Motley Fool Hidden Gems Investing - Disney, Video Game Stocks, and the Business of Higher Education

Episode Date: November 9, 2018

Disney works its magic and unveils the name of its new streaming service. Twilio surges. And Activision Blizzard, Yelp, and Zillow tumble. Analysts Jeff Fischer, David Kretzmann, and Jason Moser discuss these stories and dig into the latest news from Take-Two Interactive, Skyworks Solutions, and Match Group. Plus, Grand Canyon Education CEO Brian Mueller talks about the business of higher education. Thanks to Molekule for supporting our channel. Get $75 off your first order at http://www.molekule.com code fool75. Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's FOOL75. Everybody needs money. That's why they call it money. The best things in life are free But you can give them to the birds and bees From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Radio Show. I'm Chris Hill.

Joining me in studio this week, senior analysts Jason Moser, Jeff Fischer, and David Kretzmann. Good to see you, as always, gentlemen. Hey. We've got the latest headlines from Wall Street. CEO Brian Mueller from Grand Canyon Education is our guest. And as always, we'll give you an inside look at the stocks on our radar. But we begin this week down in the Magic Kingdom. Shares of Disney hitting a new high on Friday after its fourth quarter report included highlights from the studio business. And a name, finally,

Jason, for the new streaming business. They're going with Disney+. Works for me. Jason Moser. I know you're so disappointed it wasn't something like Tronk. O'Reilly. Tronk was available. Jason Moser. Given our earlier conversations this week. Yeah, I like that. I mean, it's consistent, obviously, with ESPN+. It takes advantage of the brand that everyone already knows. What was your highlight from this quarter? Because there were a lot of good things in this report. I think the big picture takeaway with Disney is that if content is king, then distribution is queen. And everybody knows that behind any strong king is an even stronger queen. And so, I think

with Disney, that is the beauty of this business, is that they have both parts of that equation, really. And there's some uncertainty making the move to that over the top, ESPN+, Disney+. We're going to know a lot more in a year, of course. But I think that the early signs point towards success, and I suspect that they'll do very well with the content built out on Disney+. I like the Hulu platform, but we're in this age now where the cost justification Remember, for a long time, cutting the cord made sense from a cost-savings perspective. That's going away, because really now you've got to sign up for more apps to get all the content that you really like. So, really, that disparity is shrinking. And so, for Disney

to have Hulu and ESPN+, and Disney+, and all of that IP, that really puts them in a position of power, I think, for a long time to come. And Fox as well. Well, they've certainly been planning for this for a long time. I mean, Disney Plus will be launching next year, which is 12 years after Netflix launched its online streaming service. So maybe a little bit behind, but better late than never, I suppose, in this case. And some of the exclusive original content that they're producing for Disney+, I think, looks really compelling. We'll lure in new people to test out the service. And I think Disney's library of content is robust enough and intriguing enough to keep people

on the platform. Personally, I'm looking forward to the Star Wars live action show directed by John Favreau. Maybe it can redeem how I feel about The Last Jedi. I wasn't a fan of that movie, but maybe this Star Wars live-action series will do it. Sounds like they're bringing in a they're going to capitalize on the previous success of High School Musical too, Chris, so we'll have a chance

to go back and remember what this was. You know what? Whatever your personal feelings are about The Last Jedi, as a shareholder, I appreciated what that thing did at the box office. It did okay. It did okay. It upset a lot of diehard fans, though. The rest of the show, Star Wars? Yeah, let's do it. 30 minutes.

Jeff, just to pivot off one thing David said there, I mean, in terms of the streaming app, yeah, they may be a little bit behind the curve. But I think, as we've talked about before, they are looking at this probably the right way in the sense that they want to nail it right out of the gate. They can't really afford to have a stumble in terms of how the app works. Sure, there will be upgrades to the app, but they've got to get it right next year. I agree. And ESPN aside, they're really targeting a lot of the younger audience, and then hope to grow with them. And they have the content to address everything from little kids to supposed grown-ups like us.

And the shares, they haven't really gone anywhere since 2015. So, they, as a result, look very reasonably priced. They're at about 15.7 times expected earnings for the year ahead. And a little side part of the business there are the parks and resorts. They employ 199,000 people. I should have asked everybody to make a guess. It's just a phenomenal part of the business, year in and year out. The pricing power that they possess on those parks is really pretty impressive. It seems like every year, and I'm sure there's a record here for how many years in a row they've been able

to raise ticket prices, but they continue to be able to do that because it's such a unique and compelling pull. Every parent, that's the goal, get your kids to Disney World or Disneyland. And forget about your money. Of course. Shares of Twilio up big this week. The cloud computing company crushed expectations for the third quarter, and shares of Twilio up more than 30%. Not bad, Jeff, when you consider this company still is not profitable. Awesome. It's a $9 billion market cap now. And as Jason was talking about, appification, maybe, basically, making content into apps. Twilio is making communication

into apps. It lets programmers easily put communication capabilities into any software that's out there using an API. That's what they're doing. Their biggest customers are WhatsApp and Uber, so anytime you use them to communicate with the other party, you're using Twilio's cloud and software. Chris, revenue was up 68%. Almost even more impressive is dollar-based net expansion rate of revenue, which was 145%. That means, where they earned a dollar from a customer a year ago, they earned $1.45 this time. Because usage is growing, they're offering more and more products on top of what they offer. It's a phenomenal story where they're growing customers, they're growing revenue because of that, but then

they're also growing revenue usage based on usage as well. So, when you look at the cloud computing space, and you've got, yes, I mean, this is impressive, the growth that Twilio has, it's close to $10 billion in market cap. That's a fraction of companies that they're competing against in Microsoft, Amazon with AWS, etc. Is this a company that you feel like has a little bit of a moat, or is someone going to come in at some point and just make them a big offer? I do believe they have a good moat, because they years ago set up, and the CEO, Jeff Lawson, worked at Amazon before Twilio, along with a few other startups that did well.

But years ago, they set up worldwide a network of communications by signing agreements and whatnot so that you can use their services anywhere. And that's tougher to do than it it sounds like. And then their software is years ahead of other people, and it's really programmer-driven, because it allows you to customize it exactly how you want it, and that creates a stickiness, too. So, I think they're in a giant industry, and they have a great lead, and I think they could maintain much of it. Two video game stocks in the spotlight this week. Activision Blizzard's third quarter profits came in higher than expected, and second quarter revenue for Take-Two Interactive

came in higher than expected. And both of these stocks, David, despite those headlines, both of them falling more than 10% this week. David Gardner Well, Chris, I think we can go to a little poem here to maybe explain what's going on here. David Gardner Oh, good. David Gardner Yeah, when the valuation is lofty and growth is lumpy, Wall Street will be grumpy. That's my analysis for the day. I think I'm going to hang my head up there. No, but anyway, Activision-

David Gardner Wait, you wrote a poem? David Gardner I mean, I don't know if that counts as a poem. It's like- David Gardner But you came up with that. David Gardner I came up with it. Between that and Twillification, there is some serious money being made by someone, somewhere, based on the IP that we're kicking out. Somewhere, and Appification, which is a really clumsy word. If this thing at The Fool doesn't work out, I'll start writing some more poems.

Robert Frost. Yeah. Follow me on Twitter, everyone. So, anyway, going to Activision. And the quarter was pretty strong, but I think their guidance for the next quarter and the rest of the fiscal year was just slightly below Wall Street expectations. And by slightly, I mean we're talking less than 5%. But this quarter, they saw some key launches of their existing franchises like Call of Duty with Black Ops 4, World of Warcraft, Candy Crush. Call of Duty, this latest version, generated over $500 million in the opening weekend. So that's a pretty strong release.

But going into this, like I mentioned in that poem, the company's valuation has been lofty over the past year or two. But now, after this drop, the stock's down about 13% or so, now trading for about 21 times forward earnings. So, from a valuation perspective, it's finally starting to get back into that reasonable range. We've talked before about this industry being, like the movie industry, it is a hits-driven business. So, is there one franchise in either of these companies that you look at that you think, boy, if they can produce a big hit in this franchise, whether it's this holiday quarter or in 2019, it's really going to juice the stock?

Well, for Take-Two Interactive, Red Dead Redemption 2 is their latest release, and that just did phenomenally well. In the first eight days, Red Dead Redemption 2, which launched in October, sold more than the first Red Dead Redemption did in its first eight years. So, Red Dead Red Dead Redemption 2 brought in $725 million over the opening weekend. So far, it's already sold over 17 million units globally. So, packing a powerful punch right up there along Grand Theft Auto 5, which for a long time has been the main revenue generator for Take-Two. But this is a lumpy business. It's really based on the timing of these releases. So, at the end of the day, for these companies going forward, it's about how recurring can they make these releases.

But so far, these steady franchises continue to do really well. Three stocks hitting 52-week lows this week. So are they value plays or value traps? We'll find out next. Stay right here. This is Motley Fool Money. All right, before we get back to the earnings, let's talk about buying a home. Interest rates are on the rise, and there's a lot of unpredictability about buying a home.

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Yelp also cut revenue guidance for the full fiscal year. And Zillow shareholders had a week that was almost as bad. Zillow lost a quarter of its market cap after the online Real Estate Platform's third quarter report included a similar cutting of guidance for the full fiscal year. Let's start with Yelp, Jason. How bad is this? Well, it's probably not as bad as the market is making it out to be. But a business built on selling ads based on its network effects, they need to be adding advertisers in order for the market to feel good about it. And unfortunately, they are not. So, what you have here is basically a resetting of expectations. And I think the reaction, generally

speaking, is the appropriate one. It may be a little overdone. Yelp is a profitable business. It does suffer, I think, from a little bit of an identity problem. Because, is it for restaurants? Is it for traveling? I mean, what is it really for? It's a little bit of all of that stuff. And there's some question as to, really, the reliability of some of the reviews. But all of that considered, I mean, again, like I said, it is a profitable business and things could be worse. Speaking of which, how bad is Zillow? So, I used to think this company had more potential than a slinky at the top of the

stairs, Chris. I really did. I don't think that anymore. I've been bearish on this company for a while, internally, even here at the company. And I think that any time as investors, when we hear the words, transformational innovation, we tend to get pretty excited. However, in this case, I think you need to be very, very concerned. That phrase was basically how they opened up the shareholder letter this quarter. And the problem is that they've been basically innovating forever. They've been trying to do this ever since they've been public. They've not yet recorded a profitable year. And that's in the face of a really good housing market. Now, we're seeing the housing market starting to tighten up a little bit. And unfortunately,

the go-to for this business, the premier agent side of it, is showing some signs of weakness. We're not concerned. I mean, I'm not sold on the changes that they've made there. And then, this Zillow Offers side of the business that they're talking about growing out, totally not scalable. And I'm not sure it's going to be nearly as profitable as perhaps management wants it to be. So, is either one of these stocks a value play to you? Personally, I would not invest in either one of them. I think they're probably more value traps. But at least, again, Yelp is profitable. They can point to something there. Zillow, I mean, they really have to

get their act together. Skyworks Solutions, a maker of specialty semiconductors, having a rough week as well. Fourth quarter revenue for Skyworks looked pretty good, Jeff. Guidance, though, was weak, and shares hitting a 52-week low on Friday. A little weak on the guidance, Chris, but they still expect 2019, which is just beginning now for them to be a record year and to be their 10th year in a row of record revenue and record EPS. So what happened in the year that just ended, revenue was up 6%, earnings per share up 12%. Margins continue to grow. As I just said, it's the ninth year running of records. They have great customers in BMW and Tesla and Toyota, let alone most smartphone makers in the

world. And Apple is their biggest customer by far. And that is probably right to the point of why the stock fell. Everyone's talking about Apple iPhone sales units topping out, or at least for now, maybe. And that looks to be the case in their guidance as well, in Skyworks guidance, driving some of that flatness in revenue for the next quarter. So, that's the concern, along with China slowing as well. But that said, Chris, the stock is inexpensive. It trades at 10 times, more or less, expected earnings for the year ahead. But that said, But again, it's been disappointing. Since 2014, shares haven't gone anywhere, even though business has executed superbly. And this is one of the few semiconductor stocks that I

really like. They have competitive advantages, growing margins, strong profits, great markets, including Internet of Things. And they're in with all the major players as customers. So, I own shares, I continue to want to own shares. It just reminds you to be patient. That's surprising that they put up record revenue every year, and the stock is basically flat since 2014. I think what happened a few years before 2014, the stock rose several-fold, two- or three-fold, and then it's just flattened since then. But Skyworks, great management, great. We should be congratulating them, and I look forward to their future. 5G is going to drive a lot more demand for their products, too.

Investors were swiping left on Match Group this week. The parent company of Tinder, Match.com, and other dating platforms issued a third-quarter report that came with, wait for it, David. Disappointing guidance. Also, a special dividend. What is that about? Yeah. We'll get to the special dividend. But on the surface, the underlying business looks to be performing really well. Match across all its properties and apps now has over 8 million global paying subscribers. Average revenue per user is also increasing. Tinder is especially driving a ton of revenue right now. Subscription revenue in the quarter doubled for Tinder. Tinder Gold subscriptions up 61%. And overall, revenue was up 29%,

adjusted EBITDA up 38%. So, those are strong, profitable growth numbers. But then, they are thrown in this special dividend, which is a bit of a head-scratcher. They're paying a $2 per share special dividend that'll cost about $560 million. And this, mind you, is for a company that already has about $800 million in net debt, and they'll probably be going into more debt to finance a special dividend. I think this might be kind of an underhanded way to pay back their parent company, Interactive, which still owns about 80% of Match Group's shares outstanding. So, Interactive will be receiving the bulk of that $560 million payout. And on the conference call, management was going through their capital

allocation strategy. Most tech companies or software companies don't like to operate with debt. They have a lot of cash and no debt. Match kind of falls into the group, or they try to say that they fall into the group, like Netflix and Amazon, which rely on debt to fuel expansion. So, I can get on board with that. But what sets this special dividend apart is that they're going into debt for a dividend. They're not going into debt to reinvest back in the business, which is what Netflix and Amazon are doing. So, a bit of a head-scratcher here, just something to keep an eye on. Another restaurant being taken private this week. Durational Capital Management bought Bojangles for nearly $600 million in cash.

Jason, how are you holding up? Listen, it sounds like at the end of the day, they're not going to be making any changes, really, to the model there. So, I'm OK. As long as I can swing through the Atlanta airport every now and then, get my spicy chicken biscuit and sweet tea, I'm OK with it. I mean, we've never been really all that high on this company as an investment. Just restaurant business faces a lot of challenges. Quick question from one of our listeners, Matt Riley. He writes, as a Bojangles shareholder, what options do I have to minimize any tax impacts? Can I just reinvest the funds

without being taxed? It is an all-cash deal. Well, yeah, it sounds like you're going to be getting all cash for your shares. So, you're pretty much stuck with that. I mean, probably a nice problem to have at the end of the day if you're making a little bit of money on the investment. But yeah, if they're offering all cash, it doesn't sound like there's another option, which is going to limit your tax strategy availability. So, next month, we'll be doing a show where we spend a little bit of time looking back at 2018. I feel like one of the things we're going to be talking about was, 2018 was the year where a whole lot of restaurants went private.

Yeah, I think that makes a lot of sense, though. We're seeing more and more that the companies that have a collection of brands under their umbrella are the ones that are doing really well. Yum! Brands, restaurant brands. And so, that was one of the reasons why I thought maybe Wendy's might consider buying Bougie Angles, but sounds like private equity got to it first. Private equity is pretty smart, too. Bojangles being taken private well below its IPO price in 2015. Papa John's still looking for a savior. I'm waiting.

All right. Jason Moser, David Kretzmann, Jeff Fischer, guys, we'll see you a little bit later in the show. Coming up, we'll talk about the business of education with Brian Mueller, the CEO of Grand Canyon Education. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Brian Mueller is the CEO of Grand Canyon Education. The company provides educational services like marketing, technology, and curriculum development to Grand Canyon University, a nonprofit university in Phoenix, Arizona. At our recent Motley Fool member event in Denver, our chief investment officer, Andy Cross, interviewed Brian Mueller in front of a live audience.

Here's part of that interview, starting with Mueller talking about the high price of higher education. Depending upon who you believe, the cost of higher education has probably gone up four times the cost of living since the early 80s. And higher education has become unaffordable to many, many socioeconomic classes of Americans. Students are taking on $100,000, $150,000 worth of debt.

They're not getting jobs appropriate to that amount of debt. And so higher ed was kind of ripe to be disrupted. We went to Grand Canyon University in 2008 when it was a small private university with $20 million in debt and about to close. It had 900 students on its campus. We went there believing we could use getting access to the public markets and getting access to capital to kind of invigorate a new financial model for higher ed. So the stock came public at 12. It's now at about 120, so that's a 10-bagger in about eight years. Well done. Tuition, on the other hand, has really been flat for 10, or I think this is your 11th year now of flat tuition. How has Grand Canyon Education been able to do that in an environment

when tuition prices on average are going up two, three percent a year recently? How have you been able to maintain the discipline to not do that for your students? It goes back to the two large markets. You know, traditionally in higher ed, the traditional universities wanted to serve the 18-year-old students. That's how they built their brand. But there are other, this huge other market developed in the early 70s, especially because of the ending of the Vietnam War. Soldiers were coming back and they really didn't have skills. They couldn't access college the way a traditional student does. And so that market since the middle 70s grew very large, but it was serviced only by the for-profit companies, University of Phoenix primarily. In 2008, the recession changed everything

because state universities saw their subsidies cut in half by the states and private universities saw their endowment shrink. They had to find other sources of revenue because they weren't going to change their basic business model. And what they did is decided to get in the business of teaching working adult students and delivering online. They basically stole the business from the for-profits in the last 10 years, which we predicted would happen in 2008. Fortunately, we were out in front of the game. And so we developed this hybrid campus with 21,000 traditional students on our campus, and we used that campus to drive the strength of our brand. But the 70,000 working adult students that are going online, those two campuses leveraging a

common infrastructure produces huge efficiencies. And so not only have we not raised tuition in 10 years but we've invested a billion dollars in our campus classrooms laboratories new programs athletic facilities 24 restaurants we're in phoenix so five pools five fitness areas we were just ranked uh the seventh nicest campus in the country and last year we were eighth and so we have a brand new campus with state-of-the-art facilities in a destination city and state at least in the fall not necessarily in the summer um and and and students are finding that uh they can graduate with with very little debt they can complete their degrees in three to four years and and those are the things that families are looking for i'll just know your default rates on uh the

borrowers is somewhere in the eight to ten percent range which is far below the the average of especially for for-profit universities which do have a problem on that um so your largest client is Grand Canyon University, but you mentioned the excitement about being able to take your talent, services, experience to other partners. Talk a little bit about what that may look like over the next five or 10 years.

I'll just mention that Grand Canyon is owned by the Motley Fool. We have more than $136,000 of Motley Fool capital invested into Grand Canyon, more than 1,000 shares, along with other shareholders here. And our perspective is we are really looking at all of our investments for at least five years.

So in that landscape, as you go out to expand beyond just Grand Canyon University, just talk a little bit about the ability to go out there and take your company's skills and talents to other clients. We're looking for partners that have presidents that don't want to do something small. We want to look for partners that have a president and a board that wants to do something disruptive. Higher ed needs to be disrupted. um we talked about the rising tuitions uh the lack of changing the business model uh the loan debt that students are taking out um and and so we're looking for a president that wants to take their programs uh and use us to convert them so they can be delivered online uh to working adult students all over the world and wants to build sizable student body populations so they can

fundamentally change the value proposition for families and for students. We're very determined that if you can make higher education affordable to all socioeconomic classes of Americans, you can build diverse student bodies and you can provide opportunities for all kinds of students, but especially disadvantaged students. And so we are not looking to have 25 or 30 partners, but we're looking to have a couple partners that want to scale that are in geographic areas that will not interfere with what we're doing at Grand Canyon we're going to still at Grand Canyon grow seven or eight percent a year grow revenues eight or nine percent a year but we're looking to add on to that with partners that have presidents that want to do something disruptive and they

want to scale their programs is there an international opportunity as well possibly possibly but we're not focused on that right now uh we're really focused we think there's a huge opportunity in this country um people are really changing their attitudes about higher education when families come to our campus now we find they ask three questions and none of them have to do with u.s news and world report rankings which are which are not helpful and productive to you to universities and to uh and to families they want to know um do you have programs that can help my son or daughter get a job? For example, there are 300,000 jobs available today in cybersecurity that pay on average $92,000. Most high school guidance counselors and families

don't know about that. But having cutting-edge programs that are going to help students get jobs, both parents are very focused on that. Secondly, they want to know if, can you help my son or daughter graduate with a minimum of debt? And thirdly, is your campus safe? And is it going to be safe for my son or daughter? If you can answer those three questions, they get very excited about the value proposition that you have. And so we're looking for partners that want to help us in that. We also have the advantage, interestingly enough, of being located, Grand Canyon University, in an inner city neighborhood that is full of immigrants. We started five years ago on what we call a five-point plan to bring middle-class status to that neighborhood again. A lot of

universities are are interested in what we're doing because we're producing real results we're one of the fastest growing employers in the phoenix area and so we've planted a fast growing employer in an inner city neighborhood we've spun eight businesses off our current one the university which creates additional 350 jobs in just two years we have the world's largest habitat for humanity program going on in our neighborhood our goal is to rehab 800 homes in five years, and we're finishing our 200th home this weekend, and so we'll get to 800. We have a safety initiative, and we have a tutoring program where 1,200 of our kids offer tutoring to inner-city kids from 80 different schools every day between 3 o'clock and 8 o'clock,

and so a lot of people have become interested in us because of the outward reach that the university has made. Talk a little bit about I want to pivot back to that the investments you're making in technology and curriculum development which you are handling for Grand Canyon University and things like Loud Cloud give you a chance to kind of explain that but just the development of curriculums and different styles of learning what is Grand Canyon education doing to innovate in that space? It's very important because I don't think there's ever been a time when the population in this country has been more open to how to educate our kids and that is true in preschool it's true in k-12 education and it's true in higher education there's been an explosion of

homeschooling and and in the k-12 in the k-12 world there's an explosion of online learning in the university world and that's going to continue and so and so continuing to make investments in how we can create opportunities so that people can access education, especially higher education, in new and innovative ways is really important to us. Right now, we have these two large markets, but there's another one emerging. The other one is 18-year-old students that graduate from high school, and they're fine with staying at home. They're fine with keeping their part-time job. They want to access a higher ed program from their local community. They want to complete it in three years. They want to complete it with a minimum debt and they want

to go to work. We're also helping high schools. There's a lot of private high schools who in their 20 square mile vicinity have a huge number of homeschoolers. And parents, once they get the kids get to high school, they're starting to get a little sheepish about, can I teach them biology and calculus and all those things? And they'd love to access the local private high school for half the tuition rate but do it online and so we're just in the beginning stages i think of an explosion of ideas uh from the kindergarten through grade 12 and into higher education and even at the graduate level people are willing to consider a multitude of options and and universities should be on the front end of that not on the back end of that i did want to ask a question grand canyon

has a very rich christian um heritage you even have a doctoral statement and an ethical position statement. As you think about expanding out your client base away from just Grand Canyon University eventually, does the heritage that you have around Christianity, around some of the issues that you have in your doctoral statements and in your position statements around marriage and homosexuality, will that be a challenge for you going out forward? You know, we are a Christian university, and about 65% to 70% of the students that come, come for that reason. They identify with our view of the world, and they want to be part of that. About 35% of our students come for a different reason, and we want them on our campus. We are

not a church. We're a university, and we want them to share their worldview in the classroom, and we're a university of ideas, and we're a very broad-based university of ideas. People are expecting us to take a political position because we're becoming a major player in the city of Phoenix and the state of Arizona. I say to them, you know, on the east side of town, all the Republicans think we're Republican because we're about the free markets and we're a Christian university. On the west side of town, all the Democrats think we're Democrats because we're about inner city transformation and we're about immigration reform. I tell our students we've got them right where we want them. We're going to stay right there. We support people on both sides of the aisle as long as they support policies that help disadvantaged populations.

That's what we're about. And so as we look for partners, we may have partners that are state institutions. We may have partners that are Jesuit institutions. If you as an institution want to grow your university by converting your curriculum so it can be delivered online to working adult students, we're all happy to be with your partners. We're happy to be your partner, regardless of what worldview you come from. I have two young daughters.

I'll end with this question. And for anyone who has young kids, as they think over the next 10 years and we're investing for education, what is your advice? You are an educator. You come from a family of educators, even though your parents weren't educators.

So clearly there is something in the water at the Mueller household many years ago that bred educators. what is your advice to mean to others about looking and thinking about college education over the next 10 years you know i think start early start early start when your sons or daughters are sophomores uh in high school uh start looking at institutions start looking at programs uh you know one of the things we say is we have to understand where the economy is going we have to understand where the jobs are going to be and we have to build programs in conjunction

with industry so that we're going to help our students get jobs. And so I think that's the most important thing. You're looking for a university that understands where the economy is going. We're adding 20 new programs on an annual basis. We want to add programs that are cutting-edge programs based on are they going to help young people get access to the growing fields in the economy. I think that's really important. I think, secondly, look for universities that are changing their business models so that they can make education affordable. You don't want people, you don't want your son or daughter going into $150,000 or $200,000 worth of debt because many of them will never get out from under that. And so it's got to be affordable.

And then I think the third thing is look for universities who have or built communities that are safe, that are inclusive, and that you can feel good about dropping your son or daughter off at. Coming up, we'll give you an inside look at the stocks on our radar. This is Motley Fool money. All right, quick shout out to Molecule, the world's first molecular air purifier that reduces symptoms for allergy and asthma sufferers. Molecule has introduced a breakthrough science that's finally capable of destroying air pollutants at a molecular level. And it makes a real difference

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You can get $75 off your first order. Just go to molecule.com and use the promo code FOOL75. That's M-O-L-E-K-U-L-E.com and use the promo code FOOL75. 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 studio once again with Jeff Fischer, David Kretzmann, and Jason Moser. Quick shout-out to our special guest this week, Ed Vesely and his family visiting from Motley Fool, Australia. Welcome!

Here with his lovely wife, Justine, and their sons, Dominic and Nicholas. By the way, if you're looking for, we're going to get to the stocks on our radar, but for any listeners who are looking for a couple of Australian stocks that they want to put on their radar, check out the episode of MarketFoolery that Ed Vesely and Andrew Leggett did earlier this week. And I'm just saying, a couple of tickers if you're interested in investing down under. Let's get to the stocks on our radar. And our man behind the glass, Steve Broido, is going to hit you with a question. Jason Moser, you're up first. What are you looking at this week? Well, we'll talk more about it on Monday's Industry Focus. Sorry for the shameless plug

there, but you got to do what you got to do. Square reported this week, ticker is SQ. stock has sold off in the wake of what was on the surface a very good release. And I think, really, it's basically just back to where it started the week. So, let's just keep everything in perspective. Look to gross payments volume with a company like this to get an idea of how well they're doing. And in Square's case, they're doing very well. Gross payments volume was up 29% from the year ago to $22.5 billion. To put that in context, as I always do with this company, PayPal's gross payments volume for this same reported quarter was $143 billion. So, you can see, there is a tremendous opportunity there for Square to keep growing.

Their 29% growth, PayPal's 25% growth. Sounds like someone's picking up a little share. Biggest question for them, CFO Sarah Fryer has taken off. Congratulations to her on the CEO job. That question, hopefully, will be answered soon. She is definitely an asset that they will be missing. Steve, question about Square? So, when I think of Square, I think of that little Square thing that plugs into your phone. Is there more to this business? Is that all that this is about? Because I just haven't followed the company that closely. No, I think it's a very good question, and they've done such a good job of really

branding the business. But it's really all about the software that they're building with that hardware, and it's just becoming a more compelling package for merchants in all different lines of work. So, really, the software is the backbone of the company. David Kretzmann, what are you looking at this week? I'm looking at 2U, ticker T-W-O-U, another stock that got hit after reporting what looks like pretty good earnings this week. They're behind a software platform to deliver online graduate programs at scale to students anywhere. And they partner with big name universities like Oxford, Cambridge, Harvard, and Yale, all together about 22 universities with 64 total programs

online and counting. And it's an interesting business model because when they partner with one of these universities for one of those master's programs online, the shortest contract they have is 10 years, and some of their contracts are beyond 10 years. So they should be generating some steady recurring revenue over the long run. And this recent quarter, revenue is up 50%, gross margin is strong at 80%. Still unprofitable on the bottom line, but a lot of things to like here. Steve, question about 2U. So we hear about online education disrupting traditional colleges, but there are so many colleges still that don't seem to have been disrupted. Is this a wave that we should look closer at?

Well, 2U is not taking necessarily a disruption approach, but more a partnership approach. So, recognizing that Harvard, Oxford, Yale, these are some of the most powerful brands and institutions in the world, helping them get online. Jeff Fischer, what are you looking at? Viva Systems, the ticker is V-E-E-V. The company provides cloud solutions for the life sciences industry. Anything from customer relationship management to R&D to regulation, and that's the key word. They're expert in making sure you're in compliance with all regulations.

And now they're moving beyond life sciences, where they really have a great leadership position, into other industries. And that gives them a lot of potential. VEEV is the ticker. Earnings are out late this month. Steve, question about Viva Systems? I hear the words cloud and life sciences, and I'm confused already. How can an average shareholder follow this company and follow what they're doing? Great question, Steve. You can read their conference calls online free, freely, and they really spell it out clearly how they're providing software

that helps biotech companies and pharmaceutical companies develop drugs and report correctly on the drugs and manage their relationships with customers, among many other things. You got a stock you want to add to your watch list, Steve? I think 2U looks kind of cool. All right. David Kretzmann, Jason Moser, Jeff Fisher. Guys, thanks for being here.

Thanks, Chris. That's going to do it for this week's show. our engineer is Steve Broido, our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.