Foolish analysts Aaron Bush, Ron Gross, and Jason Moser look at this week in business news. Lyft (NASDAQ:LYFT) goes public at $ 72 a share and pops even more, but the path from here will be challenging. Wells Fargo (NYSE:WFC) is back in the news as CEO Tim Sloan finally steps down amid scandal concerns. Restoration Hardware (NYSE:RH) tanks after earnings, but the market is probably overreacting on this one. Shares of McCormick (NYSE:MKC) and lululemon athletica (NASDAQ:LULU) pop after earnings. A new report illuminates the huge market opportunity that is drunk e-commerce. Host Chris Hill talks with analyst Tim Beyers about Apple‘s (NASDAQ:AAPL) event, YouTube, and the future of video games. And, as always, the guys share some stocks on their radar this week.
A full transcript follows the video.
This video was recorded on March 29, 2019.
Chris Hill: It’s the Motley Fool Money radio show! I’m Chris Hill. Joining me in studio this week: senior analysts Jason Moser, Aaron Bush and Ron Gross. Good to see you as always, gentlemen! We’ve got the latest headlines from Wall Street. We’ll get an update on the battle for the living room. And as always, we’ll give you an inside look at the stocks on our radar.
But we begin with the latest IPO. Lyft went public Friday morning at a price of $ 72 a share. The stock immediately shot up 20% before settling in the mid-80s. Aaron Bush, I’ll start with you. Can I interest you in a share of Lyft?
Aaron Bush: I am interested, although I do have some hesitations. I have a lot of respect for Lyft to get to this point. A couple of years ago when I was starting to study the ride sharing space, I was genuinely worried about their ability to capture market share at a reasonable cost because Uber was just so dominant. Really, they got lucky with Uber’s stumbles, their cultural problems, executive turnovers. Lyft executed beautifully in Uber’s turmoil. They really seized the moment, built their brand, captured market share. That captured market share seems to be permanent.
When I look at the business today, I think I like it more than I don’t —
Ron Gross: What a rave!
Bush: Yeah, I know. It’s nowhere close to perfect. The company is growing quickly. The market that they operate in is massive, and it’s only going to become much bigger. But their growth rates on both their riders and their rides taken are very clearly slowing. That isn’t necessarily a deal breaker, but it puts more pressure on their ability to make more money per ride. That is their take rate and essentially determines how much money Lyft makes verses how much money the driver makes. That rate has doubled over the past three years, about 29%, which is good for them. Not as good for the drivers. I don’t know how much higher that can go.
I think what determines Lyft’s future from here is their ability to maintain the market share, but also grow in other areas. Can they do something with food like Uber Eats has done? They have a partnership with Waymo for self-driving cars. What does that mean? Can they actually make that become worth something? They’re burning a lot of cash, which adds risk.
But it’s big business. I do think over a long period of time, they can become much bigger.
Gross: It’s interesting that Aaron talked about diversifying into other areas. Some of the analysts I’ve seen like the fact that Lyft is a lot more focused than Uber. Uber is into freight, short air travel, Uber Air, driverless taxis, lots of other things. Lyft, a little bit more of a pure play, obviously a smaller company. It’s interesting, we’ll see which way they go. $ 25 billion valuation at this current price, around there. Not profitable. Hard for a value guy like me to sink my teeth into that.
Let’s assume they will one day be cash flow positive. They’re targeting 20% EBITDA margins. That’s probably aggressive, and they’ve given no timeframe. It’s hard to really put a proper value here. For me, I like the company, but it’s kind of like Coke and Pepsi to me. I only drink Pepsi if the restaurant doesn’t have Coke. I only take Lyft if they send me an email giving me a 10% discount on my next 10 rides or something like that.
Jason Moser: I like the opportunity that both of these businesses provide, I think it’s going to really boil down to, like Aaron was saying, leveraging those networks into other things. Take that network, and beyond just ride sharing and getting people from point A to point B, getting food from point A to point B, getting things from point A to point B, and whatever else they may be able to dream up. The self-driving car market is something we probably all hope for at some point. I’d love to be able to just give my daughters an Uber or Lyft card and not have to worry about them driving. The expenses involved with it, along with just worrying every day that they’re driving on the roads up here.
But, yeah, from an investment perspective, I think you have to look at this and say, while you might be interested — and I am — this is a business that’s going to be valued basically on adjusted EBITDA metric for the next five years.
Moser: Yeah, at least, if not more. Maybe forever. I’d be willing to bet dollars to doughnuts that we will see the share price significantly lower than it is today. Maybe that’s when you want to take a look. But congratulations to them for what looks like a successful IPO.
Gross: I do think it’s good for IPOs in general. This generates excitement, it leads to other companies wanting to access the public markets, which I think is good for investors.
Moser: The stock, they obviously priced it fairly well. With a 20% pop, it’s not like they left a lot of money on the table. You saw that they upped the price right before the IPO as well. It looks like all in all, it was well done.
Hill: We’ll have more IPOs coming later this year. Uber, Pinterest, Airbnb. Real quick around the table, is there a company going public in 2019 that you’re particularly interested in?
Bush: I’ll kick it off. I think Zoom is really interesting. It’s the best S-1 that I’ve read probably in my time here being at The Fool. Their growth is unbelievable. This is a company that really is taking enterprises by storm with their video conferencing systems, which sounds like a very competitive playing field, but they figured out a way to just dominate. Very interested.
Moser: One that I probably wasn’t going to give a whole lot of credit to, but now I’m a bit more interested in, is Pinterest. Based on the nature of visual search, and that’s really where their strength lies. 97% of the 1,000 most popular searches on Pinterest are unbranded. Generally, when you look at all of these social platforms when it comes to e-commerce, Pinterest is the one by far and away that promotes more buying behavior than any of the other ones.
Anecdotally, while I never thought I would have ever considered using it, my dad, 76-year-old doctor, a few months back showed me this little hack. He goes there all the time on Pinterest to look at different watercolor demos and folks putting up their paintings up there to learn new tricks of the trade and whatnot. So I actually started using Pinterest to help in my watercolor efforts.
Gross: Which are quite impressive!
Moser: Well, thank you! It’s very clever, it works very well. So, yeah, as a user, I can certainly see the benefit there. Closing in on $ 1 billion in sales, so they’re doing something right.
Hill: Just to be clear, your dad’s getting tips on painting, not surgery, right?
Moser: [laughs] Painting, not surgery.
Hill: OK, just wanted to clarify that.
Gross: I don’t really have one that I’m looking at. But this morning, when Aaron said Zoom was the best S-1 he’s read in quite some time, I said, “I have to take a look.” And I did, I went and took a look, and I completely agree. It’s a very impressive company with great growth in the past and what looks like ahead. That’s going to be an interesting one.
Moser: The big hurdle I can’t get past, another Zoom? Am I going to get screwed out of this one?
Hill: They spell it a little differently [than Xoom].
Moser: Yeah, but it sounds the same and I’m still not over it.
Hill: Clearly! Wells Fargo back in the spotlight this week as CEO Tim Sloan resigned effective immediately. Sloan was installed as CEO in October of 2016 to clean up the mess caused by the scandal involving millions of fake accounts. Jason, I don’t want to pat us on the back, but when I think about that point in time, we were all sitting around this table saying, “Wait a minute, Sloan’s been at Wells Fargo for a long time. Is he really the person to clean up the mess that he probably had a hand in helping to cause?”
Moser: I mean, I’ll pat you on the back if you want. I feel like right. We’ve talked about this for a long time. It’s astounding that it ultimately came to this, but here we are. Where I grew up, we call this going around your rear end to get to your elbow.
Gross: [laughs] I’ve never heard of that!
Moser: It seems to be the most inefficient way to get from point A to point B. Listen, he should have never been promoted to CEO, in my opinion, because he was part of that executive team that was culpable in all of these crises. It’s not a crisis, it’s crises. There are some big problems that they still have to figure out. The board, whomever was in charge of ultimately assigning him that CEO role, they automatically put themselves in a position where they had to be defensive. They had to get out there and justify why they would give this hire to an internal candidate. If you bring in someone externally, then it’s really easy to spin the narrative that you’re trying to change the culture of the company. So I feel like they could have just made that leap from the very beginning. They didn’t. Obviously, they’re going to do it now. A lot of qualified candidates out there. I imagine they’ll have this resolved pretty quickly, but then it’s going to be up to that new CEO to really spin the story in a new direction and get over all of these problems they’ve been having.
Hill: Shares of lululemon athletica hitting an all-time high this week after a strong fourth-quarter report, and Ron, equally strong guidance for 2019, too.
Gross: This company just keeps rolling along. Really impressive. Revenue up 26% with comp sales up 17%. Their in-store channel, comp sales were up 7%. Direct to consumer up 39%. Turns out the China market loves their athleisure, because online sales there were up 140% during the quarter. They’re doing great job with cost controls, which led to margin increases, and therefore adjusted earnings per share were up 39%. The company continues to really execute. As you mentioned, guidance was very strong as well. Stock’s trading at 36 times that guidance, so it’s not a “cheap” company, but they’re putting up great growth, so maybe it is actually reasonable.
Hill: Why do you think they’ve been able to succeed in an area that really should have more competition? Five years ago on this show, we were talking about Nike and Under Armour getting into the yoga wear space and saying, “Look, they make quality stuff at Nike and Under Armour. This may be trouble for Lululemon.” And it really hasn’t been.
Gross: These specialty retailers, it always comes down to their merchandising and their buyers and putting the proper product into the stores. They consistently do that well. They get rid of the stuff that isn’t going well. When they need to be promotional, they are. But they’re constantly putting stuff in the store that people come back for.
Hill: BlackBerry, the business that once dominated the mobile phone market, is trying to rise from the ashes as a communication software company. Fourth-quarter results were good enough to push shares of BlackBerry 10% higher on Friday. Aaron?
Bush: BlackBerry has had quite the transformation over the past decade. Even if you look at their growth and their profitability, and it looks pretty tepid, underneath that their software business is really taking off. BlackBerry’s expertise has always been around endpoint security, first with their phones, and then they’ve taken that same expertise to software to cover lots of different devices. They cover the Internet of Things, they help enterprises secure all their various different devices. They play a role in car security now, which is interesting. There is a market for their software.
But one other side effect of a long technical history in wide-ranging areas is that BlackBerry has also built a pretty robust and valuable patent portfolio. What surprised investors, I think, this quarter is that their licensing business jumped 71% to nearly $ 100 million, becoming the largest revenue segment of this quarter. When that type of hidden growth that people weren’t really paying attention to much before starts to become more meaningful, the market starts paying attention. I think that’s what’s going on today.
Hill: First-quarter revenue for McCormick was just 1% higher than a year ago. But adjusted earnings were just spicy enough to push shares of McCormick higher this week. What do you think, Jason?
Moser: Well, excluding currency effects, it was 4% top-line growth, Chris. Let’s give them what we can here. Remember, back in January on the show, we were talking about the stock getting hammered on earnings. There are some concerns about 2019 guidance. The stock fell down toward toward the $ 120 range. I was saying then, I thought it was a gift for people who could take the longer view. And lo and behold, here we are now, the stock is back up knocking on $ 150. I think a lot of that is because of the reliability of the business. It’s not lighting the world on fire with its top line growth, but it’s able to continue growing and it’s able to continue bringing those savings down to the bottom line with this RB Foods acquisition that gave them more share globally in the sauces market.
Interestingly enough, we talked a little while about how at some point or another, this business was more than likely going to start looking at another acquisition to make at some point. RB Foods was a big one. It seems like they’ve integrated that nicely. It’s working out well. Management on the call did note that it’s time to start looking for a new deal. They’re going to continue paying down the debt from the RB Foods acquisition. They’re not going to be buying back shares. Very refreshing to see that.
Gross: Yeah, nice.
Moser: They are a dividend aristocrat, so expect another dividend raise at some point this year. I imagine at some point this year, we may find out about another deal that they’re looking to make. All in all, the business continues to perform well. I am a happy shareholder, and I think anyone out there who owns shares, hang on to them. It’s a good long-term story.
Hill: Is it safe to assume that whatever the acquisition they make is, it’s going to be right in their wheelhouse? They’re not going to do what — obviously, Pepsi is a much bigger company, but you look at Pepsi with Frito Lay. They’ve got beverages, they’ve got snacks. McCormick’s not looking to break out of the spice category, are they?
Moser: No, I don’t think we’d be seeing them buying a furniture company anytime soon. It’s going to be in their wheelhouse of spices, flavors, sauces, things like that.
Gross: I hope it’s not bottled water. There’s enough bottled water out there.
Moser: I mean, I think the RB Foods acquisition was a good example of a direction they’re willing to take. As silly as this may sound, sauces is a bit of a different market than those dry spices. It requires a little bit of a different production mentality. They’ve shown that they’re obviously willing to go in that direction. I suspect they’ll keep all options on the table.
Hill: Fourth quarter results for Restoration Hardware looked good, but the retailer cut guidance for the full fiscal year. Shares of Restoration Hardware down nearly 20% on Friday. Ron, how bad was this?
Gross: It wasn’t that bad. I think it’s a bit of an overreaction. The company has done a wonderful job over the last two or three years turning their business model and changing things around. Still, the quarter was really strong, with comp sales up 5%. Revenue flat, but that’s because there was an extra week last year in the numbers. If we adjust for that, revenue is actually up 7%. Nice expense controls. Adjusted net income up 75%. The quarter in and of itself is very, very strong.
Now, conditions did start to deteriorate near the holiday season. They’re citing some weak real estate markets, which affects this business, so they brought down guidance. I think 20% is a big overreaction. I think the company is doing really well. The numbers still look strong. Could be a good opportunity to actually pick up some shares.
Hill: But this is one of those businesses that potentially has some ripple effects in terms of the high-end housing market. Yes?
Gross: The high-end housing market has a ripple effects on lots of other businesses, yes, for sure. This will have some cyclicality. Again, a specialty retailer with real estate having a big impact on it, it will ebb and flow. But as long as they have their strategy together, their new loyalty program, they have merchandise in the stores that people want, even when the cycle is weak, you’ll eventually get a rebound.
Hill: The ability to shop online means you can buy just about anything you want without leaving your home. But, as Uncle Ben Parker warned his nephew Peter, with great power comes great responsibility.
Gross: [laughs] Nice.
Hill: An online survey of nearly 2,200 alcohol-consuming Americans found that nearly 80% of them have made at least one purchase while drunk with an average annual spend of more than $ 400 per person. Courtesy of The Hustle, the online site conducting the survey, a little back of the envelope math puts the drunk shopping industry at $ 45 billion. The most common purchases being clothing, shoes, movies, and games. I have to say guys, as an Amazon shareholder, I was very happy to see that overwhelmingly, drunk shopping is being done on Amazon.
Gross: They should put in a failsafe. Like, “Are you sure? Have you been drinking? Click both buttons before this transaction goes through.”
Hill: As a shareholder —
Gross: You don’t want them to do that, you’re right.
Moser: I imagine this is a real boost holiday sales, right? That’s the time where we tend to imbibe and you have to buy gifts for everyone. Hey, throw that extra Green Machine in there, or whatever you may buy. You can always figure out a way to justify it.
Bush: I think Amazon should totally lean into this. You see that they’re white labeling and ripping off tons of other different products. They should start white labeling their own beers and wines, and on the labels, have ads and QR codes. That could double that $ 45 billion.
Hill: In all seriousness, if you’re any online retailer, shouldn’t you be taking this information and doing something with it? Shouldn’t you be saying, “Look, we’re going to start having flash sales Friday night starting at 09:00 PM.”
Gross: Of clothing and shoes.
Moser: I think you need to do that. I think even more so, you look at Instagram and you look at Pinterest, another one, for example, where consumer behavior could be guided in that direction, people are surfing those sites all times of day. I could see them particularly using this as a way to juice that commerce.
Hill: On the line is Tim Beyers. He analyzes the media and entertainment industries for The Motley Fool. He joins me from Colorado. Tim, thanks for being here!
Tim Beyers: Thanks for having me, Chris! How are you doing?
Hill: I’m doing well! Let’s start with the big event that Apple had earlier in the week. A lot of different parts to it. What’s your headline for the event itself?
Beyers: “Apple Wins Incrementally.”
Hill: Wow, that’s sexy!
Beyers: Yep. I mean, the sex is gone with Apple. That may or may not be a bad thing. It depends on how you view Apple as an investment. The way I view it is as a company that’s defining consumer trends but is no longer the innovator that we once thought it was. They’re just not spending on R&D, they’re not innovating the way they were. Tim Cook disputes this, by the way, but I think the numbers speak for themselves here. The amount of money Apple makes compared to the amount that it invests in research and development is paltry. It’s always been that way, they just used to be able to do much more with their R&D dollars. They’re just not doing that anymore.
Everything you saw at that Apple event was incremental. News+. Apple TV+. The only thing we’re really seeing from Apple right now is an expansion of the existing ecosystem, not something that is a breakthrough product. I think that’s the way Cook wants it for now. But that’s only going to last so long.
Hill: It’s interesting, because the video piece of what Apple — and now it’s got a lot of attention, and probably rightly so when you consider the track record of people like Oprah Winfrey and Steven Spielberg. The more I thought about it, the more I thought, that’s actually less interesting to me, not just as a consumer, but also just as an investor. It seems like the credit card, in some ways, might have the most potential, at least in the near term.
Beyers: I think in the long term as well. The reason why is because it actually solves a pain problem. As an investor, what I want to see is, who is giving me medicine for the migraine I’m experiencing in this area? In the area of entertainment, it was Netflix that had the aspirin for the migraine of video streaming. They are still the No. 1 leading brand on the shelves, and for good reason. Their original content is memorable. It is an open question as to whether or not Apple can make memorable streaming content.
The Apple Card is very different. I agree with you on this. It’s more secure. There are no numbers on it. You don’t have to sign it. There are some digital tools, the language is clear. It’s supposed to take some of the pain out of using and managing credit card. That is very useful. Now, is it a major innovation? No. But this is the kind of thing that Apple does very, very well. They take an existing process, and they make it a lot better. We had smartphones, for example, before Apple, before the iPhone. But they weren’t as good as the iPhone. It’s not just that the iPhone was cool. It was very functional. The single button, the touch screen. It was very, very useful and it was built in a very user-friendly way. This probably sounds trite, but this may be the most user-friendly credit card. I don’t think it’s going to be the best credit card, but it might be the most user-friendly, and that gets it some adoption.
Hill: Also, when you consider the fact that they are producing actual credit cards to go along with this credit card system built into the phone, it’s also an acknowledgement by Tim Cook and his team that Apple Pay, for all of its success, did not become as ubiquitous as they wanted. They had to produce this card because there are lots of places that just don’t take Apple Pay.
Beyers: Right. There are lots of places that do, but lots of places that don’t. And let’s be honest here. We talk a lot about the cashless society, we talk a lot about payment systems, electronic payment processing, e-commerce. The city of Philadelphia says, “Nope. We don’t want cashless payments.” We’re a long way from getting to the point where Apple Pay can be a ubiquitous system, even at the level of legislature which say they’re not ready for this yet. In order to change habits, you have to reduce objections. This is a very easy way, I think, for Apple to reduce objections to Apple Pay and increase the usefulness of that ecosystem that Cook speaks so highly of.
Hill: Last time you were on the show, one of the things we talked about was YouTube. I know you’re a fan, not just of YouTube, but also the potential of YouTube. Bloomberg reported this week that YouTube has cancelled two of its biggest original series. YouTube pretty quickly issued an official denial that they’re backing away from original content. That really doesn’t seem to square with the canceling of these shows. Does this change your thinking on YouTube at all?
Beyers: No. That should be a non-news event. Of course that’s going to happen. Shows get cancelled all the time. Yes, they were two of the biggest shows. That’s true. If you thought that this was the end of YouTube original content, you weren’t paying attention. I personally think that YouTube is going to make its money on very short clips, 15 minutes or less, probably five minutes or less. It’s that repeating content. Give me five minutes of this, here’s my related content, and I will keep going and going until I’ve spent an hour, but I’ve watched 10 things. That really is the future of YouTube. Because it’s broken up into those kinds of segments, there can be lots of different, very personalized advertising in there. It can be very different. That allows for a very different monetization model than what you have on linear TV.
I very much believe in the YouTube model. Original content is not as important for YouTube. Remember this, YouTube was built on content that other people made, and it was built on video gamers streaming themselves playing video games. That ultimately became a massive business called Twitch that Amazon acquired. There are lots of different ways that YouTube monetizes, and lots of different programming that plays extremely, extremely well. YouTube doesn’t have to invest in a big amount of original content on its own in order to win. That’s very different than what is required of Apple or Netflix or Amazon Prime or even Hulu.
Hill: But it seems like, unlike those services you just mentioned, which are more established when it comes to original content, when it comes to professionally produced content, it seems like there’s an internal struggle at YouTube. I don’t have any inside information. But the way it plays to the outside world is, within YouTube, it wouldn’t surprise me at all if there was a group saying, “This is a mistake. We need to invest even more money in original content,” and others saying, “No. We need to drop this altogether and just go with ad-supported businesses as a model.” It’s almost like YouTube is still trying to decide what it wants to be when it grows up.
Beyers: I will go further than that and say I guarantee that that is happening, 100% guarantee that that is happening. YouTube still has a limited identity in this world. It’s not that they have a limited presence, they just have a limited identity. People don’t exactly know how to use YouTube as part of their entertainment lineup except for watching clips or listening to music and watching music videos. Other than that, YouTube doesn’t have much of an identity. So I guarantee you that that is happening, Chris.
That’s a good debate for YouTube to have. That does not make me feel hesitant about YouTube as a business. That makes me feel good. They need an identity, they need a niche. I think that ultimately, it’s going to grow out of the way that people habitually use YouTube. Longer-form original programming breaks the habit of how people use YouTube. If you lean into the habit and make shorter-form programming, there may be a lot of success here. But they do have to define their identity for that next stage. “We’re a destination for you to consume original content. Here’s what we offer.” As long as it fits with the way people habitually use YouTube, I think it will be highly successful. But they do need to figure that out. I think you’re exactly right.
Hill: Let’s move from video content to video games. At its event on Monday, Apple introduced a new video game subscription service called Arcade. This comes a week after Google introduced its own service called Stadia, which is a cloud-based streaming platform. Did one of them impress you more than the other?
Beyers: No, but they’re both a strong signal for what’s coming in video games. It’s been a long time coming that a web browser would become a standard video game interface. It’s been that way for a very long time on the Windows PC. It really hasn’t been that way on the Mac or on a Chromebook. In other areas, we now have different options for connecting your TV to limited boxes where you have limited computing. That will become a game console, just like it was back when I was a kid. I really think that this has been a long time coming. Because it’s been a long time coming, I think it feels very, very new and fresh. It’s really not. But it is, pardon the pun here, game-changing.
The console is not the event that it used to be. Every two or three years, we’d have a brand-new console, and a lot of games backed up to that. That isn’t the same event that it used to be. However, the software is the big event now. Red Dead Redemption. Take-Two Interactive released Red Dead Redemption 2 to, I believe it was a $ 700 million opening. That is incredible! It’s bigger than a movie. That’s how video games have changed. But what’s happened now is, you have those openings, and then you have a rolling distribution, also like a movie. A movie would open in theaters, and then it would go to DVD or Blu Ray, and then it would go to HBO, and then it would go into syndication. So you had this very long tail of life for a successful movie. That’s happening with video games.
Stadia and what Apple is introducing are the end of that long tail for video games. I think it’s a very smart move. I don’t expect it to be really additive to either Apple or Google in the short-term. But I do believe it’s a necessary component for video games to have the same long tail that the movie business has. That really gives you a lot of choices as a gamer.
Hill: It seems like this is one more bit of evidence of how the video game industry is changing, and from my standpoint, becoming even more interesting to watch than video streaming. You’ve essentially got a couple of types of offerings now. One is this subscription bundling like Apple is trying to do with Arcade, aka the Netflix of video games, as Apple and others try to achieve that. Then you’ve got the stand-alone franchises. As you said, Red Dead Redemption 2, Call of Duty, FIFA World Cup, these huge tentpole games that can command hundreds of millions of dollars in a single opening week.
Beyers: Right. I think you’re right about that. The main difference in that area is, in the video streaming business, we really haven’t figured out yet how to take an original movie, let’s say on Netflix, and have that broad-based distribution after release on Netflix. That hasn’t really happened yet. There is no opportunity for an actor who signs up for a Netflix original movie to earn residuals. That’s highly unusual. For the past almost century, if you were an actor and you got linked on to a hit movie or a hit TV show, you could expect some residuals over time, that was part of the way that you were set for life. The Friends cast, for example, they’re still getting residuals. They’re getting massive amounts of money because of that distribution syndication deal. That’s not really true in the video streaming world. That’s still either coming or will never come. But we don’t know.
In video games, that mechanism is actually happening. Red Dead Redemption 2 releases to a big launch, and then it goes online. And as it goes online, then the game changes. There are new episodes and new characters. Then they can make their way down to Apple Arcade and Google Stadia. And then there are new versions, new spin-offs. And that becomes a franchise in and of itself. The video game industry is going to be very interesting to watch.
Hill: Last thing before I let you go. When you and I talked last fall, I asked you for a stock you were excited about. To my surprise, you said Microsoft. You said Microsoft was arguably cooler and more innovative than Apple. Has anything changed in the last six months? Or do you still feel that way?
Beyers: I still feel that way. In fact, listeners who want to go read it can go to fool.com and read my article about why Satya Nadella may be tech’s best CEO. I think Microsoft is in the best position it’s ever been. I won’t go into the technical details of why, but Microsoft is using interoperability, the ability to get its products in front of you and give you a pleasing experience any way it can, whether it’s through an Android phone or a Chrome browser. They’re using that mechanism to get you into a Microsoft product, and it’s working. It’s a brilliant strategy, and I don’t think it would have happened without a developer at the top of the business. I think Satya Nadella is the best in the business right now, better than Tim Cook.
Hill: Tim Beyers covers media and entertainment for The Motley Fool. Tim, always good talking to you!
Beyers: Same here, Chris! Appreciate it!
Hill: Time to get to the stocks on our radar. Ron, you’re up first. Our man behind the glass, Steve Broido, is going to hit you with a question. What do you got?
Gross: Stick with me, Stevie. Hill-Rom Holdings, HRC. Spun off from Hillenbrand in 2008. A medical equipment company. A recent recommendation here at The Motley Fool. They have a long-established presence in the medical equipment market. 14 consecutive quarters of double-digit earnings growth. Great opportunities in connective care and technology. International expansion is a great opportunity as well. They’ve raised their dividend for eight consecutive years. Very strong management team. Well-run company.
Hill: Steve, question about Hill-Rom Holdings?
Steve Broido: What medical device are they best known for?
Gross: I’m going to say they’re best known for cardiac monitoring, some ophthalmology equipment as well that they got through an acquisition. Some respiratory care equipment as well.
Hill: Jason Moser, what are you looking at?
Moser: The power of the burrito, Chris. It is unbelievable to me. Chipotle Mexican Grill, CMG, the stock is up 66% this year alone. You know what? I’m digging in there and I’m starting to see why, actually. Brian Niccol has the full faith of investors everywhere that he knows what he’s doing. If you’ve been to a Chipotle recently, you probably have noticed a little bit of a difference. I certainly have. The in-store experience has much improved. They’re incorporating these digital order pickup areas, much like the Panera across the street. The food is better. They’ve got a legit rewards program now. I’m actually a member of that, too.
Gross: How’s the queso? Stabilizer-free?
Moser: I was never that critical of it to begin with. Either way, I think it’s gotten better. But I think most of all, he’s actually taken them off that pedestal that we were always so critical about under Ells’ leadership. Now I think it’s a little bit of a less of a target there. The shares are 56X forward earnings. I’m not sure it justifies that valuation. But they’re doing one heck of a job.
Hill: Steve, question about Chipotle?
Broido: I think they still sell alcohol. Is that a good idea? Yes or no?
Hill: Aaron Bush, what are you looking at?
Bush: I’m going to go back to Zoom. I just want to share some reasons why I think Zoom is so interesting. Looking at their S-1, their revenue growth over the past year was 118%. Their expansion rates were best in class. Their payback period to break even is nine months, which is fantastic for an enterprise software company. They’re already profitable, which at this stage is very rare for this type of company. Their balance sheet is rock solid. It reminds me of Atlassian in some ways at a much earlier stage, which has been a fantastic stock in its own right. It’s still founder-led. The founder owns something like 20% of shares. I think investors are going to maybe make a lot of money in Zoom.
Broido: When do you expect them to go public?
Bush: Probably in the next couple of months.
Hill: You got one you want to add to your watch list, Steve?
Broido: We use Zoom here. I love it. I’m going with Zoom.
Hill: All right, guys, thanks for being here! That’s going to do it for this week’s show. We’ll see you next week!