Motley Fool Hidden Gems Investing - Alphabet's Discipline, 5G's Potential

Episode Date: January 19, 2022

Microsoft's acquisition of Activision Blizzard wasn't just a shot at Meta Platforms. Shares of Sony continue to fall in the wake of Microsoft's move, causing some to question the future of Sony's PlayStation. Tim Beyers analyzes the shifting landscape in entertainment, including Google's move to shut down its original programming division at YouTube. He also discusses whether winning regulatory approval to become a bank holding company makes SoFi Technologies a more attractive investment and Verizon and AT&T changing some of their plans for today's nationwide rollout of 5G. Plus, Ricky Mulvey talks with John Laconte from The Vail Daily about how Vail Mountain Resorts is managing a labor shortage after a difficult holiday season. To get a free copy of our Investing Starter Kit go to www.fool.com/StarterKit and we'll email it to you. Stocks: SONY, GOOG, GOOGL, MSFT, ATVI, META, SOFI, SQ, VZ, T, MTN Host: Chris Hill Guests: Tim Beyers, John LaConte Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Today on Motley Fool Money, we're hitting the slopes. We're not actually going skiing, but we are digging into Vail Mountain Resorts to see how the business is doing. That and more coming up right now. I'm Chris Hill, joined by Motley Fool Senior Analyst, Tim Beyers. Thanks for being here. Hey, thanks for having me, Matt. We've got the latest on financials and 5G as well, but we're going to start with the changing landscape in the entertainment industries. On yesterday's show, we opened with Microsoft continuing their history of strategic acquisitions, buying Activision Blizzard, a clear shot at Meta Platforms and in their bid for the

the metaverse. One of the ripple effects involves Sony because shares of Sony have dropped more than 10% since this move was made by Microsoft. Let's start with PlayStation. Is PlayStation that crucial? I know it's part of Sony's business. Is it that fundamental to the business and is it so threatened by a combined Microsoft and Activision Blizzard? I think the answer to this is yes and no, which is a horrible way to answer a question, but let's take the yes. The yes portion is, as of right now, the game and network services portion of Sony's business is about 30%. It's about 30% of Sony, so it is meaningful. PlayStation is important. In some ways, yeah, the sell-off and the fear is a bit justified here because

this makes the Xbox a much more attractive platform. In a couple of ways, it makes it an attractive platform for buyers, but it also makes it an attractive platform for developers. A game developer does have decisions to make. When you're developing a game, you do have to decide where you want to target that game. Are you going to target it at PlayStation? Are you going to target it at Xbox? Are you going to target it to the Cloud? Are you going to target it to mobile? A developer does have choices to make. I think for Sony, their platform becomes a little less attractive today. And in that sense, yeah, it's a big deal. On the other hand, I mean, come on, do we really believe that the PlayStation is going away and

that this means that all new exciting games from independent studios are going to go to Xbox first all of the time? No, I don't believe that at all. In fact, I believe that there will be plenty of PlayStation exclusives, PlayStation reveals. Sony also has a very big entertainment and a well-diversified business. I think the Sony response, whatever it is, Chris, is going to be fascinating. Chris Hillman. Well, and you and I were talking earlier, neither one of us thinks that Microsoft is not going to have this deal shot down by regulators. Regulators will have some tough questions, as they should, but all the more reason for Microsoft to put themselves in a position. If you're a regulator, isn't

one of your questions about PlayStation, because there's a version of this where Microsoft takes a ton of new games, makes them exclusive to Xbox, and slowly PlayStation withers on the vine. Yeah, that is a question. And a regulator. The question from the Senator from Connecticut is, will Call of Duty be an Xbox exclusive game from here on out? The answer to that better be no. Of course it will be no, because Microsoft isn't just selling Xboxes. In fact, hardware, I would argue, is the least important aspect of the Xbox business. The bigger aspect of the Xbox business is the software, the licensing, and I think most important of all is the franchising.

Because what Microsoft bought here isn't just really good games, they bought really good brands. They bought Candy Crush, they bought Call of Duty, they bought Overwatch. These are a bit more transcendent brands, and gaming has become, in a lot of ways, I think, Chris, the new movies. When you are interested in something, you're getting yourself involved in an entertainment franchise, games, I think, are the first line of choice for somebody getting into a new entertainment franchise instead of maybe getting into Disney+, which Disney+, is amazing, right? And those are good franchises. But gaming franchises are very important. They're growing in importance. And Microsoft's got some really big ones. I think

if you were to diminish Sony a little bit, I would say Sony doesn't really have the same degree of franchises that Microsoft has got now with this deal. But yeah, no other company amongst the big tech companies could get away with this deal, but Microsoft gets away with this deal because gaming is such a small part of its business. I like to think that the Senator of Connecticut is asking that question because he owns a PlayStation and he doesn't want to have to sell out money for an Xbox now. 100%. Let's stick with entertainment. segment, YouTube is shutting down its original programming division. I saw that headline and I was reminded that YouTube has an original programming division. It seems like this was

always the way it was going to go. What do you think when you hear something like that? Because one of the things I think is, I'm amazed that YouTube is still as a business, dominant as it is, as big as it is, as a business, it's not performing the way that the people who run Alphabet would like it to run. I love that you just basically called out YouTube original programming as the quibi of streaming. That is amazing, but also accurate, factually correct. Can you name a YouTube original program? I cannot. It doesn't surprise me that this is going away. Frankly, YouTube is known for short-form programming. It's known for clips, it's known for recaps. That's what we love about it. Here at The Motley Fool, we do have something

for our team, particularly on the analyst team, where we can get the subscription that allows us to get rid of the YouTube ads. I can go in and watch, say, a conference, an investor conference, no ads, I just get the full experience of it. In fact, I did this, I watched the AMD presentation at CES. It is great. You get the full 40 minutes, all of the discussion of what's going on, and it's a much better experience. That's actually worth paying for. The fact that YouTube is getting rid of original programming, I honestly, Chris, think this is good news for Alphabet because original programming is expensive and it takes a long time for content to have a really long life. Before, you have to invest quite a lot upfront to create a content franchise. Then on the backend,

the returns on that, if it really hits, are amazing, but the upfront cost is immense. YouTube gets rid of that cost. They build out their network and they do what they've been doing wonderfully for a really long period of time, which is take other people's content, repurpose it, and give them a platform. I think it's a good move. The last thing before we move on, I think if you're a shareholder of Alphabet, it's one more reason you have to love that Ruth Porat is the CFO, because Alphabet makes so much money. The problem with businesses that make so much money is that some people, both inside the business and outside the business, say, well, we can try all these other things

because we've got this golden goose, and that will just subsidize everything else we do. And with Alphabet, Ruth Porat is putting a timeline on these things. There's a version, if someone else is the CFO or the leadership makeup is a little different, they say, yeah, let's keep going. Let's keep doing this. They gave it a shot and it didn't work. Right. She's stone cold. I love Ruth Porat. She is a Jerry Maguire CFO. It's all show me the money. You've got to show me the money. If you can't show me the money, sorry. That is what you want from your CFO. You want to be able to run a lot of experiments, run them with a very low cash outlay. If you can get away with it, give the experiment a certain

period of time. If it's not delivering returns in that period, you want to shut that down. This is something, by the way, it is an underappreciated cultural aspect of Alphabet. I think they've lost it in the last few years, so it's heartening to see it coming back, Chris. It used to be that the pre-Alphabet days, back in the Google days, Google would run an enormous number of experiments. Sometimes they would kill those experiments when they were popular. I remember being an early user. I'm going to date myself here. I was an early user of Google Notebook, and I loved Google Notebook. They killed that thing because of Evernote. I was devastated because I'm just a nerd that way, but it was the right move to make. It was the right move to make

because it wasn't a big project that was returning cash to the company. It's heartening to see this where they're going old school, running experiments and then ending them when they should be ended. Two more things I want your thoughts on before I let you go. SoFi Technologies won regulatory approval to become a bank holding company. Shares of SoFi are up more than 12% today. How much more attractive does this make SoFi's business? Because this was not a stock that was on my watchlist before, and I'm not sure regulatory approval to become a bank changes that. Yeah, I think this is a shrug emoji, Chris. I really do. And by the way, name another bank that has technologies in its name. That's kind of interesting. But

no, I don't think this is a massive deal. And the reason I don't think it's a massive deal has really nothing to do with SoFi. It's the nature of banking itself. I think that banking is changing dramatically. We are moving to a period where at least a portion of banking is done through apps. And so in an app-first banking world or an API-first banking world, where you don't really need a banking relationship as long as you've got the app and the app acts as your bank. And it becomes where you get your money, where you withdraw your money, where you send your money. And most of this is driven through the app. Like, for example, I really believe that Block, the company formerly known as Square, and its Cash app, I believe that is

reflective of what a future bank looks like. Now, it's not the only one, right? But Cash App as a banking experience, I think for a younger, modern consumer, that becomes like your banking interface. So, SoFi becoming a bank, it's a checkbox item, but what else do you do to attract to customer and say, you should bank with us, other than give rebates, incentives, and things of that nature. So no, I think it's a bit of a shrug emoji. It doesn't mean that SoFi is a bad business, but I don't think it materially changes its fortunes, Chris. Today's the day that Verizon and AT&T are switching to 5G service nationwide, except reportedly near airports because of concerns that high-tech radio signals could interfere with the navigational systems on

some aircraft. I got to be honest, Tim, as a guy with a mobile phone, I didn't care all that much about this story. As a guy who occasionally gets on an airplane, now I'm really interested in this story. Where do we go from here with 5G? Well, where we go is to major metropolitan centers and there are going to be places where 5G is going to be blacked out. The interesting thing about this story is it's terrifying and a non-event. The reason it's terrifying is like, I'm reminded of, again, I'm dating myself, but there's a very old show now. I can't believe this is an old show, but it's an old show now because it was from the late 90s called The West Wing, which I loved that show. And there is an old episode in which one of the characters is

on an airplane and making a call on his mobile phone. And the flight attendant is telling him, he cannot make a call on the phone because it's going to interfere with the navigation system. and he goes on a screed about the modern navigation systems. Are you telling me I can take that down with this little flip phone? The answer is probably not, but at the same time, it is a real thing. Bandwidth and frequencies, you don't want to be interfering with navigation systems on aircraft. I do get that. There are also blackout zones around major metropolitan airports. I remember there being one when I lived in the Bay Area, there was one around Moffitt Field near, that may be more to do with defense than actual aircraft. But at the same time,

this is not necessarily new, but it does speak to some of the specialties of 5G because what's interesting about 5G is that it's very high-frequency. It's a very high-bandwidth type of communications protocol. You're sending a lot of data over a very shorter digital pipe. So yeah, it makes sense to me. How we're going to design 5G networks will be fascinating to me, Chris. I predict it'll be more antennas in tighter spaces, which means more cities, less rural areas. So yeah, don't expect 5G around airports anytime soon. But if you live in a city, I think 5G is going to be a game-changer. So yeah, interesting, not too surprising though, right? Since you confessed to your nerddom,

I will confess to mine, I'm also a big fan of the West Wing. It was the pilot episode, it was Toby Ziegler, and he had the great ending to that screen where he said, are you telling me I can take down this plane with something I bought at Radio Shack? That's it. Yes. Well done. That's it exactly. Talk about multiple old school references in one quote right there. Tim Beyers, always great talking to you. for being here. Thanks for having me, Chris. Among the people who follow individual companies most closely are local beat writers. John LeConte is a reporter for the Vail Daily newspaper in Colorado, and he follows Vail

Mountain Resorts, ticker symbol MTN. Our producer, Ricky Mulvey, caught up with LeConte to talk about Vail's difficult holiday season, how the company thinks about its labor shortage, and a climate change assumption that investors should pay attention to. Why are investors feeling a little bit more pessimistic about Vail right now? They sold 2.1 million pre-purchase tickets. That's a 76% increase over the 2019-2020 season. You have more people going to the parks, hopefully spending more money, but it seems there's a little bit more negativity right now. Vail is kind of unique in travel and leisure right now as they're underperforming.

And the people who are investors in this company also ski and visited the Vail Resorts properties over the big vacation period and could see a visible decrease in the quality that they had grown accustomed to. Vail right now is having a huge labor problem. You can call it the labor shortage. It could be because maybe they're not paying enough to some employees. What's the problem with the labor shortage in Vail? Are there simply less people willing to work on the mountains or are they finding it unaffordable and they want to work on the mountains as ski patrollers and chair operators, that sort of thing? Yeah, I think the issue has been a long time coming. Labor has been tough in the mountain communities for a long time. Housing is hard to

find. But yeah, just to make it up here in general is really difficult. And if you want to start a family, that's nearly impossible for a lot of people. If you're one of the lucky ones who gets a job at Vail Corporate, you can get ahead and you can get a great job that you will make enough and be able to raise a family one day, but you're going to be moving around. So you're going to be bouncing around the country. So people will opt out for that reason. Then if you're working for Bale itself, they can provide ways around wages. Why do you need a wage when we'll provide your food, your housing, your bus pass, your ski pass, your ski equipment, and we'll even set up a morning calisthenics program for you to help you stay healthy and reduce your health cost

burden. So, you know, the resort can set up a lot of these systems to get around paying wages. So from their viewpoint, you know, why would they pay a wage? They're able to provide housing that is town housing, you know? Um, so they have a great system for them dialed in where you have government housing, you're able to take advantage of. And if you get to a situation where, where that's full. And, and some of that housing is now being used by other companies who are in the Valley. You know, we have lots of big players here, not just Vale, you know, Marriott, Hilton, Hyatt, you name it. And so suddenly it just becomes really difficult to, to just maintain a labor force. Vale cut the price of its season pass this year by 20%. Ticket sales went up because of that.

but is this something that might prove to kind of bite them later on is larger crowds may be decreasing the quality of experience for skiers and snowboarders? Well, what if the ski pass costs $5? Okay. How many would you sell at some point you run out of skiers, right? So, you know, we're trying to figure out how many skiers are out there and it varies year to year and you, you measure it by skier days, but in the U S we've, we've been getting to 60 million skier days over the last decade. And a skier day is just a day on the mountain. So maybe I might in a year contribute to a hundred skier days, you know, if I get out every day. And so we're up to 60 million in this country. So they all selling 2.1 million pre-sold ski passes. They're trying

to figure that out you know so they know they know how many they'll sell when the price of the pass is is two thousand dollars because that's what it was once upon a time so over the last decade and in this this era we call the era of the mega pass where you get a a pass that gets you everywhere in the country in this era the mega pass we're they're trying to figure out where is the price point to so that every single skier buys a pass you know and who knows i mean maybe we we very well might get down to five dollars at some point but uh there are new new problems associated with that but again with this stuff with the crowds it's this year that that somehow has been a magnifier of that because if you were to search the term lift line apocalypse you would you'd go

back to the two seasons ago and see just as insane of lift lines as, as you've been seeing this season, maybe worse. Do you think the problem then is exasperated by social media? This is the lift line problem in something that veil takes very seriously. They've been, they're spending millions of dollars on it, opening lifts, improving the Epic mix app to include these lift line forecasts. So do you think it's a little bit of an overreaction by social media? So first off, I'll say that if you talk to Epic mix app users, they'll say that there has not been improvements on that app. They'll say that the app is a much compromised version of what it once was.

And, and the lift line forecast that helps, but I think that veil, maybe it's the social media aspect is magnified in their mind because they're, they're, they're on those feeds watching that stuff. But what, what the, what the problem is, is that you, you have these skiers who they can ski any day of the year that they want. And now you've, you've got skiers. Everybody's good. Now, you know, everybody in Colorado who comes out and skis, they're all pretty good skiers now, you know, a lot of them. And, and, you know, we've all been shredding on this Epic pass for the last 10 years, getting as many days as we can and getting good at skiing. And now everybody only just wants to

ski on the same day. It's a, it's a powder day, you know, and, and we haven't had a powder day in three weeks, let's say, and all of a sudden one comes, the lift line is just going to get absolutely slammed. And so I don't see that as a problem for the ski season overall. I just see that as a, as an issue for certain times and for the, the perception of the ski experience, because like, I'll tell you, I never wait in any of those lift lines. I get, I find ways around those lift lines every single time. It's something that affects guests, you know, and people that don't really know. And to try to like get an app to help with that is sort of a classic, like veil solution. Like, yeah, let's just come up with some technology to help this. But really, I think it's

more in education, you know, and just saying to people like when the powder day arrives, the lift lines are going to be long and you're going to be waiting in them. If you're trying to get out there, the other long-term problem that veil could eventually run into is climate change, which may be shortening ski seasons for their mountains. Oh God. Absolutely. I mean, if you listen on these investor calls, they start off by saying, oh, and then we're just, you know, all of this projection that we're giving you is assuming normal snow conditions. So then you say to yourself, okay, Vail, what is normal snow conditions? Let's go to your website and check it out. Okay. You say on your website now that average snowfall per year is 354 inches.

Vail Mountain hasn't received 354 inches of snow in more than a decade now so if I'm an investor and I hear assuming normal snow conditions and then I realize wait a minute you haven't hit that professed normal snow condition in the last decade yeah I'm getting a little nervous here I of course last time they they reached their 354 average they got like more than 500 inches that season it was the 2010 2011 season and it was this massive snow year but then since then they don't vale mountain has only gotten over 300 inches of snow one time was like 310 or 315 or something like that. So they haven't hit their professed average. And the idea of an average is just getting thrown right out the window because you have these massive snow years, and then you

have these smaller snow years. Final question. Have to ask you, we have a long time full. He wants to know where he can go ski in Colorado where snowboarders will not bother him. Where should he go? I would say he can go straight to hell. Thanks, John. Appreciate it. If you're just getting started investing or you know someone who's looking to get started, we have a free investing starter kit. It covers everything from how to set up a brokerage account to 401 s to buying your first stock. It includes 15 stocks and five ETFs selected by our investing team, and it's free. Just go to fool.com slash starter kit. That's fool.com

slash starter kit. You know what? We'll put the link in the show notes. That's all for today, but coming up tomorrow, Jason Moser and Matt Frankel will have a deep dive on a payments company that's probably not on your radar. Until tomorrow, that is. 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. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.