Motley Fool Hidden Gems Investing - Betting on Zero

Episode Date: March 31, 2017

Blackberry surprises. Dave & Buster's rises. Facebook shares a new story. And Lululemon tumbles. Plus, Betting on Zero documentary filmmaker Ted Braun talks about one hedge fund manager's billion dollar bet against Herbalife.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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from Million Dollar Portfolio, Jason Moser. From Motley Fool Explorers, Simon Erickson. And from Motley Fool Pro and Options, Jeff Fischer. Good to see you, as always, gentlemen. Hey there, Chris. We've got the latest headlines from Wall Street. There's a new documentary about Herbalife you won't want to miss. We'll talk with director Ted Braun. And as always, we'll give you an inside look at the stocks on our radar. but we begin with a surprising comeback. Shares of BlackBerry, yes, gentlemen, BlackBerry, up 13% on Friday after fourth quarter profits came in higher than expected. The company that once had 40% market share on smartphones is attempting to remake itself as a software

and services company. Jeff Fischer, how's it going? It's going better than you might expect. I expected zero, so it is going better than I expect. And the company is probably going to pull it off. They have more than a billion in net cash, so they're sitting pretty in that regard. They have now just more than a billion in revenue, and I will point out, that compares to $20 billion in revenue in 2011. So, quite a descent there. And yet, it's profitable. And they're focused ... you know, Chris, what was BlackBerry known for, really, aside from the little ...

They had the keyboard on the phone and security. But really, security. Security is it. So, they're moving into enterprise software that is security focused. Now, the one thing that I can't get my head around quite yet is where they're going to exactly focus, because they're offering software, everything that can track an employee's mobile device and its usage, to computer operating systems for guided missiles, to self-driving cars, autonomous cars. So, they're really kind of all over the map when I read their transcripts, their conference calls. And I'd like to see where they're going to really hone in on with their software. Enterprise software, Simon, not exactly a space they have to themselves. Well, the mobile devices is kind of transitioning, right? We used to know them as smartphones, and now they've become known as Internet of Things devices, which also need really good security. So, now I see that BlackBerry is referring to this as the Enterprise of Things.

I mean, it's going to be the next thing we're all hearing about. But again, you need good security, you need good software for lots of little mobile devices buzzing around. I think this is the time where we just have to remind everybody that a clever little one-liner is not an investment thesis, right? I mean, Internet of Things, we can throw around, everybody bandies that around, it's like, oh, it's the Internet of Things, let's invest. The Internet of Things is all over the place. Try to go a little bit further with it. I mean, the enterprise of things, I appreciate the fact that, yes, that's what they're known right, is that software side, the security side. But let's just take it one step at a time.

It's true, but the image that they do have is helping them. They signed 3,500 new customers in the last quarter, a 16% increase. And there are some large wins in there, some big well-known companies, and not all of them are in the regulated industries where they've, in the past, done really well. So, they're expanding out. But yeah, I'd like to see where, really, the profit center is going to end up being, because they're kind of all over the map right now. Sure. And it's got to be more than security, right? I mean, one of the reasons BlackBerry lost out to the Apple iPhone was because it was all about the user experience. That Apple caught up with BlackBerry on the security side of it, but at

the end of the day, people are going to buy what's offering the best experience. BlackBerry's got to understand that. One of the biggest winners on the New York Stock Exchange this week was Restoration Hardware. Shares up 25% after a fourth quarter report that included a pretty big drop in same-store sales, Jason. Why the enthusiasm? Well, I think the market is probably looking past that same-store sales metric and looking at the projections for the fiscal year upcoming. And they're projecting anywhere in the neighborhood of $1.78 to $2.19 in earnings per share. So, if we take that at the midpoint, then the stock is trading at about 24X forward estimates, which isn't all that absurd, really, for a company that sells pretty high-end retail

goods. Now, that is sort of a limited customer base. And I think, to me, it's interesting, the membership model sort of pivot that they've made here this past year, it's an interesting level they can pull in the short run, because I think it does help stoke results. I'm still skeptical that it actually is something that leads to sustained long-term success and growth. I mean, it's very easy to justify paying for that membership when you go to buy something from Restoration Hardware. You buy something for $1,000, you're going to get 25% off of it just for buying that $100 membership. So, the numbers make sense right then and there. And I'd also argue that probably most people that are shopping at Restoration Hardware,

$100 isn't going to really make or break them either. So, then you have to ask yourself, longer-term, years down the road, how are the renewals numbers looking with this program? And that's what I would focus on more than anything else, because at the end of the day, it is a retailer. It is a high-end retailer. And I think that those problems are not quite as easily solved. I do think the membership model is an interesting one, and I think it's a neat effort there. But I would pay more attention to the renewal numbers in the coming years to see if it's really gaining any traction. Yeah, the membership model is interesting, Jason, because in a way, they're gaming the

system. Just go to their website. There's a chandelier for $5,900, regular price. It's only $4,400 if you're a member. So, are you going to join for $100? You're going to buy a 25% coupon for $100, and you have the chances. You're probably going there that one time that year. You probably don't step foot in that store again for maybe a year. Then that renewal comes up, and you're scratching your head wondering, why did I get this in the first place, and do I really need it for this coming year? I don't know. I think you're right that it comes down to what will renewals be, but even more than that, will having that membership and then receiving mailings from Restoration over

time drive you to go back and buy more? You're like, hey, I paid for the membership, I'll buy a new rug there. I've got the solution. I mean, just a little free streaming on the side, some video, some music, that's a little value add right there. You're using that on a daily basis. They could probably give Amazon a run for their money. Absolutely. free shipping. Over the past two years, shares of Dave and Buster's have doubled. Fourth quarter profits came in higher than expected this week. But Simon, the company is lowering expectations for 2017, and probably not a bad idea when you look at what a pretty nice run they've had the

last couple of years. Well, Jeff, this is a company that's really gaming the system, right? I really like the way that Matt Greer, our producer, described this. This is kind of a casino. They're printing money right now. They've got amusements that's about 53% of revenue. These are the games that, you know, have got really, really high margins after you put them in the stores. And of course, food and beverages is the other half of the business. And of course, people that are older that are able to drink high margin ticket items is working for them too. Chris, the story for me at Dave & Buster's is the unit economics of the new stores that they're building out. They've now got a total of 92 stores and they're opening about 11 or 12 a year.

But the cash on cash return, which means if you took the revenue that they're making, I'm sorry, the EBITDA that they're making in the first year, dividing it by the development costs of the stores, is at 52% right now. That's fantastic. That means they're paying off all of their development costs in 20 months, and that's an excellent business proposition for anyone who wants to buy shares. My concern with a company like Dave & Buster's is that it really does seem like such a discretionary spending type of business. We've been in an economic boom here in the U.S. for a bunch of years. And at some point, when the next recession hits, it seems like Dave & Buster's is going to be among the first businesses to be hit.

Yeah, I think that's right. They're kind of targeting their cash-on-cash returns of about 35%. So, when you see that their management is expecting that to be about 17% lower than what they're getting, you're definitely getting the consumers that have discretionary income right now. We might see that contract a little bit in the next couple of years, if we have a recession. Yeah, it's almost like a casino in that regard. It's not where you're going to go when times are tough. That said, I wonder how much the maintenance is going to be in the locations, and to keep the games up-to-date. Any thoughts on that?

To be determined. I think that a lot of it is the upfront cost that they're putting in there, and they're still getting 52% on them. So, very high margin. This week, Facebook unveiled Facebook Stories, a new feature that bears a very striking resemblance to Snapchat. Jeff, if you're Snap, and more specifically, if you're a shareholder of Snap, how worried are you about this? Well, you should be a bit worried. But Facebook, for the past five years at least, has released feature after feature, service after service, that mimicked or copied some of Snapchat's own features. And some, most have actually failed, but some have gone on to become part

of Facebook, the Facebook experience, Instagram being the biggest example of lately taking on more and more snapchat features and those are going well so far with their stories so now facebook is doing the same thing with mainly with photographs and your ability to tell a story individually with someone one of your friends directly or with your audience directly my wife and i tried this out right before taping it was just like a snapchat send a photo to her she sends one back we're like this is stupid but kids will like it what facebook is trying to do is attract younger people, the 17 to 24 audience that Snapchat is so strong in. That said, these services are tougher to monetize. So, it's kind of funny that right now, Facebook is

trying to grab those younger people, while Snapchat is trying to have more Facebook-type revenue from their advertising. So, they're both kind of melding into each other. So, if you're Facebook, can't you look at this new feature as essentially a loss Peter, if Snap is under more pressure to monetize Snapchat, maybe that means ads start popping up in these stories and it becomes a less compelling experience for younger people. And if you're Facebook, you're able to say, hey, ours is completely ad-free. Yeah, and they don't plan to monetize it anytime soon. And I think even the longer term thought maybe, well, we need younger people to be more involved, and over time

they'll evolve to the Facebook platform itself. So, yeah, Chris, I think that's true. And I think the main thing Snap needs to be worried about is just growing its audience, period. I mean, this is far more important for Snap to be able to evolve beyond the teenage messaging app. That ultimately is what it is at the end of the day. I know they like to consider themselves a camera company. I don't know that's the wisest course of action either. Facebook can place all these bets all day long every day. They've got so many platforms and so many ways to continue to add little bells and whistles to their platforms. nothing for them to try anything. I mean, Snapchat is really faced with a tremendous

uphill battle here of trying to figure out how to attract people beyond sort of that teen to younger 20s demographic. Because, yeah, sure, they're engaged, but I mean, they aren't really big money spenders, right? I mean, how are you going to really monetize that audience in a meaningful way? I don't think you can. And, I mean... Yeah, and Snap prides itself on making its app kind of complex, and Facebook has gone and done the same thing, but made it very simple. So, I will say, they did a good job. It's really easy. It was like a snap to use the new feature. It has its charms. We got Simon Fisher over here.

I'm loving that, Jeff. Up next, a couple of headlines and a few stocks on our radar. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Simon Erickson, and Jeff Fischer. Shares of Lululemon Athletica fell 23% on Thursday after a bad fourth quarter report and guidance, Simon, that was dramatically lower than what

Wall Street analysts were expecting. Chris, this is what happens when Roto-Pitcher leaves the company, right? Tell me about it. The executives of the company were saying that they're predicting the first same-store sales decline in the past 28 quarters. So, obviously, that's what the street was reacting for when forward-looking guidance is that bad. A lot of this was because they really botched a lot of their online sales channel. The visual merchandising they were trying for the new depth of color in spring didn't work out. They're course-correcting. They say, don't worry about it. We got it under control. I'll give them a quarter to figure that out.

But it is something that we need to see improved. I think bigger picture for Lululemon is this is a company that's really carved out a very profitable niche in yoga. And they've done that very well and they've got great margins off of that. And now the company needs to learn how to expand their product categories. And we've seen them grow very well with men's. They've got the ABC line of pants and various other items, 20% growth in men's year over year. We see the Aviva line for teenagers, that was up 28% year over year. And now you've got international expansion too. They're trying out some new stores in China. But I think that you have to see calculated growth from Lululemon, because it's not just a niche retailer of yoga pants anymore. It's got to

become a larger entity, and that's what the street wants to see. Our email address is radioatfool.com. From longtime listener Dr. Rick Zebrowski in Calgary, Alberta, a few months ago, my son left Uber to work for Lululemon's e-commerce division. He left his stock options to get rid of a toxic work culture. He'll be loading up on Lululemon stock as soon as possible. P.S., he has yet to meet Rhoda Pitcher. Well, hopefully she'll stop by the office soon. It's an Uber ride. Shares of Darden restaurants hitting a new high this week after third quarter profits came in higher than expected. Darden is the

parent company of Olive Garden, Longhorn Steakhouse, The Capitol Grill, and now, Jason, Cheddar's Scratch Kitchen. Never been there, but I sure do like the name. That's the $800 million acquisition that Darden pulled off. Rolls right off the tongue. I'm not sure what I'm more impressed with from this quarter. Olive Garden's success in the to-go a segment of the business continues to astound. Growth of 17% for the quarter, or the fact that it was Olive Garden's 10th consecutive quarter of same-store sales growth. Clearly, that's a concept that's resonating with a lot of people, and I have a feeling our man behind the glass there probably went at least once this past quarter.

Absolutely. I think they did a good thing in spinning off a lot of those restaurants with the real estate where they owned, spinning that property off to the Four Corners Property Trust. I think that allowed them to monetize that real estate while focusing more on just operational excellence. I think that the cheddar acquisition, it seems like a pretty good one. When you look at the unit economics, they're bringing in about $4.5 million annually per restaurant, average check of around $13.50, so it's affordable, bringing in about $617 million to the top line immediately with a restaurant base that should be able to grow. I mean, they have somewhere in the neighborhood of 123 restaurants

today. I'm sorry, 165 actually, excuse me. There are a lot of reasons why I think Darden could continue to perform well. They obviously have a big portfolio of different restaurants, which certainly plays into a strength here in this restaurant segment. So, all in all, they continue to perform very well. Alright, we'll get to the stocks on our radar. Our man behind the glass, Steve Broido will hit you with a question. Also behind the glass this week, longtime listener Joe Dolan in the house. Thanks for talking about Joe. Simon Erickson, you're up first. What are you looking at this week? Chris, I'm looking at iRobot. The ticker

is I-R-B-T. This is a company that makes a lot of the home cleaning products you've gotten used to, the Roomba vacuum cleaner, the Brava mop. These have been devices that have just kind of buzzed around and cleaned the floors and done household chores before. But now they're getting integrated to the cloud and they're becoming smarter. They're now going to be connected through Amazon Alexa, and you've got artificial intelligence that's actually making them able to clean rather than just run around on your floor. I think that's a lot more valuable in the smart home of the future. So, I'm keeping an eye on these guys. Steve, question about iRobot?

How much time does a company like iRobot have to get this right? Because it seems like they've been at this for a very long time. Yeah, I think that the internet connectivity and the real push for the smart home right now, Steve, gives them really the window of opportunity. They've got the spatial recognition figured out for years. It's just a matter of how do you actually get it to do what you want it to do, which is actually clean your house. I give them a year to really see how this goes in the smart home, because I think now's the time to do it. Jason Moser, what are you looking at? My wife gave me a Roomba for my birthday last year. I think we got that thing sweeping around the hardwoods. It cleans up after the dogs pretty

well, actually. I've got Teladoc on my radar. Ticker is T-D-O-C. They provide telehealth services via mobile devices, internet, video, phone, basically connecting patients to doctors and preventing you from having to actually go to that doctor's office, which we know is typically a very inefficient process. I've been following this company since it went public a little bit more than a year ago. Stock is having a great year thus far, up better than 50%. And that's because they continue to grow their top line at 65% plus rates. They're adding more visits, adding more members. This is an interesting business that is disrupting sort of the traditional doctor visit sort of model that we've grown up with. I think

it's one that's got some legs here. I'm going to keep following it. Steve, are insurers bullish on this company? Yeah, you know, it's interesting. They get more partnerships with not only companies, but health plans and whatnot. And I think insurers are finding ways to add this sort feature as supplemental to planes that they're selling out. So, yeah, I do think they find this type of offering very attractive. O' Jeff Fischer, what are you looking at? So, Momo, the ticker is M-O-M-O. Fun to say. And the business that they offer

is also called Momo. It's a social networking platform in China. They have 81 million monthly active users. Earnings per share have been soaring, and are expected to grow about 60% year. This company's revenue, Steve, has gone from $3 million in 2013 to $550 million the past year. Astronomical. Trades at 25 times forward earnings. Again, it's a Chinese company, so there's some, you know, you need to watch that. But, Momo. Steve? Do you trust numbers coming out of China? I do. I'm starting to more and more when you've got Baidu. Yeah, transparency is growing,

yes. All right. Thanks for being here, guys. Up next, a conversation with documentary filmmaker Ted Braun. This is Motley Fool Money. All right. Before we get to my conversation with Ted Braun, got to say a word about Rocket Mortgage by Quicken Loans. When it comes to the big decision of choosing a mortgage lender, you want to work with someone you can trust and has your best interests in mind. And with Rocket Mortgage, you'll get a transparent online process that gives you the confidence to make an informed decision. Don't waste time searching through stacks of paperwork.

Nobody, nobody likes doing paperwork. With Rocket Mortgage, you can securely share your financial information to get a mortgage approval in minutes. You can even adjust the rate and length of your loan in real time to make sure you get the mortgage solution that's right for you. So, whether you're looking to buy a home or refinance your existing mortgage, you can lift the burden of getting a home loan with Rocket Mortgage. So, skip the bank, skip the waiting, and go completely online at quickenloans.com slash fool. Equal housing lender, licensed in all 50 states, NMLS, consumeraccess.org, number 3030. Welcome back to Motley Fool Money. I'm Chris Hill.

The biggest showdown on Wall Street over the past few years has been about Herbalife, a company in the business of nutritional supplements. Herbalife has been called the best-managed pyramid scheme in the history of the world by hedge fund manager Bill Ackman. And that battle between Ackman and Herbalife is the subject of the new documentary film, Betting on Zero. Joining me now from Los Angeles is the film's director, Ted Braun. Ted, thanks so much for being here.

Pleasure to be with you, Chris. Thanks for having me on. Your first documentary film was about genocide in Darfur. What got you interested in making a film about the battle between a hedge fund manager and a company like Herbalife? I came back from Sudan, oddly enough. I'm curious about the place of money in American life. I was in a country where an entirely different set of values were operating.

People were motivated by a very deep desire for a functioning justice system. They were motivated by a desire for the international community to come and protect them. And all of that made me appreciate in a way I didn't quite fully understand how central money was to our sense of ourselves as Americans, to our way of resolving disputes, our sense of social class, and in many cases, even our sense of self-worth. And that had just been kind of rattling around inside of me for a couple of years, and Glenn Zipper, the producer of this film, approached me with a line

on financing a film set in the world of American corporate conflict. And among a host of different ideas that we were considering, were two or three sentences about Bill Ackman and his fight with Herbalife. And that conflict, which pitted two very unlikely antagonists against each other, seemed to have the makings for a good, substantial feature documentary that would also allow me to explore this interest in money and its place in the American dream. I want to get to Ackman in a second, but you've got people in this film who are involved in Herbalife. And Herbalife is, I mean, if you asked someone at Herbalife, tell me about the business,

they would talk about nutrition and how this is a company all about helping people lead healthier lives. Watching your film, it is clear that largely, if not entirely, it is a company that is a multi-level marketing company. It is all about recruiting other people to sell Herbalife products and the profits flow up that way. And what blew me away was just the very, very personal stories that you tell here with people in big cities like Chicago, but also smaller towns in Oklahoma who get involved with Herbalife and end up, in some cases, losing their life savings.

Those are stories that, you know, looking into this subject, you come upon often, and they counterbalance the stories that Herbalife presents of people leading healthy lives and people realizing their financial dreams. And part of what intrigued me about making this film was trying to sort through these competing claims about what the company was actually offering people and what kind of promise it was holding out to them. as alluring as the dream that Herbalife was offering people was, the losses that people were suffering was emotionally very affecting and moving. And so the film tries to dramatize these conflicting views of other company and take viewers on a path towards sorting them out. You mentioned the American dream, And that's one of the things I was thinking about during a scene in your film, and yours is a documentary film, and yet I was reminded of a scene in the movie The Big Short, where in The Big Short, the American dream is represented by American housing.

Everyone wants to own a home, and you have people in The Big Short who are selling homes to people who really have no business owning a home. They just don't have the financial means to do so. And in your case, in your film, it's Michael Johnson, the longtime CEO, who stepped down as CEO last year. He's still chairman of the board. But a video of him talking about how we're all about recruiting. This is an internal video where he's telling them, we're all about recruiting. You need to recruit people to sell our products, no matter who they are. And I thought, well, gosh, that's kind of like the big short, only it's recruit people to sell,

even if they have no business being in the business of selling anything? Recruiting and its place in Herbalife's business was a central question that Mr. Ackman raised and that is central to a definition of a pyramid scheme. And whether Herbalife's profits are drawn principally from recruiting new members or from retail sales outside of the network of distributors, The dramatic question Ackman pressed throughout his long campaign against Herbalife, and one that ultimately the Federal Trade Commission in their settlement with Herbalife last summer came down with a very clear verdict about, and the verdict was quite damning. They found Herbalife in violation of federal law. They charged Herbalife with four counts of false, deceptive, and unfair business practices.

And the centerpiece of the complaint was this issue of recruiting versus retail sales. And they found that the company was a company that relied upon recruiting people and in that way vindicated what Mr. Ackman had been alleging for the last several years. Bill Ackman, for those unfamiliar, is a billionaire hedge fund manager. And he gets involved because he sees a company stock that he thinks is ripe for shorting and gets involved, first in kind of a small way with a small short, and then increases his position. And it's interesting to watch this play out in your film because Ackman is so convinced he is right, which, and we talk about this on the show from time to time, it's one thing to buy

shares of a company and bet on it to go higher. You almost need a stronger conviction and a stronger stomach to short a stock and bet on it to go down, because you can be right in the long run, but in the short run, you can get crushed. And in the case of Bill Ackman, right out of the gate, he's looking very much correct, both in terms of his conviction and in terms of what's happening with the money, with the hundreds of millions of dollars that he has put at stake on this short. And then it's not too long before he starts to lose in a very big way. When you were going through this process of making the film, of following Bill Ackman, what did you observe about his temperament throughout the process as this begins to go

very badly for him and for his investors. He was remarkably steadfast and unwavering in his convictions. In the most challenging hours of this conflict, you know, stay the course. And that conviction and steadiness, I think, was one of the more fascinating parts of him as a character. and it's something that I think the film probes and explores. Where does this conviction come from? To some extent, it comes from an enormous amount of confidence in his analysis, though the phrase never made it into the finished film. At one point in an interview with me, he said he felt that in most cases,

investments involve a certain degree of uncertainty, But in this case, he felt that his analysis was solid to a degree of absolute certainty, which is fascinating and unusual. but there was also to him a moral dimension of this investment, a belief, a conviction that he was doing something that was good not just for his investors but for the country as a whole, which elevated the conflict and incited the ire of a number of people who were on the other side of the trade from him and in particular from Michael Johnson, the CEO of Herbalife, who at one point very early in the conflict said that America would be better off

without Bill Ackman. But that moral certainty, and it actually led him to say that even if he were to decide to get out of the investment, he would continue to pursue Herbalife. That makes for a very unusual and interesting character in a film and a very unusual and interesting Wall Street figure. You just don't see that every day. Yeah. I mean, Bill Ackman, beyond the fact that he's a billionaire has a reputation for being arrogant. So, the fact that you've made a reportedly arrogant billionaire come off as a sympathetic character that the audience is largely rooting for is a pretty amazing accomplishment. Speaking of billionaires, this is a story that gets more interesting when a billionaire jumps in on the other side of the

equation, and that's Carl Icahn. This is part of why the investment, the short of Herbalife stock begins to go badly for Bill Ackman, is because Carl Icahn comes in and buys about 10%, 12% of the company. Correct me if I'm wrong, but I think the main reason Carl Icahn buys the stock is not because he believes this is an amazing business that's changing the world for good. I think he just hates Bill Ackman's guts. That's certainly the view of William Cohen, the Vanity Fair writer who has observed both men at close range and written about both of them at length. He wrote about their battle for Vanity Fair, a famous piece published in 2013. And I think there's a lot of evidence to support that. Mr. Icahn claims that

this is nothing more than a good investment for him, that he believes in the company and thinks that he's made simply a smart and shrewd decision about where to invest his resources. But the timing of his stock purchase and the fact that it occurred very shortly after he had a famous battle with Ackman on CNBC television, a battle that I'm sure many of your listeners are familiar with. One of the most colorful episodes in business television ended in name calling and a lot of really nasty rhetoric exchanged between the two of them has led a lot of people to believe that this is nothing more than a real act of vengeance and feud on a personal level.

It certainly makes for a very colorful film. Coming up, we'll talk about just how badly Herbalife does not want you to see this film. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill talking with Ted Braun, director of the new documentary, Betting on Zero. One of the things that you show very vividly in your documentary is something that you've alluded to, and that is Michael Johnson, the CEO of Herbal

Life, and the reaction to Bill Ackman's short. It would be one thing if Ackman was not so public about it, but he's very public that this is not just what he believes to be a good business decision. He makes it very personal. And Herbalife doesn't just sit on their hands feeling insulted. They go after Bill Ackman. They do everything they can to boost their profile, bringing in high-profile athletes to promote the Herbalife brand. They don't sit still when they feel like they're being attacked. All of that, Ted, is prelude to this question. Now that your film is out. What is Herbalife's reaction to your documentary? Well, it's been disturbing to say the least. I had no agenda when I set out to make this film. I thought the antagonists in this battle

had competing and very interesting claims. And I was interested in dramatizing this problem. You said you found it surprising to feel sympathetic for Bill Ackman. And I think one of the goals of good documentary filmmaking, as with any kind of good storytelling, is to get the audiences into the shoes of people they would not otherwise know or understand. And I very much had the goal of getting the audience into the shoes of both Mr. Ackman and Julie Contreras, and there was her campaign, and Herbalife and its executives. Ultimately, despite two-plus years of conversations with Herbalife that continued right up until the time that we locked the picture,

that we stopped editing the film. They declined to participate in the film. We engaged in conversations. I spoke with a number of their executives, Michael Johnson, Alan Hoffman, as well as a number of their distributors. A lot of off-the-record conversations to help me understand what was going on with the company. But ultimately, they declined to participate.

Fair enough. No rule that says you have to participate in a documentary film, especially when your company is under fire. I can understand that. But within weeks or two of announcing that the film was premiering at Tribeca Film Festival in April of last year, one of their lobbyists in Washington, D.C., Hillary Rosen, tweeted to Jane Rosenthal, Robert De Niro's partner at the Tribeca Film Festival, that the Tribeca Film Festival's reputation was at stake because they were screening this film, that the film had been bought and paid for by Bill Ackman. This was not true. This was a falsehood. And Ms. Rosen tweeted this without disclosing the fact that she was a paid, and her firm, Knickerbocker, was a paid consultant, a lobbyist for Herbalife. And this sort of intimidation went on after the film premiered. And then these overt and covert efforts to undermine the film and prevent people from seeing it reached a sort of crazy culmination in October when we were screening at the Double Exposure Film Festival in Washington, D.C., a festival devoted to investigative filmmaking.

And we were the featured Friday night film, and Friday afternoon the festival discovered an unusual pattern of ticket purchases. The film had sold out well in advance of the screening, and it turned out 173 seats, exactly half the house of the National Portrait Gallery, had been purchased by another Herbalife lobbying group, Heather Podesta and Partners. Ten members of Heather Podesta and Partners had purchased 173 seats. Ultimately, they didn't claim the seats, leaving the theater, which would otherwise have been sold out, half empty. But, you know, it was a film devoted to investigative filmmaking, and so there were a lot of investigative journalists at the screening.

And this sort of attempt to subversively undermine the film and to prevent people from seeing it caught the attention of a lot of the press there and ended up being a story in Politico and The Wall Street Journal, The Washington Post, and The New York Post, and ultimately ended up on John Oliver's program last week tonight at the end of the month, just before the election. But these are troubling actions on the part of a company that had an opportunity to participate in the film, and most of them were taken without ever having seen the film as a sort of reflex against what something, I guess, they felt was threatening to them. I don't think it's very healthy for a capitalist economy to have companies attacking and undermining films that are effectively attempting to promote a constructive conversation about what's going on. So where do you think this is going in terms of Herbalife's business and therefore in terms of Herbalife's stock price? One of the things that you establish very early in the film is that Bill Ackman, when it comes to shorting a stock, is nothing if not patient.

In one example, he waited seven years for a short of a stock to pay off. And he's a lot younger than Carl Icahn. So I'm just curious if you have any gut feeling of where this is going over the next couple of years. i have been endlessly surprised by how this battle has unfolded and would be a fool to speculate or to pretend to know where it's headed next um i the one really substantial development that's since we started making the film was uh the announcement last summer that the ftc had settled with Herbalife had settled a long-standing investigation that culminated in them charging Herbalife with violations of federal law.

And as part of that settlement, the FTC required Herbalife to fundamentally restructure its business to basically invert their model and derive almost 80% of their revenue, not from recruiting, but from retail sales. If that order is enforced and Herbalife substantially changes its business practices, it'll be a very, very different company from the one that Mr. Ackman first shorted. If they don't, they'll be under, presumably, some fairly strict court orders and court-appointed auditors monitoring what they're doing, and I think they'll be in a lot of trouble. The question of whether or not they'll be able to wriggle out of that is the question of the day at

the moment for Herbalife. Betting on Zero is in theaters around the country now and is available on iTunes in April. For more information, you can go to bettingonzeromovie.com. Ted Braun, thank you so much for being here. Chris, a great pleasure. Thanks for talking to me about the film. I'm glad you enjoyed it and I hope your listeners do too.

That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.