Motley Fool Hidden Gems Investing - Earnings: Chipotle, Tesla, and Alphabet Soar

Episode Date: April 26, 2024

We’re seeing consistently strong results this earnings season, but the market keeps looking forward. It loves Alphabet’s dividend and Tesla’s mass market ambitions, but is less sold on Meta commingling AI and the Metaverse. (00:21) Andy Cross and Emily Flippen discuss: - Chipotle’s stellar comps and future store growth opportunity. - Why Tesla’s low-priced EV offering has investors overlooking down results. - Alphabet getting in on the dividend game, and the market telling Meta – don’t spend on AI like that.  - What Spotify, Snap, and Roku have to say about the strength of the ad market for 2024. (19:11) Emily and Andy break down two stocks on their radar: Tyler Technologies and Visa. Stocks discussed: CMG, TSLA, GOOG, GOOGL, META, MSFT, SPOT, SNAP, ROKU, V, TYL. Host: Dylan Lewis Guests: Emily Flippen, Andy Cross Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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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. Joining me over the airwaves, Motley Fool senior analysts, Andy Cross and Emily Flippen. Fools, great to have you both here. Hey, Dylan. Hey, good to be here.

It is one of the biggest weeks in earnings season, and that means Earningspalooza, a marathon of updates from big tech, the streamers in audio and video, and a look at what to expect in the ad market in 2024. I do want to start us off with the big macro earnings edition, taking a look at the current landscape as we are seeing all these reports come in this week and next.

Andy, what are you paying attention to, maybe outside of companies' control, but affecting some of the results and what we might see from companies this quarter and going forward for the rest of the year? Well, Dylan, it's been a pretty good quarter so far. You have 80% of companies in the S&P 500 that I've reported that are beating the earnings expectations if you play that game.

Obviously, there's been some volatility in the market because of some of the macro issues with Federal Reserve wondering about the interest rate policies and whether we actually have to cut as soon. Remember at the beginning of the year, there were something crazy like six or seven rate cuts baked in. And now there's basically one or two after some of these initial data points that have popped up over the past couple of weeks and some commentary from the Fed. Overall, it's been a pretty strong earnings season, especially, as we will talk about, for big tech. That is driving really the big bulk of the earnings growth, Dylan. I say that's the way it's been. It probably looks like, from what we're seeing from these companies, the way it's going to be for the foreseeable

future. Emily, Andy brought up the rate picture. I'm going to take the bait here. We saw some updated inflation numbers that just continued this narrative of, this is sticky. It's getting a little bit hard to resolve. What are you paying attention to as you're trying to get a sense of where that picture is going? Yeah. The earnings season narrative is very happy. We're seeing a lot of companies report stronger bottom lines than we expected. But I think big picture for the economy, we're seeing some warning signs. It's not just the fact that rate cuts may not happen as aggressively or as quickly as many investors expect, but I think we're actually seeing some initial kind of warning signs of what could be a stagflationary environment. And

that's a pretty dramatic statement to say. Stagflationary environment is really the worst of both worlds. It's high inflation, low GDP growth, and also high unemployment. And a lot of companies who are reporting strong earnings this quarter are doing so because they massively cut costs, which includes things like layoffs. So despite the fact that the economy seems to be doing well, consumers are still spending, inflation does seem sticky. And to the extent that we see unemployment start to trend upwards, which hasn't happened yet, but if it were to happen, while GDP growth stays low and inflation stays high, that could lead to stagflation, which is really, I would say impossible. I say that word loosely, but hard, really challenging

for the Federal Reserve and for our government to fix. All right. Digging into some of the company results from this week, we're going to kick off with two household names and two full favorites, Chipotle and Tesla. Andy, higher prices and in the inflationary environment, not necessarily taking a bite out of Chipotle's results. Shares up 8% this week after the burrito maker posted earnings ahead of expectations. It seems like Chipotle is in this spot, and it's kind of a magical one, Andy, where almost nothing can go wrong for them. I was just going to say, Dylan, it was another outstanding report. The moving assembly line may have been made famous by Henry Ford, although not really invented by him. But Chipotle has made an art and science from the

burrito assembly line. And that's really showing up in all of the results. That winning formula is about getting people in the door or the app through the line quickly and satisfied and charging these competitive prices, which they are all doing and do that over and over again. So this quarter, they improved that throughput by two full entrees, Dylan, during the average 15-minute period. So if you think about that, that's like, what, $20 or $25 per 15-minute period? And Chipotle is just doing this time and time again. This helped drive comps growth of 7% for the quarter. That's 5% in transactions and only 2% in price. Revenue increased 14% as they opened up 47 new stores. And as you mentioned, the earnings picture, because

operating margins increased a little bit, they now have all these Chipotle lanes, the drive-thrus that they're opening up. EPS earnings per share jumped 27%. Lower food and beverages and packaging costs fell to 28.8% of sales versus 29% of sales a year ago. So with this revenue, they're getting scale. They're opening more stores. The balance sheet is packed with $2.2 billion in cash and no debt. Just so much going right for Chipotle right now. You mentioned comps, and they actually upped their comp guidance, Andy. Chipotle now anticipates same-store sales will grow by mid to high single-digit percentage, which is up from mid-single-digit percentage, which was their original guidance. The company also is focused

on that 7,000 location goal, continuing to make progress there. Is there anything not to like in what we're seeing from Chipotle? Well, maybe the price a little bit, but it sells at about 55 times this year's earnings. That's actually a slight discount to what historically is traded at. And for a company that returns equity of more than 40% and a five-year earnings compound growth of 45%. Kind of a premium price willing to pay for one of the premium operators in the restaurant business. All right. We also saw results from Tesla this week and a big-time response to what seemed like, Emily, kind of meh earnings results. Shares are up 20%. Even as the company posted revenue and earnings declines year over year and both of

those missed expectations, what exactly had the market so excited? Well, it's more like what exactly had the market so disappointed throughout the course of 2024? Because Tesla stock prior to this quarter was down something like 40% for the year. So there's an expectation heading into this quarter from investors that we knew the environment was going to be bad. It was just a question mark about how bad it was. And as you mentioned, Dylan, there was a miss in general in terms of both profits and deliveries and sales expectations for Tesla in the quarter, but the market actually responded very positively. And I think that's because the question wasn't, you know, how bad is it? But it's, where is the company going from here? Because over the course of 2024, we've seen

competition increase, especially for BYD and China. We've seen cheaper alternatives come onto the market, especially internationally in places like Europe. And we've also seen a slowing EV adoption rate. So other car manufacturers have actually pulled back in recent quarters on their expansion into pure electric vehicles, choosing to focus on hybrid vehicles. Meanwhile, Tesla's out here announcing all of these kind of cool, new, crazy initiatives like the robo taxis and having a big planned launch event for that initiative later this year. So there's a question mark from investors heading into this quarter about what is Tesla's strategy? Because for years we've been communicating, or Tesla has been communicating, that their goal is to provide

a cheap, accessible electric vehicle that can be purchased by anyone and everyone. But they are not first to the market for that. BYD has beaten them, especially internationally. So what is Tesla going to do today? And we saw that in this quarter, management doubled down on the cheaper EVs. So they're still focused on providing widely accessible vehicles with that margin being made up through upsells, things like autopilot and other AI initiatives that can actually do a lot to increase their gross margin past that of just a plain automaker. So I think it was just a matter of things not being quite as bad as investors expected and a reiteration of that strategy that has remained unchanged despite the fact that the environment they're working in right now

is increasingly challenged. Andy, I want to go over to you for a second because there were a lot of forward-looking things to be excited about in this report. Also, some things that I think we do need to note. They are cost-cutting. They're laying off 10% of their workforce. We saw this highly publicized Cybertruck recall, and we know the volumes for that are low. It seems like there's also some reasons to be concerned about this business going forward. Well, I think the push to the Model 2. That was the big news. That's the cheaper car below $25,000, say. And that's been the market that the likes of BYD and others over in China have been pushing so aggressively and done so well in. As Emily pointed to, people are looking for cheaper cars. And Teslas are really

always focused on, and Elon Musk, on the more expensive ones, including that Cybertruck. So the layoff's getting more efficiently. Emily mentioned that earlier on at the top of the hour about the layoff. So I think investors have some reasons to be encouraged because this was Tesla and Elon Musk recognizing that there's a market that the investors are looking to go into, the cheaper market, and Tesla is now going to spend time there. Whether they can get there in two years, that's when they expect to start rolling some of the Model 2s off by the end of 2025. That's pretty ambitious. But if they can get there, that's a good sign for investors. I have a higher degree of confidence we'll see an update on the robo-taxis because they gave us a firm date of August 8th, 2024.

Remains to be seen on the lower price models. All right, coming up after the break, we've got the latest trend in big tech, dividends. Stay right here. This is Motley Fool Money. You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce into a meeting-ready dashboard showing quota attainment, headcount plan, and monthly revenue to quota by region. In seconds, you'll see exactly what's behind your quota risk and fix it before it's missed. Question answered, action taken, crisis averted.

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I'm Dylan Lewis, joined again on the air by Andy Cross and Emily Flippen. If you like big numbers, this segment is for you. We've got updates on about $6 trillion in market cap coming with looks at Meta, Microsoft, and Alphabet. Andy, let's start with Alphabet. Alphabet shares up 10% this week after the company earnings results were out. It seemed like the results were pretty strong, but I have to say, a lot of the attention, a lot of the investor excitement seemed to be more about the capital allocation decisions the company's making. Dylan, it was finally a positive reaction from investors. If you look

at the last two earnings reports, the stock fell 8% and 10% the next day. Now, I'm not a daily investor, of course, but it was nice to see the reaction. A lot of that, obviously, was from the dividend launch that they announced. I think there was hope that they would, but not really the expectation. So that's nice to see in a $70 billion additional buyback. But operationally, they're really starting to get it done. Cloud was the real nice spot with revenues up 28% in acceleration from last quarter. I think there were some worries that that's not going to continue to accelerate. And profits jumping almost 5x in that business to $900 million. And so it really seems that the artificial intelligence initiatives, the AI

initiatives tied to its cloud business is really starting to help. The generative AI overlays, if you are using this in Google search is those results have led to more than a billion queries with that Gen A and it's still rolling out. They're seeing encouraging results that keep search tied in a competitive position for them or so they say. They see a clear path to monetizing more and more AI through Gemini, its new performance max tool, which is his ad campaign manager tool, all through search and ads in the cloud and their subscriptions. So all this leads to revenues that grew 15%. Company operating income jumped 46%. Earnings per share was up 62%. Search revenues grew 14%. YouTube grew 20%. That's the fastest year-over-year quarterly growth in

many, many quarters. YouTube and Google Cloud, Dylan, are now expected to end this year with 100 billion sales run rate out of about 300 billion in total sales. So it's not just search. And importantly, as we'll hear a lot, capital expenditures into infrastructure was $32 billion last year. And this year now, they're on a $50 billion run rate. That's about more than half of their earnings estimates. So, they're investing heavily into infrastructure across the board to be able to be competitive when it comes to artificial intelligence. And that's starting to show up in all of the results. Emily, you and I are both millennials and have generally grown up in an investing environment where dividends were almost a

dirty word, especially for high-growth tech companies. Alphabet following in Meta's footsteps here. What do you make of this? Well, I thought we were over this point of history, right? I mean, so many investors get started in the market because they're interested in things like dividends. But, you know, Dylan, younger investors especially, I think they want to invest in what they see as the cutting edge of the future, right? That's technology, that's the metaverse, that's growth, that's whatever it is. It's not dividends. So it's a little bit interesting to see the market respond so positively to Alphabet's news, because it just goes to show that money in your pocket is money in your pocket. And I do think that this could be a little bit of Alphabet plugging their

ears and saying, la, la, la, la, la, to the impending threat that is AI. It's an opportunity for them, but also a threat to their search business, which is part of the reason why I think they're focusing on ad-generated content on things like YouTube, for instance. But still, the fact that they are sitting here saying, we don't have a better place to invest this money other than share buybacks and now a dividend, I think speaks a lot about the capital allocation of this business moving forward. Great company, but one that I am a little bit more questioning over now, simply because they're telling us they don't have a better place to reinvest. When Andy was giving his rundown on Alphabet, he mentioned strength in the cloud.

We also saw that showing up in results from Microsoft. A little bit more of a muted response from the market on them, but it seemed like we saw really strong core earnings numbers here from the business. It's unfortunate for Microsoft. They're reporting earnings this week when we've had such big stories from our other large tech companies, because what is otherwise a really stellar quarter for Microsoft has kind of gone unnoticed by the market. It's not inherently a bad thing for Microsoft, but as you mentioned, Dylan, this is a business that continues to push in the correct direction, which is to say they're looking for what is next for the business. And yes, a lot of that focus is on cloud revenue, which, as you mentioned, was really strong in

the quarter, up 23%. And in particular, using Azure, they're gaining market share. If I'm Amazon, I'm scared a little bit personally, but it's good for Microsoft shareholders to see Azure still stealing market share, and part thanks to that dedication to their forward-looking AI initiatives. And with the launch of Copilot across so many different functionalities for enterprises and individuals alike, there's a lot to like with Microsoft moving forward. Now, I give Microsoft have a pass in comparison to Alphabet. Yes, they have a little bit of a dividend, but I feel a little bit more of a forward-looking management team when it comes to Microsoft. So I like the direction this company is headed. You know, what's interesting, Dylan, is on the call,

Satya Nadella said, we are doubling down on this very important work, putting security, I'm talking cybersecurity above all else, before all of our features and investments. Now, this is an important part because they got a little bit, not just a little bit criticized, very flatly criticized by the Cyber Safety Review Board in 2020, earlier this year, when they criticized the cybersecurity capabilities of Microsoft and pretty much said they require an entire overhaul, particularly in light of the company's centrality in the technology ecosystem. So the fact that with all going on AI spending, infrastructure spending, of which Microsoft is spending gobs as well, it is very interesting to see that they realize cybersecurity

is not a strength of theirs, or at least it needs some work, and that they are also very focused on that space and going to put real resources behind that to address these shortcomings. Andy, speaking of AI spending, we got an update from Meta this week as well as part of the big tech rundown. And I was a little surprised because they said, hey, we are heavily investing CapEx in AI. And it seemed like the market was like, yep, yep, wait, wait, wait, no, not like that. We want you investing in this space. But it doesn't seem like they were too thrilled with the way that Meta is doing it. Well, if it takes money to make money, investors certainly were not thrilled at the up to $40 billion expected CapEx this year,

a pretty large increase. And really, for pretty good reason, because again, from a percentage of income or cashflow, it's a much higher level than the other, the other larger tech companies. So, so that, I think that was a concern weighing on people as they are continuing as meta is continuing to invest in AI. Now I think it's starting to have real impacts and you start to see that things like when you start to see about their, their growth and, and, and how much impact they're having on their ad business. And that's really coming through in some of these results. Now they still have massive operating losses in the reality labs. They're not backing away from that. So you're going to see these investments in the business. But overall,

the ad business of Meta continues to be very healthy and a lot from these investments, but they are investments. And to be competitive, they got to spend the money in this space. The Metaverse won't build itself. And maybe they're taking a lesson from Roblox here, which is to say, hey, why would we spend all of our time and energy trying to build the Metaverse when we can let the robots do it for us? Yeah. So at $45 billion in cumulative losses so far for Reality Labs. Andy, I'm just curious, what needs to happen for that investment to make sense and to pay off from it? You know, what's really interesting, Dylan, is that Mark Zuckerberg on the call kind of started to group together Reality Labs and the AI initiatives and saying that they're

really tied together. I wouldn't be surprised if eventually sometime we start to see them not break out the Reality Labs disclosure. And even with all those losses, they generated about 440 million in revenues this quarter. So, you know, there's so much attention on those losses and those investments. So, you know, at some point, if they even pull back on that, you know, that might be a very encouraging sign for investors and the stock price. But right now he's not slowing down in that space. And in fact, he's doubling on it. Do you think that's why there was a little bit of pessimism around that CapEx AI spend? They're like, actually, we know what you're doing here. This is metaverse spend. This isn't AI. Well, I think for sure. And also, again,

just because the volumes were so high, but also they realize that everybody is doing it. I mean, the companies, to be competitive, continue to invest in this space, it's a lot of money. All right. Up next, the earnings rundown continues. We check out streaming and trends in digital ads. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis, joined by Emily Flippen and Andy Cross. It is one of the biggest earnings weeks in the market. Our look at the post-earnings movers continues. This time, we're zooming in on digital ad market spend and streaming. Emily, we're going to start that look with Spotify. The stellar 12-month run for this

company continues. Really strong earnings results. Looked like we saw some great revenue growth and a lot of positive user trends for one of the leading music streamers. It's absolutely mind-boggling or it should be mind-boggling to investors about just how much Spotify has continued to grow despite how saturated the business is already with over 600 million monthly active users on their platform. For context, that's like something like 13% of the global world population. And I'm not adjusting for babies and others, right? This is an incredible number of monthly active users for Spotify. Now, not all of them are premium of subscribers, only around 40% or so of those members actually pay to get rid of ads on their

platform. But as the ad market has kind of ticked up here over the course of the past year, so has monetization for the platform. So between rising subscription prices for those who are willing to pay for the platform and a better ad market, it's created just a one-two punch in terms of strong financial performance for Spotify. But despite the fact that the market has really rewarded Spotify over the past year, which is well-deserved after a couple of years of challenging growth, I will say I'm a little bit more cautious around some of the commentary that management provided in this most recent quarter. I like a lot of the initiatives they're getting into. Podcasting now pushing to become profitable this year. Audiobooks remain a great growth opportunity. But the fact

that management reiterated that they pulled back too much from advertising over the past year and they want to spend more on advertising moving forward has me scratching my head a little bit because maybe they're seeing a growth opportunity that I am missing here. But with the number of hundreds of millions of monthly users that they already have, personally, my focus would be better on monetizing and engaging those users as opposing to try to create double-digit user growth. Because I think they could run into a Netflix-esque problem if that user growth falls off a cliff, because right now, that's what the market is rewarding the business for. In recent weeks, the stock is basically

back at all-time highs, very close to them. I think shares are up over 100% over the last 12 months. It's been an incredible run. But you did mention the user growth. It seems like it's got to be saturated at some point. They've been in that magic period where they've been able to grow because there are more people using the platform and they've been able to raise prices. Emily, are you saying that we should be a little bit more careful here, maybe not expect the same type of growth and share price appreciation from Spotify going forward? I would always rather be overly cautious and then pleasantly surprised as opposed to baking in a level of growth that I think could be untenable for the company over the long term. And I do not

think this is a business that is going to see double-digit monthly active user growth over the next five years the same way they have over the previous five years. And then the question mark for investors just becomes, where does the business start to drive profits from this point forward because that gross margin is capped. So they've done a great job of reducing their costs, which has driven up profits and free cashflow for the business over the past 12 months, but that's not going to be sustainable to the extent that they continue to invest in advertising. So they really need podcasting to expand their margins, which is again, benefited by a stronger ad market, but they also need audio books to drive up engagements because those can have higher gross

margins than their pure music streaming business. I love the fact that they are in land grab mode. I want them to be the most dominant streaming platform. They are the most dominant streaming and podcasting platform, maybe one day the most dominant audiobook platform as well. I understand that takes a lot of reinvestment, but I want to hear management talk about how many hundreds of millions of people they think they can truly get on the platform because I'm pretty happy with 615 million. All right. We're going to stick with AdTalk. Shares of Snap up over 20% after the company reported 20% top-line growth. Andy, Snap is one of those companies, I feel like every time I let it fade off my radar, it goes and puts out a

quarter like this and a market reaction like this. Well, it's probably the most volatile stock around earnings that I can recall. The average move of the past couple of earnings reports have been around 20%, both highs and lows. That includes a 35% drop in February after its fourth quarter when it guided to a negative operating profit, which really sent investors fleeing, and for good reason but instead this quarter dylan it delivered around 45 million in operating profits if you measure it by earnings before income taxes depreciation and amortization and its guide for the next quarter is ahead of analyst estimates as well so that's why the stock reacted so positively but this is a really volatile stock especially around earnings season but the quarter was quite

positive daily active users up 10% to 422 million. And Snapchat plus users, that's their subscription business, that more than tripled to 9 million. From what I read, that was really far ahead of what analysts were expecting. Ad revenues were up 16%. Total revenues up 21%. So you can see they're starting to get more and more efficient with how they are driving revenues relative to who they are coming in. That's also much better than it was in the fourth quarter and far better than it was in the first quarter a year ago, Dylan, because that was a negative number. So they're lapping some weaker comps per se, but still overall pretty good quarter. Spotlight and creative stories viewing, that was up 125%. They did mention augmented reality. More than 300

million users engage with augmented reality every day on Snapchat. So I'm not quite sure what that is, but they have a lot of people engaging with that. I mean, $400 million daily overall and $300 million using some kind of form of augmented reality. What was interesting, Dylan, is the gross margin was lower because of infrastructure investments. That's what we heard constantly about these companies making more and more investments into their business, into their infrastructure, regardless of what it is. So that really continues to hit, but their operating margin strength was great because of further restructuring they've done, including with 7% fewer employees than a year ago. You mentioned the Snapchat Plus subscription

offering, and I want to zoom in on that for a second. You pointed out 9 million subscribers. As it relates to the financials, 87 million in revenue for the other revenue category for them, not ads. Primarily, that is their Snapchat Plus subscription. It is small in the grand scheme of the overall revenue pie. But I think a lot of people have looked at Snap and said, there's a loyal user base here that continues to use the product. Are you encouraged by them looking for other ways to monetize it outside of ads? Yeah, it's small. It's a drop in the bucket right now. However, that was one thing that all these companies that are so ad-driven, because the ad market can be so fickle, that's just one thing they need to continue to focus on

to help to drive other subscription parts of their business. One interesting kind of commentary was around the engagement around small and medium-sized advertisers. Now, again, so thinking about the ad market and the concerns around who is spending for advertising, the ad market, what they said on small and medium-sized advertisers, those active advertisers on the platform were up 85% in the quarter. So that's encouraging. You start to think about the platform and all these monetization efforts they are trying to do. You got to get the advertisers on the platform, not just the users.

You got to get the advertisers. And so when the advertisers are fleeing to the platform, they're seeing something. So maybe these investments that Evan Spiegel and his team are making are starting to play out. They're starting to make more and more investments into the platform, into artificial intelligence and the like, as well as what we saw from Meta. and maybe that's starting to have an impact and it's starting to help their advertisers be more efficient in their in their spend that they have on the platform which is why they're there in the first place all right so we've had looks at audio ad spend social media ad spend now we're going to look over at video and streaming ad spend emily shares of roku down eight percent this week after

earnings a lot of the results were ahead of expectations but the company did warn that competition is heating up. Is this the impact of streamers like Netflix and Prime beginning to explore those ad-supported options? Competition. Competition for Roku that has more than 50% market share in the North American, you know, at-home TV, smart TV market? No. I'm actually, it's funny to me when a business comes out, they report earnings, and then headlines get a cold of maybe one or two sentences that they then attribute the underperformance too. In this case, we're actually seeing a lot more of the same for Roku. The underperformance, in my opinion, comes down to the inability to expand streaming margins in the

quarter. This was a strong ad market. We've seen it from businesses like Snap, which Andy just talked about, as well as others, Spotify being another good example. For some reason, Roku's gross margins just did not move in the same direction as other ad-based platforms. There was this question mark about why. And there was a commentary from CEO Anthony Wood, who did note that they were seeing a little bit of a headwind in terms of expanding that margin because of the number of ad-based streaming platforms that were available to subscribe to. But they also attributed it to, which I think is the larger impact of those price hikes, lapping, challenging price hikes at this point last year. So they had a lot of growth at this point last year because as businesses like

Netflix and others raise their subscription prices, if you buy those subscriptions over the Roku platform, Roku gets a cut of it. And if the price of that subscription goes up, naturally Roku's revenue goes up as well. They're lapping challenging comps at this point last year, which meant that that margin didn't quite move in the same direction as other ad-based streaming platforms. And while it's true that these ad-based options, things like ad-based Amazon Prime being a good example, or ad-based Netflix, are lower margin, lower revenue share for businesses like Roku. If you're going to have ads on the Roku platform, you still have to enter an inventory split with Roku in the first place. So regardless of whether or not people are watching via ads or

subscriptions, Roku is still getting a cut. So the most important metrics, in my opinion, for Roku shareholders are just watching those engagement numbers, watching their market share. Market share continues to expand their Roku-branded TVs while dragging those platform margin or those hardware margins down will help support higher platform margins over the long term. At least that is the thesis for this business. So remain focused on what matters and ignore the silly headline saying a thing like ad-based platforms that are hurting them because in fact, it's all supporting the same narrative. All right. Taking a step back and looking at the results from Spotify, Snap, and Roku all together, Andy, what I'm seeing is a lot of strength in the

ad markets and a lot of these businesses feeling pretty good about the back half of 2024. This is an election year, which means we typically see elevated ad activity. It seems like the consumer spend story is holding up. Do you feel like the rest of the year bodes fairly well for ad-based businesses? Compared to what we saw near the end of last year, when there was a lot of concern from some of the ad tech companies on how much activity would be available from clients to spend on platforms? Would they be more cautious going into a period when the interest rates were high? This is before a lot of talk about the Fed rate cuts. So I think there were some concerns around that, Dylan. And now we're starting to see that these platforms are so large and online and video

and streaming advertising is such a new way to reach other clients, including, by the way, retail. When you look at what's going on with Walmart and Amazon and retail ad spending on on retail platforms, that's a really exciting spot to it. And I'll be very interested to see what Amazon reports on their ad business that's done very well. So I think the ad market is starting to slowly kind of show up and come back. And like you said before, going into an election season, which tends to be quite good for ad businesses, that bodes well. Now we'll have to see how all the AI concerns around advertising on different platforms for elections and concerns around that impact this. But overall, a pretty good spot for the ad market right now, it seems.

Well, it really depends on where you're situated in the ad market too, because electioneers are good for ads because guess what? Everyone's trying to reach consumers, right? Voters. So you look at things like Roku with connected TV being a good example, or even Spotify, YouTube, all the businesses we've talked about, those all benefit from higher ad, click per cost ad spend, right? Because they're trying to reach voters. That happens during election years. But when you talk about Etsy and Amazon and these other ones that depend on enterprise ad spending, right? I'm spending more money to get my product in the face of consumers. That gets increasingly expensive for those companies in a tougher

environment. So they may actually pull back on that spending because they're not reaching consumers as effectively as they would be in non-election years. So I think it helps some ad businesses, but could actually potentially hurt others. All right. Coming up after the break, We've got an earnings look ahead, and we've got stocks on our radar. Stay right here, 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 anything based solely on what you hear i'm dylan lewis joined by emily flippin and andy cross we've

covered eight different major results from companies this week but the party continues next week. We've got Apple, Coinbase, Amazon, McDonald's, Starbucks, a lot of big names reporting next week. Andy, as you look out to some of the companies that'll be providing updates, anything in particular you're watching? Well, the big one, I think one of the big ones, Amazon, you mentioned there, what's going on with their cloud spending. You see the acceleration in cloud growth from Google, from Alphabet, and from Microsoft. So is that taking share or not? lots of game of thrones going on with these tech giants it seems and then obviously in their advertising spend which i mentioned before is uh really starting to come on i think they're like

one of the third largest advertising platforms out there right now so so very interested to see what goes on with amazon from that spend and then also starbucks i talked about chipotle and how great and dylan we you had mentioned their comp growth and their expectation for continuing comp growth how does that impact starbucks and what are they seeing in the marketplace when it comes to that comp growth? Can they be competitive and still continue to drive higher comp growth when it comes to their overall business? Emily, what about you as we see earnings continue? What are you watching? There are so many great consumer-facing names that are reporting next week, but honestly, I'm kind of bored by those companies. We already

know consumer spend from all of our GDP data has been strong, right? So I kind of expect for a lot of these consumer-facing businesses to come out the gate with decent results. It's on par with what we've seen already. So I'm interested in those kind of enterprise-looking businesses, the ones that are looking to sell to other companies, because that's where I think we'll start to see some of the economic pressure. And I'll pull out a name here that I think is interesting, almost like a second radar stock, if I can. It's Aon. A-A-O-N is their ticker. And they are kind of a specialized HVAC manufacturer for large-scale industrial projects. And they make these custom HVAC. It's been an incredibly strong-performing business operating in a

really interesting market, but one that admittedly depends on a lot of CapEx spending that is not related to things like data centers or GPUs. So I'll be interested to see what that kind of actual industrial CapEx spend looks like next week. I think Emily just found a loophole to getting a third radar stock or a second for herself into the mix. Let's get over to our formal radar stocks and maybe Dan will have a question about that too. Andy, what are you watching this week? Dan, not new to you, I'm sure Visa, $550 billion largest payment processor doesn't need much of an introduction but it's one that i've never personally owned preferring the smaller master card and visa continues to put up these robust growth numbers 10 eps growth you know

kind of per year for the last few years and the stock has pulled back from 290 to about 275 or so so i just think it's really interesting it's issued 4.3 billion credit and debit cards it processes more than 280 billion payments across this network payment volume was of eight percent last quarter, and their earnings were up 17% on top of 9% growth, pays out nearly $4 billion in annual dividends, bought back $12 billion in stock last year. It's a long-term earnings growth. It's compounded at more than 10% for the last few years, has a price-earnings ratio of about 26%, with pretty low volatility, obviously lots of regulation concerns, and the potential merger of Cap1 and Discover. But Dan, I think it looks pretty attractive at these prices and definitely

worth considering. Dan, I've got this one in my wallet and I'm guessing you might too. A question or a comment about Visa? I mean, what can I ask about Visa? It's a titan. It's a shoo-in for a potential radar stock win here. Come on, Andy. Come on. Well, what I'm hearing there is, Emily, bring it. What's on your radar? You got to beat Visa, which is a titan. Here's what I will say. I didn't think I could pick something more boring than Visa, but I do. I have managed to outdo Andy's boringness because my radar stock this week is Tyler Technologies. The ticker is T-Y-L. You may not be familiar with the name, but they are an enterprise software provider for federal, local, and state governments. And that sounds very boring, and trust me, it is. But let

me sell you on something. Have you been to Georgia? How about Palm Beach? Have you been to Idaho, Juneau, Alaska? All of these cities and counties rely on Tyler Technologies to supply their everyday transactions and enterprise software operating behind the scenes. And if that doesn't get you excited, Dan, honestly, I don't know what will. Dan, a question about Tyler Technologies. I think Emily is trying to sneak in a lot of Texas into today's show with Aon having a factory in Texas and Tyler Technologies being based in Texas. And Emily, you're not fooling me, okay? I'm a Texan through and through. What can I say? Dan, which one's going on your watch list this week. We've got Visa, we've got Tyler Technologies, or if you want to go off-menu with Emily's other

one, Aon. I mean, it's a snooze fest through and through today, Dylan, but what can I say bad about Visa? It's a great company. It's a huge company. It's got to be the winner. There you have it. It's a titan. Emily Flippen and Andy Cross, appreciate you guys being here. Dan, appreciate you weighing in. 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. Thank you.