Motley Fool Hidden Gems Investing - Big Tech, Big Payments, Big Burrito

Episode Date: April 28, 2023

A huge week for earnings reveals a theme for investors: bigger is better (0:21) Matt Argersinger and Jason Moser discuss: - Amazon's 1st-quarter revenue impressed but questions remain about AWS - Alphabet's $70 billion share buyback plan (and 1st-quarter results) - Visa and Mastercard beating Wall Street's expectations and providing insight into consumer spending - The latest from Microsoft, Meta Platforms, and Chipotle (19:11) Motley Fool senior analyst Tim Beyers talks with Jay Chaudhry, CEO of the cloud cybersecurity company Zscaler, about "zero trust" security, under-the-radar threats, and Zscaler's growing opportunity in federal government contracting. (31:17) Matt and Jason share thoughts on UPS, advice for NFL draftees, and two stocks on their radar: Activision Blizzard and Cloudflare. Stocks discussed: MSFT, AMZN, GOOG, META, V, MA, CMG, ZS, UPS, ATVI, NET Host: Dylan Lewis Guests: Jason Moser, Matt Argersinger, Tim Beyers, Jay Chaudhry Producer: Ricky Mulvey Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. We've got earnings from big tech and an insider's look at cybersecurity. Motley Fool Money starts now. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Dylan Lewis, sitting in for Chris Hill.

Joining me in studio, Motley Fool Senior Analysts Jason Moser and Matt Argersinger. Great to have you both here. Hey, hey. Hey, Dylan. We have earnings from big tech, big payments, and big burrito. Thoughts on the state of cybersecurity from Zscalers, Jay Chaudhry, and of course, stocks on our radar. Before we dig into the latest earnings results, I want to ask you both broadly, we're about halfway through earnings season. We've seen big company reports. Matt, how are you feeling about what we're seeing so far? You said the word, Dylan, big. I think that works for this earnings season. It seems like

the bigger you are, whether it's social media, technology, banking, the big companies are winning this earnings season. They've got the right balance sheets. They've got the customer retention. You're seeing a lot of smaller companies who either are having liquidity issues or other customer spending slowdown problems. That's where the damage is being laid. It just helps to be big. It always helps to be big. But for this earnings season in particular, it feels like the bigger companies have a much bigger advantage. Jason, what about you? Yeah, no doubt. I fully agree there. It does seem like we are starting to see really the beginning of the end here, so to speak, as far as this move to a recession. We've been

talking over the last year, year and a half, is it a recession? When is it going to happen? More and more headlines, businesses cutting their workforces. You just saw Lyft with an announcement. I think they're cutting 26% of their executive workforce or the workforce at their headquarters. And that is something that is continuing. So, companies pulling back on spending. Obviously, the bigger companies are able to weather this storm more. We saw the GDP number come out this quarter. I think it was 1.1% growth, well below what was projected. It does seem like we are getting to a point here where those numbers are going to continue to come down. Probably not a bad thing. We've got to get to the bottom at some point so we can start

climbing our way back up. So, it's always worth keeping that in mind. I'd say, yeah. It doesn't feel like it's the most predicted recession of all time. Like you said, Jason, we've been talking about this for months, and it's like, can we get there already? But earnings have held up. I'd say my other big takeaway is, earnings have held up a little bit better than I thought they would. I thought we'd see a little bit more of a slowdown. I thought guidance would be a lot weaker than it is across the board. And it doesn't seem like it's been that way. Well, you mentioned big. It doesn't get much bigger than Microsoft. Shares of the company

are up almost 10% this week. Earnings certainly played a role. The company reported top-line growth of 7% ahead of expectations. The company's Azure Cloud segment grew 27% for the quarter. Jason, that came in line with expectations, but it's the lowest growth that the segment has posted in its history. Yeah, and that seems to be a theme I think we'll cover here for the show, along with another theme. Don't say it. Don't say it. AI. They did not miss an opportunity to highlight the investments that the company is making in AI and how that is driving all facets of the business. And we can hold that against some

companies, but with other companies, it really does matter. I think in Microsoft's case, it's legitimate, right? I mean, the real strength in Microsoft is they have so many facets to this business that capture a ton of share. And you really started that out there with the cloud side of the business. But the numbers, revenue, $52.9 billion, up 10% excluding currency effects. Earnings per share, $2.45, up 14%. Operating expenses, up 9%. But yeah, we go to that cloud side of the business, delivering over $28 billion, up 25%. And actually saw margin improvement there as well. But back to that point of Microsoft having so many different facets to the business that are doing so well. Office 365 commercial revenue was up 18%. They saw strong renewals

there. Paid seats grew 11% to 382 million. That's a lot of seats, Matty. Teams usage, I mean, golly, we're beyond sort of the remote stay-at-home economy, right? Things are kind of getting back to normal. But what Microsoft has done so well is made Teams an integral part of the workforce, wherever you may be working, at home, in the office, or somewhere else. Teams' usage is at an all-time high. They surpassed 300 million monthly active users for the quarter, also growing their total active market opportunity, kind of like what Zoom's doing in building out things like Team Phone, Teams Rooms, Teams Premium. So, yeah, look out Zoom. I think Microsoft has you square in their sites and are definitely taking some share there.

LinkedIn continues to confound. Every time I log into LinkedIn, I ask myself the question, why did I just log into LinkedIn? And yet, that business continues to grow. That revenue up 10%, record engagement, more than 930 million members. They saw 19% growth in India. I would say the one spot of weakness was personal computing. And a lot of that just has to do with these inventory channels and just the challenges that we've seen in personal computing in general. But all in all, a very strong quarter, impressive business. I mentioned earnings were part of the story for Microsoft this week. In addition to earnings news, this week, U.K. regulators came out in opposition of the company's

planned $69 billion acquisition of Activision Blizzard. Jason, I want to stick with you here. That actually seemed to boost Microsoft shares. From the Microsoft perspective, I'm curious, how should investors be processing this? Well, it seems like they're not going to be spending $70 billion anytime soon. and maybe investors think there might be something else they could do with that money. I think that probably the response to that is appropriate. I don't know that this one is dead in the water, but it sure seems like it's pretty close. And I think, Matty, you'll probably dig

into that one a little bit later for us. Amazon reported what seemed like a strong first quarter revenue of $127 billion and earnings over $3 billion. Both beat estimates, but an 8% jump in shares was erased when management indicated they're seeing decelerating revenue growth in AWS, the company's cloud segment. Matt, AWS is the engine that makes Amazon go. What did you see in the results? Yeah, talk about raining on big tech's parade with Amazon late in the week, right? I mean, the mistake, here was the mistake, Dylan and Jason, was that CFO Brian Losowski and Andy Jassy collectively only mentioned AI once in their prepared remarks. Unforced error.

That is a no-no this earnings season, only mentioning AI once. Okay, on a serious note, though. Yeah, the stock did pop coming out when the results first came out. It was the conference call, Dylan, that you mentioned when they started talking about AWS. Andy Jassy used the word optimize. Should have been talking about AI, but he used the word optimized, which is not a bad word necessarily, I think, when you're talking about business and efficiencies and things like that, except when you're describing customer spending on your biggest and most profitable platform, AWS. So, even though AWS net sales were up 16% to $21.4 billion, not bad given the size and scale of that business. And it's up to an annualized rate of $85 billion, by the way.

Jassy did mention that a lot of its customers are evaluating their cloud spending on AWS in light of economic conditions, hence that word optimize. So, that kind of spooked investors a little bit. He also mentioned that April revenue growth rates for AWS were running about five percentage points below where they were in the first quarter. I think that probably has investors thinking about, okay, what does this mean for second quarter results when they come? Amazon is famous for having a wide range for revenue and operating income when they do again for the second quarter, so that's going to come into play. I was going into earnings, I was actually more worried about the core e-commerce business. And I think those fears were kind of founded here, because online

store sales were virtually unchanged from a year ago. Maybe not unexpected coming off a quarter in 2022, where a lot of people were at home still buying things online. But still, just flat growth there was surprising. And then, third-party seller services, still up 18% year over year. That was more solid there. To sum up, we're seeing a fairly large deceleration in AWS, more than we thought. The company's e-commerce business is also slowing down. Unlike Alphabet and Meta, which are other companies that reported in Microsoft, Amazon going in, their valuation was a lot higher than those other companies. That could be also playing a role in why the stock is selling off. You mentioned Alphabet. Shares of Google

parent Alphabet are up after the company reported $70 billion in revenue and $15 billion in net income for the first quarter, beating expectations. Jason, this is a company that was able to post growth despite a decline in its ad business, thanks to growth in the cloud segment. We look at the major tech players, and we're kind of seeing different stories in slightly different states in the cloud markets. Yes, yes. Well, I mean, it was not a bad quarter. Microsoft stole its thunder a little bit, but certainly AI, unfortunately, we've got to say that, I think, I'll show along. It is the big theme that continues to form in big tech. But with Alphabet specifically, like you said, it's nice to see the cloud business continuing

to gain traction. They are No. 3 behind Amazon and Microsoft, but they are gaining traction and contributing to the bottom line, finally. So, that's encouraging. But with revenue growth 6%, you've got to remember, that's coming off of 26% from a year ago. So, a significant slowdown there. Earnings per share $1.17 versus $1.23 from a year ago. Worth noting, they took a $2.6 billion charge on workforce and office space reductions. That helped guide operating expenses up for the quarter 19%, which obviously played out on the bottom line. To your point on search, search grew modestly, but held up in a difficult environment. But we saw YouTube revenue at $6.7 billion. It was actually down 2.5%. There are other bets,

This seems like a broken record here. Revenue, $288 million. Operating loss of $1.2 billion. But really, the story, I think, for Alphabet this quarter was the cloud revenue. Revenue up 28%, and they were able to record a $191 million operating profit. I've been saying for a while, keep an eye on this, because at some point, that switch flips, and that becomes a nice tailwind for this business, much like it is for Amazon today. Now, clearly, the disparity between Alphabet's cloud business and Amazon's is very significant. But this is a positive sign. What we'll want to look for next is just, can they do it sustainably? Let's look for this to continue. I'm not necessarily sold that they will consistently do this quarter in

and quarter out yet, given current economic conditions, but I think they're on the right path. One thing that I think flew under the radar with this report with so much of the focus on cloud is adding to some of the enthusiasm for Alphabet. Matt, the company authorized a $70 billion share repurchase program. I know you have some thoughts on that. I always have some thoughts on Alphabet's share buybacks. Yes, it's a big number. Not so big relative to the company's market cap, about $1.3 trillion. But look, Alphabet has spent $170 billion buying back shares over the last five years, including $50 billion, by the way, in 2021, when the stock price was much, much higher than today. That's roughly 13% of Alphabet's market cap. But how much has their share account

come down over the last five years? About 7%. The rest is really just offsetting Alphabet's stock option expense, which just continues to be obscenely generous, especially given today where we are with that stuff. I really wish, and I've been saying this for at least two or three years now, I wish Alphabet would pay a dividend. Stop assuming you can invest high rates of return. Most companies can't for the long term. I think they'd do much better if they just started paying a dividend. Facebook parent Meta had good news across the board with its report this week. Revenue, income, and daily active users all came in ahead of expectations. Shares are up 13% on the report, in large part because the company

was able to post year-over-year revenue growth of 3% after three straight quarters of declines. Jason, aside from the growth story returning, what else jumped out to you? The year of efficiency, and that's what this is for them. They stated it. It's off to a good start, at least. I think this is a good response to what was a respectable quarter in a stock that really has been beaten down on a multiple basis, at least for a number of good reasons. One of the problems, one of the tricks with Meta here is trying to understand the focus. The longer you stretch your timeline out with this business, the more pointed those questions become because there's so much uncertainty in this whole metaverse concept. As you noted,

the revenue growth, very encouraging seeing them break that streak and get back to growing the business. Costs and expenses grew 10%. That included some restructuring costs. They saw the bottom line with earnings per share of $2.20. That was down from a year ago, but beat expectations, which was encouraging. Ad impressions delivered across the entire family of apps grew 26% from a year ago. Average price per ad fell 17%. They did note some strong performance in online spend, particularly in China with targeting outside markets as things start to normalize a bit over there. So, that was an encouraging sign. But really, the story with Meta beyond this, it goes to Reality Labs. It's just this big question mark right now. I was talking earlier

about Alphabet and that other bet segment, and that sounds bad. But then when you look at what they're doing in reality labs. I mean, this is the home to the metaverse ambitions. They brought in $339 million in revenue and booked an operating loss of $4 billion for the quarter. And the thing is, that looks like it's just poised to continue. And so, as that goes on, I think these questions are just going to get more pointed. They're going to get more heated. Can you connect the dots for me and show me really how you're going to monetize this metaverse ambition? Of course, they refer to AI and how this is driving everything. And they are right, to a point. I mean, that's driving the ad business today. The metaverse is the big question. After the break, we've got more

earnings coverage with updates from Chipotle, MasterCard, and more. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Dylan Lewis sitting in for Chris Hill and here in studio with Jason Moser and Matt Argersinger. The payment giants reported this week. Visa and MasterCard both released earnings results and both reported top and bottom line beats. MasterCard registered $5.8 billion in revenue and $2.4 billion on the bottom line, while Visa posted nearly $8 billion in revenue and net income of $4.3 billion. We lumped these two companies together because they are helpful as a barometer of consumer spending. Before we get into some of the broader takeaways, Matt,

what jumped out to you from the Visa report? Yeah, consumers continue to spend. That's, of course, the theme here. Payments volume was up 10%. But for Visa, the cross-border volume is really impressive. If you exclude intra-Europe transactions, cross-border volume was up 32%. That tends to be pretty profitable for them. Total process transactions, $50.1 billion, up 12%. On the conference call, management mentioned travel spending, dining at quick service restaurants. Those are strong. While spending at retail and fuel, we're holding up kind of flattish. We expect that with people spending less on goods again, and maybe gas prices have come down. But clearly, consumers are spending, and they're getting out there.

Jason, what did you see over in MasterCard's results? Yeah, what stood out on the call, they said, I quote, consumer spend has remained remarkably resilient. You like to see that, right? We're talking about potential recession here, and apparently, people are still spending money, and the numbers bear that out. Revenue grew 15%. Adjusted operating income was up 17%. Earnings per share of $2.80, up 4%. Gross dollar volume, up 15%. One thing I found very impressive with MasterCard, their acceptance footprint has now surpassed 100 million locations globally. That's effectively doubled over the last five years. So, for all of this talk about MasterCard and Visa being disrupted from the process,

it might have been a little hyperbole, Matt. Credit card companies aren't going anywhere, and neither is America's love for burritos. Chipotle up almost 15% since reporting top and bottom line beats. In its first quarter results, net income nearly doubled year over year to $290 million, thanks to price increases and same-store sales coming in at almost 11%, both significantly higher than expectations. Matt, you dug into the results. What did you see? Well, there was no mention of AI on the conference, which I was happy to see. But no, you hit it, Dylan. Same-store sales up almost 11%. The restaurant-level margins, I mean, wow, up almost 500 basis points to 25.6%. That's because they had a number of

menu price increases last year in last year's first quarter that are coming through. There were lower prices for avocados in the quarter, which always helps. But I think most impressively to me was that their labor costs year over year were lower. That's not something we're seeing from a lot of companies this quarter. Labor costs were down for Chipotle, not really because they're paying people less, just they're scaling across a larger store footprint. 33 million rewards members in the quarter. They opened 41 new stores, bringing their total store count to 3,200 as the end of March. And CEO Brian Nicol sees a pathway to 7,000 restaurants in North America in the long run.

That's far greater than I think anyone thought several years ago. And it's not going to take them long to get there. They remain on track, quote, to grow new restaurants 8% to 10% per year for the foreseeable future. Jason, I know you celebrated Chipotle earnings with a trip over to the store. What did you see? Well, I tell you, what becomes very impressive is, more and more, it's less about just worrying about throughput of the store. That was the big challenge for this concept early in its inception. You go in there now, and the lines are tolerable. But then you see, where you go pick up your food

if you order on the app, not only are there just bag upon bags of food, but it's not just people picking up, but it's all of the delivery options as well. So, it's good to see that they've separated those kitchens. They've got a customer-facing line. They've got an operation behind the scenes that's really taking care of a lot of those digital orders. The digital orders continue to be a very strong side of this business. To Matty's points there on operational efficiencies and labor costs, I wonder the future for a business like this. How's Chippy going to really help them save on the bottom line here? They're automating their chip making. What else could they automate? I think that's something we'll see play out a little bit more maybe in

fast food proper, but with your fast casuals like Chipotle, they're incorporating certain levels of automation into their models, which is definitely helping the cause. Jason Moser, Matt Argersinger, fellas, we'll see you in a little bit. But up next, we've got an insider's look at the cybersecurity industry. Dylan Lewis Welcome back to Motley Fool Money. I'm Dylan Lewis sitting in for Chris Hill. Jay Chaudry is the founder and CEO of Zscaler, a cloud cybersecurity company with a market cap of over $13 billion. While shares of Zscaler have crushed the market over the last five years, the stock has been cut in half since

last fall. Motley Fool senior analyst Tim Beyers caught up with Chaudry to talk about the concept of zero-trust security and cybersecurity threats that are flying under the radar at the moment. Tim kicked off the conversation by asking about Zscaler's growing opportunity in government contracts. There's a couple of key products for Zscaler, Zscaler Internet Access, Zscaler Private Access, and then you have a number of products built around those. And the ecosystem has been expanding a bit. But there's also some additional features that are coming into both of those. And one that I think is pretty important is FedRAMP access or FedRAMP certification for Zscaler private access. And that is pretty fascinating to me, Jay, because

that's the idea of a cloud-based security product getting into the federal government for securing sensitive information. Presumably, I mean, this does feel like a pretty big deal. What can you say about this and what you've achieved there? When it comes to Zscaler product portfolio, the dream from day one was to build a platform. Because when I talked to lots of CISOs, they were tired of point products. They said, I've got appliance fatigue, appliance overload. And since I started with a clean slate, I could reimagine security. I could reimagine network.

You can do that if you don't have legacy boxes and legacy technology to worry about. It was natural for us to expand our business into federal government. So about four, five years ago, we started to go after some of these certifications. FedRAMP certification was one of the most important ones. And it took us a while. I can tell you it was a bit frustrating and tiring, but it was good because once the certification got done, it opened the market for us in a federal market. And rightfully, FedRAMP requires to make sure security is tight, it's well done, it's make sure, for example, the code gets checked in with verification by a second person.

No single engineer can check in code because otherwise you could have situation like solar winds where some bad code got embedded. So we have gotten the highest level of FedRAMP certifications. FedRAMP has many levels. At the highest level, the only five vendors in the entire IT space, it is vendors like AWS, it's Microsoft, it's IBM, it's Zscaler, and I'm missing a name or so. Now, what this does for us is a lot of two things. One, when federal employees need to access Internet or SaaS applications, they go through us. They used to be their own gateway called TIC, which is centralized, sitting at one place or two places, traffic coming back to choke point, going out, user experience gets bad, cyber can't be updated as quickly as it can be done in the cloud. The second part, which you alluded to, which gets even more exciting, is Zscaler for private access.

This is private applications sitting in either government-sanctioned data centers or it is sitting in a public cloud and the like. And we act like a switchboard and exchange that connect a user to an application, not to the network, which is a fundamental difference between us and firewall and VPN-based companies. Today, we have 12 of the 15 cabinet-level agencies as our customers. They all started small. There's a significant opportunity for us to go to the next level. When it comes to public sector, including state, local, and education, we have over 700 organizations who are our customers. To me personally, while it's also good business for Zscaler, it's more than business. In today's cyber world, we all worry about national security. We worry about securing our infrastructure, securing the transportation, our gas-centric companies alike. So we're doing a lot of that. I'm so glad that Biden administration has taken so much focus to make sure organizations really take care of implementing zero trust, and we are playing a big role in that area. Let's follow up on that quickly. Just to remind folks, Zscaler is a widely

followed company at The Motley Fool, and your specialty is zero-trust architecture. The idea that if you are going to operate inside a network, inside a cloud-based network, everywhere you go in that network, you must be continually verified. We don't trust you just when you get in the door one time. We are continually verifying that you are who you say you are. You have the credentials to be here, which does feel very important for something like a government network where you're dealing with very sensitive data. I wonder, Jay, this idea of zero trust, which you've been advocating for for years, and I understand that I have listened to your conference calls and heard you bang the drum for this. I wonder if this idea of zero trust

and now sort of finding your way into these big cabinet agencies, does that to you reflect maturity of the cloud, maturity of zero trust? What do you think this signifies? Or is it just, frankly, you know, what you've been able to achieve as Zscaler? So, it's a big change. You know, technology incrementally changes all the time. But every 20 to 30 years, there's a disruptive change that takes us to the next level. The network and network security we do today was invented 30 years ago. It's the same firewall technology. It's the same VPN technology. Yes, there's some incremental changes to it. But the zero trust approach we pioneered when I started the company basically said,

we don't put people on the network. We don't do network security. Network should be simply plumbing and transport. You really need to secure data. And data is sitting either with applications or sitting with users. And we'll make sure the right user talks to the right application. Right workload talk to right workload. that you rightfully said in this architecture, we are constantly verifying and checking.

It starts with zero trust, trust no one. But zero trust is a misnomer. It's kind of trust no one, trust someone with the minimal trust you need to grant them to do a specific application. So not being on the network means this. If I come to see you at your headquarters, they're going to stop me at the reception and say, stop, who are you? Show me your ID and I'll give you a badge. That's authentication, the starting point. And then the old world, they'll say, take this badge, go to seventh floor, meeting room 23. Then I come in, I can be wandering around the hallways, go to any room that's open. That's what can happen in today's world of VPNs and firewalls. you're on the network, then you try to do segment here, segment here, it's a mess.

In our architecture, once they give me a badge after checking my ID at the reception, they say, stop, you will be escorted to your meeting room, and meeting room only, you can't go anywhere. So I get escorted to the meeting room, they only allow me to go there, they're very fine to make sure I'm not trying to get anywhere else, and once the meeting is done, they escort me out. That's like connecting a user to application. I personally believe that the whole world is moving in this direction. The legacy architecture will fundamentally change. Now, unfortunately, there are forces that are trying to hold it back. Who would that be? The vendor who's getting disrupted. So these firewall and VPN companies are claiming we got zero trust too,

which kind of is doing a disservice. But what's helping us is the CISA organization that Biden administration put in place. It is an agency whose focus is to make sure security gets done, zero trust gets implemented properly. And it's really helping us. We got to do this to protect our country, our organizations. Otherwise, you see so many attacks on all these healthcare organizations, banks and whatnot, our customers are far more safer than people who aren't using Zscaler. Last question for you. So before I let you go here, what security threats are we not talking about that we should be talking about? Because you've talked about platform, you've talked about zero trust. I am certain, because I've been around this block a few times, that

there are new and creative attacks constantly. So what are we not talking about that is a threat we should be paying attention to? Teammates are raised with bad guys. They keep on innovating. We need to innovate. In fact, I think the biggest risk is inertia. Some of these are large companies. They're slow in embracing new technologies. So they need to do that. We're seeing faster adoption of that. But from Threat's point of view, we all have seen ransomware and phishing type of stuff happening over and over. I think the next big area for us to worry about is some of the ML-based stuff, chat GPT kind of stuff. Imagine what all can be submitted to chat GPT. In fact, a number of customers I talked to recently, with the coverage of chat GPT, the developer is

submitting source code and saying, huh, tell me how good is my source code. They don't think that source code now belongs to ChatGPT. It's out there somewhere. So we had to develop a feature pretty quickly to identify if something being submitted to ChatGPT. And it's not just one.

There's so many versions of it out there to protect the IP and all that kind of stuff. ChatGPT can become a tool by bad guys to find information that could have been much harder to find. So, we are working in many of those areas. But ChatGPT is also helping us to identify things and build better protection. So, it's a new big area that all of us need to leverage in a proper way. Coming up after the break, Jason Moser and Matt Argersinger return with a couple of stocks on their radar. Stay right there. You're listening to Motley Fool Money.

as always people on the program may have interests 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 Dylan Lewis, joined again by Matt Argersinger and Jason Moser. Matt, when we were talking credit card companies before, we hit on this theme of softness in the goods category, seeing a lot of that spending going elsewhere. It seems like that's flowing through to the results that we're seeing this week from UPS. That's right. UPS came out with results. It kind of got lost in the shuffle with all the big tech noise and things like that. But this told, I think, a bigger story about what's happening

in the economy. Revenues for UPS were down 6%. Steep drop in operating profit. But it's a volume story. Their average daily volume in the U.S. was down 5.4%. It was down 6% internationally. And on the conference call, CEO Carol Tome noted that volumes were as expected in January and February, but were significantly lower than our plan in March. quote. UPS blamed a shift in consumer spending. Customers are spending less on discretionary items and more on grocery and consumable items. The company cited an overall shift, as you mentioned, Dylan, away from goods to services, something that really doesn't help UPS. This meshes with a first quarter report from Packaging Corp of America, another company I follow.

It's one of the largest corrugated packaging producers. Their shipment volumes were down 12.7% in the quarter as well. This is a shift away from goods to services. That's why I I wasn't surprised when Amazon reported really flat growth in their core online stores business. People are just ordering less online and spending more out there beyond the home. Putting this together with what we're seeing from the credit cards, it seems to me like it's bullish to be spending on travel. We should probably see some decent results from travel companies. We're seeing some service spending. But is there anything else that really jumped out to you trying to put these two together and find some narratives around

what's going on? Well, I think if you want to make a call and gosh, we've been predicting a recession forever, as Jason mentioned. I think you can make a case now that we probably are in a recession in the good space. How long can this service aside the economy, which is the bigger part of consumer spending, how long can that sustain? That is the big question. If that falls off, then I feel like we're finally in that recession that we've been predicting for years. The NFL draft began Thursday with the first round and because everything in sports is a spectacle, will continue into the weekend. All told, over 200 college players will join the rank of professionals, many of whom will be seeing

million-dollar or six-figure checks for the first time in their lives. Jason, any advice for folks that are now joining the workforce as professional football players? Very easy to forget when you see those big numbers. But just remember, the tax man is going to get his share. So, whatever that number is, cut it in half and put that money aside so that you can make sure to cover that tax obligation. Maybe it doesn't require all half. Whatever you have left over, you can just put into a savings account for a rainy day. Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Matt, you are up first. What are you looking at this week?

Well, we talked about this company earlier in the show, Activision Blizzard, ticker ATVI. So, of course, we know the U.K. has rejected the acquisition by Microsoft. That caused shares to drop sharply this week. I think as an investor, and I'm a holder of shares of Activision Blizzard, You've got to start looking at the company now independently again. If you look at Activision's first quarter results, which came out right away this week after they learned that the transaction was going to get blocked, first quarter bookings up 25%. Call of Duty Modern Warfare 2 launched last October, still paying dividends this quarter.

Blizzard Revenue, which is more of their online subscription business, up 62%. They had monthly active users of 368 million. Diablo, which our man behind the glass, Dan Boyd, knows and plays well. one of their most massively popular games. The fourth version of that game is coming out in June. The growth there is tremendous. I think, as an investor, you have to look at it this way. The transaction might still go through, and therefore, you've got a $95 stock, probably in the next year. If it doesn't go through, you still have a business that's growing really well and is going to get a $3 billion breakup fee if this deal doesn't happen.

If you believe Bobby Kotick, CEO Bobby Kotick, who spoke on CNBC this week, That means by the end of this year, Activision Blizzard could have $18 billion in cash on its balance sheet, $15 billion if you net out the debt. That's about 25% of its market cap. Probably will resume the dividend. I think as an investor, you can win either way by owning shares today. Dan Boyd, our man behind the glass and noted Diablo player, any questions about Activision? Yeah, Matty, why does the U.K. get to jump in here and say you can't merge? Can't Microsoft and Activision just tell them to go kick rocks? I would think so, Dan, but the way the regulatory system is set up and because they do so much business in the U.K., the CMA there in the U.K.

does have a say over this transaction. So, yeah, they're the blocker right here. Jason Moser, what's on your radar? Yeah, big drop on Friday for CloudFlare, ticker NET. We say it often, when a company revises guidance downward, the price is almost sure to adjust based on those new expectations. With a business like CloudFlare that's still in full-on investment mode. It's going to be even more pronounced. That's what we're seeing, unfortunately. On the one hand, the results for the quarter met or exceeded targets management set out a quarter ago. That was encouraging. However, the market, as we know, is a forward-looking mechanism. Clearly, there are some clouds on the horizon. They guided down for the year

about 4% on the top line. That's still going to grow about 31.5% from last year, based on what they're saying today. But I think it's fair to say that right now, the market just doesn't fully trust that given language in the release, like increasing macroeconomic uncertainty and lengthening of sales cycles. We also see Dubner, that dollar-based net expansion rate that's down 5% for the quarter to 117%. I think with this company, and I'm a shareholder, by the way, it's fair to say this leadership team is aggressive. I think that's probably putting it lightly. I think they lack a certain level of humility. Maybe this opens their eyes a bit. But the market right now is saying, I don't believe you. Prove it. It's saying,

show me with this new guidance. And I think that's more than fair. Dan, a question about Cloudflare. Am I allowed to combine the word cloud with literally any other word and start my own tech company? Well, there's no question. There's no question at all. We give you a $1 billion market cap just for coming up with that idea right there. Especially if you throw in AI somewhere there, Dan. You got a home run. I was just thinking, starting a company called Cloud AI and then just, I guess, printing money? You throw Diablo in there, big boy. Oh, now we're talking.

You got a stew. One question I do have, Jason, on cloud business and Cloudflare is, is this what we're seeing a little bit with bigger getting big and smaller players suffering a little bit? Well, there's no question. We're seeing the bigger companies that are able to deal with a little bit of that pullback in cloud spending. we saw with Amazon, Microsoft, and Alphabet, all to an extent. They're portending headwinds in that cloud space. Again, going to that language in Cloudflare's release there, talking about the increasing macroeconomic uncertainty and lengthening of sales cycles, it's just going to be a little while longer. All right, Dan, which one is going on your

watch list? You know what? I think I'm going to go with Diablo and Activision Blizzard. Matty, you convinced me. There we go, Dan. Matt Argersinger, Jason Moser, thanks so much for being with us today. Thanks, Dylan. That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.