fan. Dylan Lewis: Is it going on your watch list this week? Dan Boyd: I don't know what to do with the NASDAQ. Asit, I'm sorry. Asit Sharma: No worries. I don't either, quite. Dylan Lewis: Jason, Asit, thank you guys for being here and bringing your radar stocks. Dan, as always, thank you for weighing in. That's going to do it for this week's spot Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Asit Sharma has positions in Adobe, Amazon, Intuitive Surgical, Microsoft, and ServiceNow. Dan Boyd has positions in Amazon and Chipotle Mexican Grill. Dylan Lewis has positions in Spotify Technology. Jason Moser has positions in Adobe, Alphabet, Amazon, and Chipotle Mexican Grill. The Motley Fool has positions in and recommends Accenture Plc, Adobe, Alphabet, Amazon, Apple, Chipotle Mexican Grill, CrowdStrike, International Business Machines, Intuitive Surgical, Meta Platforms, Microsoft, Netflix, ServiceNow, Spotify Technology, and Tesla. The Motley Fool recommends Nasdaq and Palo Alto Networks and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy. Tesla's Rough Quarter, Alphabet's Resilience, Chipotle's Burrito Slowdown, and More was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
26-04-2025
- Business
- Yahoo
The Market and Fed Chair Powell
In this podcast, Motley Fool analyst Asit Sharma and host Dylan Lewis discuss: The Trump administration's focus on Fed Chair Jerome Powell. The role of an independent Federal Reserve bank for the market and investors. Netflix's earnings and status as a "recession-proof" stock. Then Motley Fool host Anand Chokkavelu and contributors Dan Caplinger and Rick Munarriz talk about Shopify. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » 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. Before you buy stock in Netflix, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Netflix wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $566,035!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $629,519!* Now, it's worth noting Stock Advisor's total average return is 829% — a market-crushing outperformance compared to 155% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of April 21, 2025 This video was recorded on April 21, 2025 Dylan Lewis: All eyes on Fed chair Powell. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst Asit Sharma. Asit, thanks for joining me. Asit Sharma: Dylan, happy Monday. Dylan Lewis: Happy Monday for some. For some, it is a bit of a down Monday. Rough start for the market this week. We see S&P 500, Nasdaq investors processing some commentary on the macro-picture from the Trump administration with them setting their sites on Fed chair Powell. Seems like the administration would like to see someone else sitting in the Fed chair seat. Asit, what is the tension here? Asit Sharma: Dylan, the tension is that President Trump really wants lower interest rates. He's been an advocate for this, not just in this administration, but the past administration. President Trump feels that low interest rates spur economic activity, and they're good for the stock market. Generally, investors like lower interest rates in many scenarios. He's a very vocal advocate for this, but the time that we're in just now is one that Jerome Powell is the chairman of the Federal Reserve and many Fed governors believe is one where we have to be very careful about lowering interest rates. As you know, we've had a high interest rate, high inflation environment in the US, and one of the things you want to be careful of is backing off interest rates too soon. If you lower interest rates too soon in a highly inflationary environment, inflation can increase, and that's not good for the markets, it's not good for the Fed's mandate, which is to keep inflation around 2%, so keep a steady scenario for economic growth and also make sure that the labor market is healthy. Here we have President Trump pushing what's actually like a heterodox type of policy. For this environment, it doesn't make a lot of sense to many economic observers. As with many things we see with President Trump, he's not afraid to use his very loud megaphone to make a point, and he's been putting a lot of pressure very publicly on Jerome Powell saying that he needs to go. Here we are, the market's opened up pretty in the red today because of this tension, as President Trump recently made some comments on social media about Jerome Powell having to go. Dylan Lewis: The Nasdaq's down about 3% today on the news that they may be looking for ways to end his term before May 2026. S&P down around 2% as the market processes that. A reminder, Fed chair Powell was nominated by Trump during his first term you brought up that this has been a long-standing thing. I look at the Fed, and I think even before we got into the situation with tariffs, there was a bit of a wait-and-see, slow-and-steady approach to macro-policy because there had been that stubborn bit of inflation that would not get down to that target of around 2% that the Fed likes to focus on. Then we saw tariffs come out, and the stance of the Fed was, we need to wait and see and digest this a bit more before we are willing to make any really big action down, which is what the administration wanted to see. I imagine that this is not something that is going to change. I don't think the Fed's outlook on any of this is going to change anytime soon, and that's why we're here. Asit Sharma: Yes. I think the Feds is really under Jerome Powell, an organization that takes its time to make decisions. They look at trailing data very closely. It's not an economic organization that likes to look at Ford indicators on the balance. This in some ways, serves them very well for the purposes of the two mandates that I just mentioned, but also it opens up the Fed to criticism in lots of different environments. You guys are moving too slow. We heard this, you were too slow to increase interest rates when inflation and the economic activity was boiling upwards. You've been too slow to lower interest rates and spur that economic activity. There's some economists who make an argument that maybe a little bit of a lower rate environment would be healthy, but the tariffs, as you mentioned, Dylan, is a big sticking point here. Its whole level of uncertainty and a tariff regime indicates higher prices, not lower prices in the near term. If you're sitting in Jerome Powell's chair, you're probably going to be thinking, too, I'm not going drop these rates, yet. Let's wait and see. This just increases the tension between an organization that is trying to do its job by its stated objectives and a political pressure to do the exact opposite. Dylan Lewis: You mentioned the Fed being the recipient of a lot of criticism. I think it comes with the territory. We have adopted an approach of almost rooting for a sports team when it comes to Fed policy. It has become a much larger event than it used to be in the lower rate environment post GFC, but here we are now a lot more eyes on the Fed. While it is a recipient of criticism, it is also the beneficiary of independence. That is what they are set out to do. It is meant to exist without influence from the private sector, without influence from Congress or the sitting president. That is part of the system that we have here in place, Asit, where we have this check and balance, the stabilizing elements of things. So much of what I think we are noticing here in the red today with the market is that there is a concern about what happens if something jeopardizes that independence. Asit Sharma: I agree, Dylan. What we're looking at here is a spooking not just of domestic investors, but international investors as well. We often talk about themes that make sense, like, the dollar is the world's reserve currency, so we don't want to jeopardize that. Those are easy enough to understand. I think what many of us miss often is that the rest of the world sees the US as an investable asset, so the rest of the world can buy US stocks. We also see the rest of the world investing in government IOUs promissory notes. Those are the bonds that the US Treasury Department sells to finance our debt and to provide us with liquid money to run our operations as a business, if you will. When the world elevates the US and says, "There's this really good risk reward equation when you invest in US treasury bonds or if you buy US stocks, which is, they're safe, they're liquid, and they're isolated via this structural framework from the chaos that often consumes the rest of the world." That's a premium that we get. When we jeopardize that, what we're signaling to investors around the world is that we're not so stable, and there are many ways we can do that. We can not agree as two parties in Congress to extend the borrowing that we do. Every time we have to fund the government, this argument comes up. Or we could say, we're going to remove the structural guardrails that make this place seem so stable. Talking down the head of the Fed and demanding that he be replaced is sending a signal to the rest of the world that we're really not as concerned about being perceived as stable. We have this more important objective, which is to put someone in place who will act more by what the executive branch wants. Versus what the perceived mandate is. What I'm dancing around here, Dylan, without trying to get too political is the rest of the world is saying, "If you just kick Jerome Powell out of that seat, we're not so sure we want to buy your bonds or invest in your stock markets," and that's why the selling is going on today. People are removing capital flows from the US markets, and that's why the amount of interest that the US government may have to offer for different institutions to buy its bonds in the future may keep rising, as we've seen in recent weeks. Dylan Lewis: The market is selling right now very much on the rumor of this. If this becomes a real story, it feels to me very similar to the tariffs, where this becomes another rail of volatility that investors are to have to be ready for and brace themselves to weather. Asit Sharma: Totally. I would say, as I've been saying, I've incorporated tariffs as a feature of my investing landscape, and this would be another feature. If this becomes an increasingly politicized seat in the US government, the chairman of the Federal Reserve, then we have to understand that's going to make our future as investors prone to more volatility, and we're just going to have to plan around that or maybe choose to invest elsewhere. There's nothing that says you have to invest in US stock market. Dylan Lewis: What is a pretty rough day for the US stock market, there are some companies that are doing OK. Netflix getting close to new all-time highs after releasing earnings last week and market continuing to digest them, continuing to see a lot of the upside there. Asit, revenue was up about 12% for the business, net income up about 24% when they were reported last week. We also had the first quarter where the company got rid of their subscriber accounts as part of their reporting, giving us a feel for this new-look company. What jumped out to you in the results? Asit Sharma: I liked that the operating margin keeps climbing for this company. If you look at the nice little table Netflix presents every quarter with its shareholder letter, you can see that operating margin is just sequentially moving up. There's a little bit of a bounce back last quarter, but here up to almost 32%. In other words, for every revenue dollar that Netflix is bringing in, it's taking home $0.32 on that dollar before a few adjustments for debt and taxes, etc., but that's a very high operating income margin, and it shows that Netflix is hitting its sweet spot. Dylan, as a content company, one that deals in intangible assets. It's always a good business to be in. You have a business which is now at scale. It's not a young upstart anymore, but it is still growing pretty convincingly, so I really like that. I like the free cash flow that the company is generating. Again, $2.8 billion of net cash provided by operating activity, so about $2.7 billion in free cash flow. That's not bad off of a revenue number of about $10.5 billion. The company's extremely efficient on generating cash, as well as it is on generating operating income. I'm liking those numbers, and there's a little theme to what I'm saying here, Dylan. I haven't talked about any of the other stuff that we've been talking about over the past several years for Netflix. I'm focusing on the numbers, which is what management wants investors to do. There's something else they don't want us to focus on. You're going to ask me about that. Dylan Lewis: We, for a long time, have focused on subscriber accounts in addition to focusing on dollars. This is the first quarter where we are not getting those subscriber accounts. I do understand that we are moving into an era of this being both a subscriber-based business and an advertising-based business, but you can't convince me that that is a shareholder friendly move. I'm not a shareholder, but for my money, I would love to see as much information as possible, and it is still a driving force behind the dollars that that company reports. I feel that way, Asit, in particular because we're not getting the advertising breakout yet. They haven't told us what the advertising numbers are yet. Asit Sharma: It's becoming opaque. I'm going to agree with you, Dylan, but I'll try to give you a counter for it. I would love to have the subscriber numbers as well, but maybe from management's perspective, they're looking at it this way: Look, all you investors, we trained you on these subscriber numbers, and it was addictive when we were a small company and growing because those numbers were always going up. They weren't always linear, but for the most part, that growth was. Now they're just really bumpy. We're a mature company now, but you guys are still so focused on the subscriber numbers. Look at all this free cash flow we're giving you. Look at all this net income. Look at all the investments we're making around the world. Why we're spending a billion bucks in Mexico for new content? We have an amazing operation in the UK. We've gone from a company that exports US content to one that makes it on the ground in places like South Korea where we know the very best shows are created. Management wants us to focus on this business as something that's really dynamic and that can wring a lot more profit and cash flow out of its machine. They're pointing us to engagement. They're talking about things like 52 weeks worth of live WWE entertainment that folks can now access on Netflix, so they're trying to really shape how we view the company, but underneath this is implicit message that don't expect us to grow our subscriber count like we did in the past. We're going to focus on monetizing that with really great content. Dylan Lewis: Basically, if the market won't shift the narrative, management will shift the narrative by forcing it with the disclosures. Asit Sharma: Yeah. Maybe this thing about, "We'll only share the subscriber account when we hit big milestones," is OK, If they keep putting out numbers like they've been putting out, and Netflix stock reacted pretty well to the latest results, and even today, I think this is a defensive play because everything else is in the red today. I note the stock is up a little bit this morning. Dylan Lewis: I saw a headline calling Netflix recession-proof today, and we've been keeping an eye on the way that different management teams early on in this earning season have been trying to manage the expectations game. For Netflix's part, they reiterated their full-year guidance. They said that there were no interruptions that they were seeing. They felt like entertainment is a very sticky place for people to be spending, that they're at a nice price point. What do you think of that recession proof label, Asit? Asit Sharma: Yes and no. [laughs] They're recession-friendly because we love our subscription businesses, but as one analyst asked on the earnings conference call, if the economy gets worse and all this tariff stuff keeps going on, won't people drop down from those premium subscriptions down to the advertising tier, which is pretty cheap and attainable? Will that actually mean for the business? Greg Peters didn't really have a great answer for that. He did say, "We have such an attractive price point at that ad-supported tier," but it begs the question if things get really bad. Maybe some folks won't even bother with an ad-supported tier. Maybe they'll just cut different subscriptions. Netflix isn't the only one that I can think of, of course, but I do think that they have some insulation against that. They're not in a business that is going to be directly affected by tariffs from a tax perspective. That's what they're communicating by not changing the guidance. They did say in the conference call that they're always having to figure out different tax structures because they have all this local production of content around the world, and they sell everywhere. They're already constructed in a fashion and manner that they can be a little bit price reactive. I would say there is some truth to that, but I wouldn't be surprised if things really head south with the economy this year for Netflix to come out in the summer or fall and say, "Whoops, we didn't know things were going to be this bad. We have to pull that forecast back a little bit. Dylan Lewis: They only know what they know, right? Asit Sharma: Of course. Dylan Lewis: Asit Sharma, you know plenty. Thanks for joining me today. Asit Sharma: Thanks a lot, Dylan. MALE_1: Does it ever feel like you're a marketing professional just speaking into the void? With LinkedIn Ads, you can know you're reaching the right decision makers. You can even target them by job title, industry, company role, seniority, skills, company revenue, and do I say job title yet? Get started today and see how you can avoid the void and reach the right buyers with LinkedIn Ads. To get 100 pounds off your first campaign, go to to claim your credit. Terms and conditions apply. Dylan Lewis: Coming up on the show, what do tariffs mean for e-commerce? Up next, Anand Chokkavelu hosts Fool contributors, Dan Kaplinger and Rick Munarriz for a scoreboard episode on Shopify. Anand Chokkavelu: Let's talk about the business first, including factors like industry and competition. A 10 is invincible, a one is hopeless. Dan's at a seven. Rick, you're at an eight. Rick Munarriz: Shopify, obviously, an e-commerce platform for the masses, a Canadian company, global with 175 country reach. It started as Tobi Lütke and a friend wanting to sell snowboards online about 20 years ago. When he didn't see an e-commerce platform that he liked, he created his own. Other budding online entrepreneurs asked him if they could use it, and voilà, the Shopify business model was born in 2006. More than one trillion in merchandise has been sold on Shopify's platform since then. More importantly, more than half of that, gross merchandise value has actually happened in the last two years. Shopify started as a place for sole proprietors or small companies wanting an online presence, but now it's evolved through Shopify Plus for and other initiatives to cover companies of all sizes. Eight hundred and seventy-five million unique online shoppers purchased something from Shopify merchant in 2024. It's seamless, intuitive for sellers, but naturally there's Amazon, eBay, and other e-commerce rivals that can make that small learning curve even smaller. Shopify's advantage here I see that the users own their own site. They're not competing against anyone else for attention, but they also have to generate the traffic to their sites. Shopify also has made a move offline, providing point-of-sale solutions for physical retailers and event vendors, making it a direct competitor or Block, Square platform. The Shopify model isn't perfect. Two years ago, they did unload their logistics business, but however, winners keep winning and Shopify is Canada's second largest company by market cap. Only the Royal Bank of Canada is larger, but it's easy to see why growth investors may prefer to bank on Shopify. Dan Caplinger: Rick pretty much covered everything. I think Shopify has done a really good job of democratizing e-commerce a little bit, providing someplace where smaller companies, smaller retail businesses can go without necessarily getting totally overwhelmed by the platform. Shopify has done a good job of expanding the platform and adding services. As you say, some growing pains along the way, but overall done a really good job. For management, a 10 is Warren Buffett, a one is Homer Simpson. Anand Chokkavelu: Dan's at a seven, and once again, Rick's at an eight. Rick Munarriz: Lütke is still at the helm here, obviously. He's still quotable. He's still winning. Shopify is a 54 bagger since going public 10 years ago. President Harley Finkelstein has been there for 15 years, so he has also been there for the entirety of Shopify's run as a successful publicly traded life. The only reason I'm not higher than an eight it's surprising to me that half of the employees pulled by Glassdoor approve or in other ways, don't approve either way, fifty-fifty percent of Lütke as CEO. Actually, less than that, 48% of the employees would recommend working at Shopify to a friend, so I do not like. Dan Caplinger: I give it a seven in part because I get that same feel to it. I almost wonder if this is a situation where you have a co-founder, CEO who might be happier moving into less of an executive management role. We've seen a bunch of former CEO co-founders switch over to become chief technology officer or do something else that more aligns with whatever it is that they're passionate about. I wonder if that might be the move for Shopify here, but you can't dispute the fact that Lütke puts his money where his mouth is, still has a huge stake in the company. Financial incentives totally aligned, and we're always glad to see. For financials, a 10 is a fortress, a one is yikes. Dan's at a seven, Rick's at a nine. Rick Munarriz: Yes. A lot of growth stocks slow down as they get larger, but Shopify is actually accelerating right now. Revenue went from rising 24% in 2023 to 26% last year. It's doing even better if we zoom in. Revenue rose a better than expected 31% in its latest quarter. Its strongest quarterly growth showing in more than three years. Shopify has been generating positive free cash flow for nine consecutive quarters, and its latest quarter generated 22 cents in free cash flow on every dollar of revenue. Shopify also has a relatively clean balance sheet with a strong net cash position, and it also doesn't hurt to zoom out. Revenue at Shopify has more than tripled in the last four years and soared fivefold in the last five years. You can't spell Shopify without HOP. Dan Caplinger: I gave it a lower number. I gave it a seven. I can't dispute the numbers that you've seen. I think that part of where I'm a little bit nervous as we tape this in early mid-March, a whole bunch of geopolitical tension that is affecting trade of goods and the extent to which a lot of Shopify transactions happen within national borders, and so you're not going to have a tariff issue, you're not going to have any trade war issue, but a decent amount does happen internationally. So the question for me is between the direct impact of tariffs on e commerce and the indirect impact potentially, if there is an economic slowdown because of it, I have to be a little bit wondering whether future growth might slow as a result of that. Especially, you've got a Canadian company and you've got a whole bunch of US participants that somehow in 2025 has turned into something that we're having to pay attention to. Rick, let's talk valuation. How well will Shopify's stock do over the next five years? How safe is it? Ten is a sure thing, one is a lottery ticket. Rick Munarriz: I went with a 5-10 percent five-year return on the stock and a safety score of seven. Shopify, the stock has nearly tripled over the past five years, so suggesting it will only grow at a 5-10 percent annualized clip over the next five years with a long runway of double-digit revenue growth in that time may seem conservative. I just think the valuation here seems a little stretched at this point. Shopify is trading for 13 times trailing revenue, more than 60 times trailing earnings. To me, it's a bit rich, and I don't know if it's 100% justified, but I do see obviously doing well overall and making that back as growth keeps outpacing the stock in the next couple of years. Dan. Dan Caplinger: I agree with the evaluation comment. I think I'm a little more pessimistic just on the general economics of retail and e-commerce going forward. I gave a 0-5 percent with safety score of six. I think we're going to be in the mid single digits. I don't see a 0% return, but we have seen a big rebound recently. I think that there is a real risk that we have a consumer-led recession, it might put pressure on retailers that might last longer than some of the mini-recessions that we've seen in the past. Trade tensions, trends toward deglobalization. I'm just concerned that's going to hurt the company more than a lot of people are giving credit to at this. Time for everyone's favorite topic, Rick, is there a company in Shopify space you'd like more? Rick Munarriz: I like Shopify, obviously, but I went with Block, now a direct competitor with Square that Shopify is a bigger force in point of sale and offline sales. Block is growing a lot slower than Shopify, and revenue is decelerating. It was just less than 5% revenue growth in its latest quarter, but it's trading for 12 times earnings and just one and a half times sales and LLC growth accelerating this year, and again, in 2026. I went with Block as a value-based play on digital financing. Dan Caplinger: I give you two companies. I think if you like e-commerce and you like the idea of an area with what could be potentially stronger economic growth, MercadoLibre, ticker MELI, gives you that Latin American exposure. I think that's a more interesting market than the North American market at this point. MercadoLibre has done a good job of giving associated services on top of e-commerce. You get payments, you get shipping, you get a whole bunch of stuff that I think helps both their customers and their merchants do things better. On the other hand, Amazon, ticker AMZN, and obvious choice in e-commerce, and you get Amazon Web Services for no extra charge. That's something that I think may appeal to a bunch of people as well. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anand Chokkavelu, CFA has positions in Amazon, Block, MercadoLibre, Netflix, and Shopify. Asit Sharma has positions in Amazon. Dan Caplinger has positions in Amazon. Dylan Lewis has positions in MercadoLibre and Shopify. Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Amazon, Block, MercadoLibre, Netflix, Shopify, and eBay. The Motley Fool has a disclosure policy. The Market and Fed Chair Powell was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
17-04-2025
- Business
- Yahoo
Tariffs Send Us to a Liminal Space
In this podcast, Motley Fool analysts Asit Sharma and Tim Beyers and host Mary Long discuss: How to make sense of "tariff buckets." What a French ethnographer can teach us about the current moment. Earnings from Goldman Sachs. Green flags you should love to see in a company. 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. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » A full transcript is below. Before you buy stock in Goldman Sachs Group, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Goldman Sachs Group wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $518,599!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $640,429!* Now, it's worth noting Stock Advisor's total average return is 794% — a market-crushing outperformance compared to 153% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of April 14, 2025 This video was recorded on April 14, 2025 Mary Long: Welcome to the in-between. You're listening to Motley Fool Money. I'm Mary Long, joined on this fine Monday morning by Mr. Asit Sharma, Asit. Good to see you. How you doing? Asit Sharma: Well, Mary, happy Monday. Mary Long: Happy Monday to you, too. We'll kick things off today by trying to clarify some stuff because we got some alleged clarification yesterday on the state of tariffs. The keyword in that phrase is actually the word alleged rather than clarification because we once again find ourselves in a position where well, there's new information, but nobody actually knows what comes next or where we are. Howard Lutnick the commerce secretary, said Sunday that smartphones and other electronics will be included in future semiconductor sectoral tariffs. This came though two days after the same administration had said such products were exempt from the China tariffs. Trump said on Truth Social yesterday that there was no tariff exception announced on Friday, rather, that the products would be moving to a different tariff bucket. Still, certain tech products are no longer exposed to the 145% reciprocal Chinese tariffs. That's a lot of words, a lot of back and forth, Asit. With a caveat that all of this is subject to change in the weeks ahead, what is the bottom line of all this back and forth? What in all of this should long term foolish investors actually be focusing on right now? Asit Sharma: Mary, the bottom line here is that there is no bottom to these tariff buckets. I mean, this is so difficult to follow, and it's only getting more complex as it goes along. For what Lutnick said about these exceptions. Basically, I think the Commerce Secretary is just trying to take his smoke signals from President Trump at this point and just be flexible enough to allow that any type of tariff could have a different outcome on any day of the week. But what I think is behind this is that consumers were really in a position to squawk very soon once everyday electronics started spiking the cost of those to buy those. We have this exemption here as for the bottom line for investors, I'm going to go back to something that you and I talked about a few weeks ago, which is to accept that this is going to be a feature of the markets and accept that it's going to be a feature of companies that we invest in. I know as we talk today, we're going to touch on this again, so I will pause now to get either your reactions or we can move to another question. Mary Long: I'm curious about the reaction here because in pre-market trading this morning, stock futures for all three major indexes were up about 1-2%. Apple was up over 6%. That's pre-market trading. We're recording this close to 12:30 Eastern Time. I just checked before we hopped on air. All those indicators now seem to be moving in the opposite direction. We had markets seemingly interpreting the back and forth of yesterday with a little bit of optimism, and now that's moved. What changed Asit between 6:00 A.M. This morning and noon this morning? Asit Sharma: Mary, part of it is a little bit of a big tech effect, especially with Apple because Apple has so many of those consumer products that it manufactures overseas coming into the US. the thought of an iPhone going from an average selling price of maybe 800 bucks, take the low and high models, all the way up to 12, 1500 bucks, and more. I saw some calculations that it could be 3,000 bucks for the top of the line iPhones. You had a sense of relief from major players who wanted to plow back into Big Tech this morning. But then what happened later on is the market realized that, we're back to where we started after this initial excitement wears off and that we have a game of incomplete information. Markets usually play a game of near-complete information. It's widely disseminated, what companies are earning. It is widely disseminated, what trade policies are. They don't change that rapidly. It's widely disseminated that players know how to import and export their goods and that consumers have that stability as well. When you go from this to a game of very incomplete information. It just as tough to figure out on a daily basis for most market movers where they should be placing their bets. They're moving money out of US markets. They're moving money to the sidelines. Even in those brief periods where they want to put money to work, they keep coming back to the same level of unpredictability. Mary Long: I want to hone in on this phrase you just said back to where we started because for all the ups and downs that we've seen in the market, especially last week, but also zooming out over the past weeks and months, things are relatively in line with where they were eight months ago. We see all these big headlines about how the market's moving up, moving down, and all that's been lost or gained. But on Friday, the S&P closed only 0.4% higher than it was on August 9th. That comparison between, Friday and August 9th doesn't capture at all any of the volatility that we've been covering on this show over the past several weeks. Is that still something that's worth calling out, that means anything? When you see that, when we talk about how the market has remained relatively unchanged, even though there's been so much movement in the days between Friday and August, what do you make of that? What does that comparison tell you, if anything at all? Asit Sharma: It forecast for me additional volatility. Take a look at the VIX. This is a measure of Ford volatility. It's an index that's based on options prices as we look 30 days Ford. When times are very calm and easy, the VIX trades at a low level. It spikes when the expectation of volatility increases. That's peeled off a bit in the past few days, but it's still at really elevated levels. It also shows me that we are at a little bit of a sea change here because, Mary, the period that you talk about included a lot of time where the VIX was trading at just a stable level and markets were moving up in almost incremental step fashion. In fact, the last three years have been a lot like this. We've had very great returns in the stock market. The US economy has been an outlier in the global stage. We have led developed nations in growth. We have had a lot of technology, think GPUs that has spurred innovation and brought lots of dividends to investors. I don't mean actual dividends, but appreciating stock prices for those who are invested in the market. Even if you were in an S&P 500 index fund, you enjoyed this propulsive wave as the US reaped its value out of the strides it had made in artificial intelligence and also the high tech manufacturing we do do here. We don't do the old school hand piece manufacturing. I mean, that's all up in the air now that we can continue to do this because the tariffs don't seem to have either a real trade imbalance goal or a real goal about making tariffs reciprocal. Again, it seems to change day by day. Without this, you see so many of the capital outflows leaving the US. You see trouble in the bond markets. It all points to one thing that the nearest bit of volatility we've seen in these past few weeks and months is going to be the Ford bit going forward. We can expect to see some more of this. Now, if it stabilizes next week, don't come back and call me on that. I'm doing my best here. Mary Long: Axios had a piece out this morning in their Markets newsletter talking about what it means to exist in the liminal period. I knew I was talking to you this morning, and I thought that this might be a topic that you especially would have some interesting insights on. The whole idea behind this liminal period is that there was a French ethnographer who defined a rite of passage as having three parts. First, you get this right of disengagement, which is when the old order ends. Then you get this liminal period, which is the transition between that old order and the new, and that liminal period continues for an undetermined amount of time. It's that volatility that you were just talking about. Lastly, you get the right of reengagement. That's when this promised new order actually begins. This is especially interesting to me as we think about how to interpret and analyze announcements and news around these tariffs because April 2nd was very much touted by the Trump administration as a right of re engagement. They didn't use those specific words, but the language was very much, Hey, this April 2nd is the day when everything changes. But Felix Salmon and Emily Peck, who wrote this Axios article, argue that liberation Day, April 2nd, was actually more of the first step. It marked the end of something old rather than the beginning of something new, which means that right now, we're stuck in this in between period, this liminal period of unknowns. I think this is interesting, Asit, but I wanted your take on this. Do you think that linguistic difference, the point of, hey, no, we're actually at the end of the old thing, not quite at the beginning of a new thing? Do you think that that distinction is significant for investors? Asit Sharma: I think they got it right, Mary. In fact, the whole right of engagement or the rite of passage, I should say, is a term that was coined by Arnold Van Ginepp. It's interesting. It's just like a cliche now, but it stems from this ethnological study that Van Ginepp did. He really laid it out in a very clear fashion. If you're a young person in a tribe somewhere where tribes still exist, in some obscure corners of the world, that you know when your rite of passage is coming, you prepare for it, and then you have a bit of time where you're put away from the rest of the tribe, then you go through the rituals, then you welcome back into the tribe as someone who belongs, you've gone through the rite of passage. The Trump administration tried to argue that the very beginning of this process, which is, Hey, everyone, we're going to separate you out. We're going to prepare you for this transition. They tried to skip that stage or confuse the two. Really, this liberation day was the beginning of the process where it became clear to everyone in one fell swoop at 4:00 P.M. On liberation day I've already forgotten. Was it like 2nd April? It's all running together. That was the introduction of the ritual. I think we're in a period of transition. Even with this 90 day pause, you have somewhat 180, 190 countries on earth that have to come and try to negotiate their position relative to the tariffs. We are in a liminal period, and I think it will extend beyond the point where the Trump administration says, everything's settled now. We have new tariffs in place because the trading order has changed in the world. All the flows that we took for granted, that the US would be an exporter of technology, it would be an importer of cheap goods and services. That stuff takes years to reorient. It's going to be a while unless the administration decides in a few months that, let's go back to the way things work because everyone's tired now and this is really unpopular. That's one outcome that could still occur. Mary Long: We've talked a lot about volatility on today's show, but largely what that means on the macro level. We can zoom in and look at a company that actually plays at that specifically. For all the volatility that's out there, for all that we've talked about today, it is not slowing down Goldman Sachs. Equity trading revenue at that investment bank rose 27% this quarter compared to the year before, with a company raking in nearly $4.2 billion from that segment alone in the first quarter. JP Morgan and Morgan Stanley both reported last week, and they too boasted near record revenue in the stock trading departments. If you're somebody that thinks that market volatility is only going to continue, is it a smart bet to maybe load up on some banks that might profit from all of the buying and selling that you expect to see moving forward? Asit Sharma: It could be Mary, if you have no fear that what might follow is a period of lessened activity or inactivity. Sometimes, shocks like this signal a recession. when recessions hit, the investment banks trading revenue goes down because people don't want to trade as much. What we're seeing now in the markets is like when a storm is coming and people are very active around their houses. They're making sure that everything is tied down. The windows are shut. There's this flurry of activity. We're seeing institutions unwind some derivative bets. We're seeing short sellers close positions. We're seeing retail traders like yourself and myself, maybe buying some companies that we like that are on sale, maybe trimming some speculations that we shouldn't have been in the first place to raise some cash. Everybody's busy. But if the net effect of this is that we head into a recession, which is one possibility, you'll see those trading volumes slow, and in fact, in Goldman's earnings, that activity that they had on the trading side masked some other weakness they had on the M&A side, on the fixed income side. I'd be careful. It might be a smart bet, but you've got to make sure that you're pretty confident in your outlook for the US economy for the next few quarters before you take that bet. Mary Long: You mentioned weakness in other segments of the business. Investment banking revenue came in 8% lower than last year, as did top line numbers from the financial advisory and the equity underwriting parts of the business. That said, when I last checked before we recorded, Goldman's stock was up about 3% this morning. It seems that Wall Street is pretty unbothered by that underperformance. What say you? Asit Sharma: I think Wall Street is OK to be unbothered. Goldman is a company that lost its way for a little bit. I lost its Mojo. I got into all things which were collateral to their core business, just thinking of some of their extensions into private banking, which probably they didn't even need to invest in. Now they're back to being an investment banking firm at heart. I think with the trading activity, they look like a company that's more focused on its core mission, and they really can't help what goes on in the larger mergers world. We're seeing mergers and acquisitions dry up everywhere as the effects of the tariff policy roll on. That will come back for them as it will for the other trading houses. I get that Wall Street isn't penalizing something that's out of Goldman's control and hence why the stock would be up. But I bet, Mary, by the time we finish taping, like the rest of the market, it's going to be closer to the break even pointer negative. Mary Long: Who's to say? Asit Sharma always a pleasure having you on. Thank you so much for helping to make sense of the continued uncertainty for us. Asit Sharma: Thanks a lot, Mary. This was a lot of fun. Mary Long: Last week, fool analyst Tim Beyers and I talked about ManagementX, the things a company does that make shudder. Today, we take the opposite view and talk through Tim's analyst kicks. IKEA, the moves he loves to see a company make. Frequent listeners of the show, Tim, might have some guesses as to what you love to see management do. Number 1, on that list, solving a migraine level problem. But for those who are maybe not such frequent listeners or unfamiliar with that terminology, what's a migraine level problem, Mr. Byers? Tim Beyers: A migraine level problem. If you have a migraine, you'll pay just about any amount of money to get relief because a migraine is intense. It is not something that you can just lay down and get rid of it. It's just pounding. It's relentless. It requires extraordinary relief. You will take measures. You will pay what is required to get relief for that. A migraine level problem is one that causes genuine corporate pain. People who have money and big checkbooks they will write checks in order to get that pain solved. For example, a massive supply chain problem or a massive competitive problem. Things like that are significant. In the case of a company that I've talked about many times, still my favorite stock that solves this is Toast. Who has the pain here? If you are a restaurant operator and you have somewhere 5-20 restaurants, restaurant operations do require digital systems in order to run. You have an ordering system. You have inventory. You have reservations. You have so many things that you have to do, and all of those can be different systems. If they are different systems, Mary, then the point of integration for all those systems is either you spending a boatload of money on a systems integrator to go out and integrate all those systems. The point of integration is you. You either have to figure it out or you make somebody else figure it out. What Toast decided is that they could be that point of integration. They could do that. They could go into a restaurant group, make it cheap on the front end to get all of the systems installed and set up, and then over time, you would pay them a subscription fee, and you would pay them part of the fees that you generate doing business there in the restaurant. They could win right along when the restaurant won. That to a lot of restaurant operators, is like, that is sweet relief. I don't have to be the point of integration, and your business model allows me to only pay you more when I am earning more. That sounds pretty good. For that particular group, there's a real migraine problem there. I'm not a technologist. Don't make me integrate all of these systems, and Toast came in and said, We won't won't force you to do that. We'll help you out here. Mary Long: The thing about a migraine is that if you are not the one experienced the migraine, it can be hard to actually understand just how painful that migraine that someone else is experiencing actually is. What advice do you have for retail investors to spot migraine-level problems in industries that they don't play in. It's one thing if you're a consumer and you use the product as a consumer and can understand, this solves a massive gap in my life. This addresses a massive problem. But it's another thing to try to look into an enterprise relationship and distinguish a migraine from what might just be a headache. Any advice for how to spot that when you're on the outside. Tim Beyers: Well, listen for complaints. I mean, if there's anything that is a human trait, it's that we love to complain. Listen to where the complaints are, and that might not always, but it might lead you to, you know, migraine level problems. I'm struggling to think of one at the moment, other than Toast, but, anything that you complain about consistently, I mean, here's another that I think you could have thought about. How backbreaking did it used to be constantly picking if you have a dog food from the grocery store. No, thanks. I don't want to do that. It is something that you will complain about. Bad food choices for your dog, big bags that are just heavy and onerous and just dumb to bring in. Like, could you fix that problem? Chewy isn't the first one to fix that problem, but they fixed it in such a way by virtue of how they treat their customers that they've won some very loyal fans to their customer base. They combined. They did something that's pretty interesting. They leaned into a way to solve a migraine level problem, but they solved it in a better way than most did by creating a massive customer service operation that made people love Chewy by caring about your dog, your cat, your bunny, your chinchilla, and so forth in ways that another retailer just really doesn't. But, follow the complaints. Complaints are a great place to start. Mary Long: A company that we can use as an example to highlight another kick that you pointed out, but that interestingly sits at the intersection of migraine and Joy is Duolingo. The kick in question is solid unit economics. I vividly remember once upon a time, we were at the old Denver office, and Duolingo had just dropped earnings, and they totally blew things out of the water. you were just floored by the company's ability to convert free users into paying members by its ability to generate so much from those paying users that the company was paying so little, honestly, to acquire. You launched then into a lesson on unit economics and why that matters so much. Walk us through what the Duolingo playbook is. What do they understand about unit economics that investors can look at and try to apply to other companies and see if they hit the same mark. Tim Beyers: They have a way. They have created a go to market mechanism or a customer acquisition mechanism that spends very little to generate interest. They primarily do it through social media and engaging social media. I do not follow Duolingo on Instagram, but I am told that you make Duo the owl, sat at your peril. Mary Long: At your peril. Tim Beyers: Fair enough. It doesn't matter that I'm an old man and don't know anything about what this really means. What matters is that I know that there is a genuine following here that leads to some amount of conversion, and that conversion to using the app is essentially free. It's as close to a frictionless captive go to market app as I've ever seen. They use social media creatively to get interest in the brand. That brand interest leads to app usage, and in some rare cases, it's a very small minority. It's like 8%, I believe it is of the usage that the paying customer base is, but there are paying customers. What's interesting is those are the subscription customers. A larger portion of those will be members who use Duolingo. They have a big streak. It's a game of FINAP. It's a language learning tool, but it's really a game, and people pay to play the game. If you miss the streak and you want to pay to keep that streak alive, you can do it because it's a game. It's not really a language tool. It has this unique dynamic of being a fun, playful brand that people like to follow. Then that creates interest and interest leads to curiosity. Curiosity leads to usage, and then usage sometimes, but not always leads to commitment. The end result is that it tends to cost for every dollar of revenue that Duolingo will bring in in a given quarter, new revenue will bring in, it's sometimes like $0.10. Or something crazy, $0.20 to get that dollar of new revenue. That's amazing. I mean, that really is something. That is the benefit. Great unit economics is the cost to get an additional unit of revenue really high, bad unit economics. Really low? Good unit economics. In the case of Duolingo, very low, exceptional unit economics. Mary Long: We'll close out on another green flag that you flagged for me when we were building out this conversation, and that is that third parties commit to the platform in increasing numbers. An example of this might be NVIDIA, another example might be Apple's App Store. Is this effectively the network effect, or are you talking about something a little bit different? Tim Beyers: Yes, it is the network effect. The network effect is that as usage goes up, more value is created. As the number of users increase, the net value of the entire networking increases as a result, the value of the product to you and in general goes up, but it starts with to you. As more people are engaged in the network, the value of being part of that network goes up. My participation and the value I get goes up as the network grows. That is network effect, but then the net benefit of that is I'm that network, wow, that's really valuable because it's very big. What I'm talking about here with the ecosystem is, you know what? I want to work with you. Let's say you're a rising star, Mary, you're going to make me money if I hitch my wagon to you. I want to be working with you 'cause you're going to make me money. That's what an ecosystem is. I want to commit to the app store. I want to be part of the app store because if I want to make money, I want to get involved with these people 'cause that's where money is. A platform that has ecosystem benefits is a place where somebody who has an economic interest will go to and they'll get plugged into that ecosystem because they know that that ecosystem is going to make them money. This is why you see, for example, back in the 1980s, 1990s, why did so many developers commit to Windows? Because that's where the money was? That's what we're talking about here. You're getting into a platform where money is being made. Lots of money to be made in the app store, lots of money to be made as an app connecting into, Hubs Spots Platform, for example, here. You want to be connected to platforms where usage is high, economic value is present, and so by your participation in that platform, you the economic benefits of being there. Mary Long: We'll end it there. Tim Beyers, always a pleasure. Thanks so much for walking through and highlighting what these icks and kicks are for you. Tim Beyers: Thanks, Mary. Mary Long: 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. Buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. For the Motley Fool Money team, I'm Mary Long. Thanks for listening. We'll see a tomorrow. JPMorgan Chase is an advertising partner of Motley Fool Money. Asit Sharma has positions in Nvidia. Mary Long has no position in any of the stocks mentioned. Tim Beyers has positions in Apple, Chewy, Duolingo, and Toast. The Motley Fool has positions in and recommends Apple, Chewy, Goldman Sachs Group, JPMorgan Chase, Nvidia, and Toast. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy. Tariffs Send Us to a Liminal Space was originally published by The Motley Fool
