Motley Fool Hidden Gems Investing - Facebook's Next Chapter?

Episode Date: July 27, 2018

Facebook plummets on slowing growth. Amazon rises on record profits. Chipotle serves up big earnings. Atlassian surrenders to Slack. And Spotify tries to produce sweet music for investors. Our analysts discuss those stories and weigh in on earnings from Twitter, Electronic Arts, GrubHub, PayPal, Starbucks, and Under Armour. Thanks to LinkedIn for supporting The Motley Fool.  Go to https://www.linkedin.com/fool and get $50 off your first job post. Learn more about your ad choices. Visit megaphone.fm/adchoices

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based on more of who they really are, their skills, interests, and even how open they are to new opportunities. For $50 off your first job post, go to linkedin.com slash fool. That's linkedin.com slash fool. Terms and conditions apply. 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 chris hill joining me in studio senior analyst david kretzmann matt argosinger and aaron bush Good to see you as always, gentlemen. It is earningspalooza. We've got so many companies with earnings news. We don't even have a guest this week, but we will dip into the full mailbag

and, of course, give you an inside look at the stocks on our radar. Social media stocks the headline this week. So, let's start with Facebook. After the social network issued its second quarter report, Facebook's market cap on Thursday fell by $119 billion in terms of market cap. That is the single worst day in market history. And David, a lot of parts of the story. But I mean, in terms of that fall, the chief financial officer made it very clear that Facebook's revenue is going down by high single digits sequentially for the foreseeable future. David Gardner Yeah. So, 42% revenue growth for this quarter,

which is an astounding number for a company that's already as big as Facebook. And that number, I guess, could go down closer to 25% or 30% by the end of the year. So, we're definitely seeing a slowdown there. What also stuck out to me is that they're guiding for their operating margin to drop from about 50% today, which let's just take a step back and recognize that's an incredible number. They're basically twice as profitable as Alphabet right now. So, that is an incredible achievement. But over the next few years, they're guiding for that to go down to the mid-30s. But even if they drop down to an operating margin of 35% in the next few years, that's still above where Alphabet or Microsoft have been at any time over the past five years.

So, I think we need to take a step back and take all of this in context that Facebook is still a dominant platform. They're seeing a growth in their user accounts, user engagement, and this is still a very profitable company. Yeah, it's funny because they've been telling us this is going to happen, right? And here we are, and it's happening. So, I think that's important to keep in mind. I do think that there is some truth to the fall. I think we are seeing not that Facebook itself is peaking, but Facebook specifically, the platform in the U.S. and maybe in Europe, that might be starting to near a peak with user growth tipping off. So it makes it more important that Facebook's other areas, Instagram, pick up the slack for a long time coming forward.

And it also puts more pressure on them to figure out, what do we do with WhatsApp? What do we do with Messenger. If investors are starting to get antsy about future growth, then they need to figure out how to step up in other ways. Yeah, let's just remember to take more things in context here. I mean, we are back right now, Facebook is at levels, I think, a few months ago when the whole Cambridge Analytica thing came out and Zuckerberg was testifying in front of Congress. And so, we're just at that level. So, I feel like the market cap that has been wiped away, which is still an impressive number, but that's what Facebook has grown in the last three months, which

is astounding by itself. Well, and as you said, Aaron, Mark Zuckerberg has been very clear about this, very open about this, saying, we're going to be spending a lot more money, we're going to invest in technology, we're going to hire thousands of people. So, you can sort of look at the fall in the stock and say, well, wait a minute, we knew this was coming. It is a different thing, though, when the CFO really spells out in very clear numbers, this is what it's going to look like. It's one thing to say, our margins are probably going to come down. Once you start to put real numbers against it, then I think that's what caused what we saw on Thursday.

Yeah, something that Mark Zuckerberg reiterated on the call is that they're running Facebook for the next several years. They're not trying to juice results for the next quarter or two. And that really came through in this conference call. And I think as capital-left foolish investors, business folks investors, that's what we like to see. And in the meantime, time, Facebook will probably still continue growing earnings above 20%, potentially even 25% or 30%. And right now, the stock is just trading for a forward PE of 24X. So, I would argue that a lot of the pessimism and that slowdown in growth is already priced in. Earlier this summer, Twitter announced it is purging its platform of fake accounts.

And on Friday, Twitter's stock purged itself of nearly 20% of its value. Their profit for the second quarter? It was there, Matty, but their monthly active users are down. That's right. It's another story where I think we should have expected this. We were going to see this, and we knew it. And when the news finally hit, it was like, buy in the room or sell in the news. And the news came out, and obviously, investors sold the stock. But again, with monthly active users down a million, and of course, they guided for a few million more losses, I think, in the coming quarters, I don't think that's the metric the market or investors should be focusing on. For one, daily active users, and we know Twitter is much more

a real-time platform. People are going there for the news as it's happening, sports as it's happening, culture as it's happening. That number was up 11%. That's pretty strong. And then, you mentioned the earnings. Well, revenue was up 24%. We expected to see that Twitter was finally getting traction with their advertisers, and that's happening. And I do expect that, we're not going to call Facebook Fallout, but I do feel like there might be a shift going on, that advertisers are looking for other platforms, and Twitter should be a beneficiary. I'm glad you mentioned that, because it really does seem between, less so with Twitter, but certainly more because of Facebook,

because we've started to see some reports here and there of advertisers moving their digital dollars away from Facebook in the last couple of months onto other platforms. Doesn't it really seem like the table is set right now for other companies? And I'm thinking mainly of Snap, but really any business that's trying to make a big push into digital advertising, if you've got media buyers who are now maybe hedging a little bit or pulling back some of that spend with Facebook. Aaron, if Snap can't get it done in the next six months, it's time for them to fold up the tent and go home. Yeah. I tend to agree with that. Snap has not been very impressive at all, and I do not have confidence that they actually will

take this opportunity and do a good job with it. But I mean, there are so many other big players out there. I mean, YouTube could easily steal a lot of that. They've had some issues of their own, but they seem to be on fire, too. So, if others fall, then they could hit it big, but we'll see. And to give Jack Dorsey credit, Twitter's cash flow situation has dramatically improved the past couple of years. It produced $1 billion in operating cash flow over the past year. The company is sitting tight with about $3 billion in net cash. So, from a cash perspective, the business is as strong as it's ever been.

And Amazon shares hitting a new high this week after its second quarter report. Web services keeps chugging along, Aaron. But speaking of advertisers, Amazon's advertising business is starting to rack up some serious numbers. Yeah, I mean, I think my biggest takeaway from this quarter is that it's just so hard to have any takeaway, because they're doing so many different things. I mean, their growth is so impressive. They grew revenue at 39%. Some of that is acquisitive from last year's Whole Foods acquisition, but a lot of that

is organic, and it's because they're doing a great job scaling U.S. retail up 44%, international a little less than that. AWS is still on fire, more so than any other cloud platform out there. And yeah, they're trying all these new things. Advertising is ramping up. They have Twitch in the background, which might be a part of that, but ramping up subscriptions in its own right. they i mean like prime day even though it had bugs this past quarter was still their largest event

ever and so they just have all these tailwinds they continue to acquire they've made a pill pack acquisition um this past quarter it's just so hard to summarize because there's so many things going on but i do think one thing that is important to keep in mind is that jeff bezos is known for saying this quarter is great because of things we did two years ago and because we're seeing all of these things that they're doing now, it gives me confidence that two years from now, we'll be seeing pretty good results then, too. What stuck out to me is the fact that Alexa probably got 15 times the mentions of Whole Foods. I mean, you go back a year ago, we were just losing our minds over Amazon acquiring Whole Foods. And now, Whole Foods

is really just kind of an afterthought. It gets like one or two mentions in what's a really long press release. It's not even mentioned in the prepared remarks of the conference call. I think at this point, Whole Foods is really just becoming a loyalty extension of Prime. And as a Prime member, I'm happy with that. But it's just interesting to see how much can change in a year. Alphabet's second quarter revenue rose 24% there. Other bets division was up 40%. Shares of Alphabet hitting a new high this week. Market cap now closing in on $900 billion, Matty. Speaking of a large company that's still growing at just an incredible rate, If you look at the core advertising business, up 25% to $28 billion, that's 86% of their total revenue.

The other segment within Google, which includes their cloud business, that was up 37%. I can't believe the amount of growth, the rate of growth that we're talking about on this radio show. Given the size, even the market caps of these companies, it's so impressive. And I had to double-check this, but DK, before we taped, said, I think Google has over $100 billion in cash. And sure enough, they do. And in fact, if you back out just the modest amount of debt they have, $98 billion in net cash. Or another way to look at it, it's 20 more years of EU fines that they can pay. So, I mean, it's a staggering number, and that gives that business so much optionality.

Well, and optionality, I think, is the key word. Because when you think about Alphabet and you think about Amazon, I mean, great quarters they put up, and also very visible issues that they each we're dealing with in recent months. Obviously, Alphabet with the fine. As you mentioned, Aaron, Prime Day, they had a couple of good years in a row where Prime Day didn't really have any bugs, and they broke that streak this time around. It's almost like when you have that kind of optionality, you can survive these types of blips. Oh, my gosh. And then you can really make big forward-looking investments like Waymo, which is probably going to have some serious milestones this year. The other bets, which

includes their medical science business. I mean, it's just, there's so many things going for it. And yet, you have a business that, if you back out that cash, now, it's not always smart to do that, but if you back out that cash, you're talking about a company that's trading for about 25 times this year's forward earnings, growing the core business over 20%, probably for at least the next several years. Yeah, and what's really impressive to me is the fact that 90% of the company's revenue still comes from that core advertising business. And that business will probably continue growing at above average rates for at least another decade, if not much longer. So in the meantime,

if Waymo hits, if their unicorn or venture investments really grab hold, any of those other projects, those are really just the cherry on top because the core business is still incredibly attractive. Up next, we've got music, video games, and a little something just in case you're hungry. Stay right here. You're listening to Motley Fool Money. All right, quick word about buying a home. Because of rising interest rates, there's a lot of unpredictability when it comes to buying a home these days, and it's causing some anxiety. And our friends at Quicken Loans are doing something about that. They're calling it the power buying process. And here's how it works. Quicken Loans will verify your income, assets, and credit in less than 24 hours to give you a verified approval.

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Additional conditions or exclusions may apply based on Quicken Loans data in comparison to public data records. Equal housing lender, licensed in all 50 states. NMLSconsumeraccess.org, No. 3030. Welcome back to Motley Fool Money. Chris Hill here in the studio with David Kretzmann, Aaron Bush, and Matt Argesinger. Second quarter revenue for Spotify came in 26% higher than a year ago. Spotify has now more than 80 million paid subscribers. That looks good, Aaron, but they're still not profitable. Nope. And that's kind of a problem. I think they are doing a good job, just they're in a difficult position. So what was impressive about this past quarter is that

they grew their monthly active users and their paying subscribers by 30% and 40%, respectively. That's important. But perhaps less impressive is that revenue growth was not nearly that high. And so they're not making as much money per user that they have. And even worse than that is that they're not really making that much progress in their gross margins. They're still really low, about 25%, 26%. That is where the largest problem is, and that is what is crippling their profitability. I do see a path to them improving this. The more people that join them, which they are achieving, gives them perhaps a higher chance of making exclusive deals. I do think the future of music is shifting the power away

from people who own the music to people who own the listeners. The more that they can own the listeners, the more power they'll have over getting those exclusives, and even more than that, negotiating prices with those who own the music. I do think that they might be making progress there, but it's not very evident, and they're still in a tough spot. We've talked before about video streaming, Netflix, Hulu, Amazon Prime, etc., as not being a zero-sum game, that people do and will continue to have multiple subscriptions. It seems like that's not the case with music. You're going to get one streaming service, and that's probably all you're going to get. I think so. At least right now,

that makes sense, because they tend to have the same content. Maybe one day in the future, if Apple and Spotify are competing, for example, for exclusives, there might be a reason why someone would have more than one. But I think now is the time when lock-in is most important, they must chase that. Yeah, as Aaron's talked about, it's really with the ownership component that I think separates, say, video content from music content. And so, the reason people are willing to pay for Netflix, for Amazon, for Hulu, Disney, is because there's just that content that only exists on those platforms. And for music, it's not quite there yet. And maybe, as Aaron said, maybe the network eventually gets big

enough for Spotify to actually accomplish that. Electronic arts, first quarter profits came in higher than expected, but that got outweighed when EA lowered guidance for the second quarter and the full fiscal year. How concerning should people be about this, David? I wouldn't be too concerned about this. I mean, the company over the past year has generated over $1.5 billion of free cash flow. They're sitting on about $4 billion in net cash. So, the underlying business is still very strong. The video game business is lumpy, quarter-to-quarter and year-to-year, just based on the timing of game releases and things like that. But we just wrapped up the World Cup a couple of weeks ago. But now,

next week in London, the FIFA eWorld Cup Grand Finals will start, where the 32 best FIFA players in the world will descend on London. Over the past year, competitive FIFA games have attracted 20 million players from 60 different countries. So EA really trying to generate a lot of engagement with their games. And ultimately, in the coming years, the company wants to connect 1 billion players worldwide. So, that larger vision at the company, backed by those strong sports titles as well as other action shooter games like Battlefield, I think there's reason to be optimistic. One other thing to keep in mind is that over the past couple of years, EA has made a ton of money off of loot boxes and has received a lot of criticism for that. So,

they're very quickly trying to not do that again and to figure out how to make money in a recurring digital way through other things. And I think part of this change has to do with trying to figure that out. That's not good for this year, but I think ultimately that actually does lead to healthier growth, because it means that they're not going to be making people mad. So, that's kind of important. I mean, they still have tons of great franchises, and that's not going away. Yeah, speaking of that, one business model tweak that they're looking at is subscription gaming. So, essentially, you subscribe, you pay a flat monthly fee, and you get unlimited

access to all of their new titles. That's something they're rolling out on the PC next week. I think we'll see more of that in the years ahead. Grubhub's second quarter revenue rose more than 50% compared to a year ago, and shares of Grubhub up nearly 20% this week. They're doing well, Matty, but this is starting to be a really pricey stock. It is, but gosh, I feel like they've earned the grub stake that they have in the market now. You mentioned the revenue number. The number of active diners up 70% year-over-year to 15.6 million. They now have over 85,000 restaurants in over 1,600 U.S. cities and

London. That, to me, is a pretty sizable network. And so, when I thought about Grubhub in the past, and shame on me for not taking a bigger look and buying the stock myself, but I always thought you've got competition between, you've got Uber Eats, DoorDash, Amazon's got a meal delivery as well. It just felt like this was a hyper-competitive market, and it was going tough to make a lot of headway and certainly any margin in it. But Grubhub has certainly separated from the pack. And I think the network they're building now, they certainly are the leader. Shares of Atlassian, the enterprise software company, hitting a new high this week. Atlassian issued strong results in the fourth quarter and announced a new partnership with Slack.

You tell me, Aaron, which of these is more significant? The Slack deal is definitely more significant. So, over the past several years, Atlassian has competed with Slack through their HipChat and Stride products, but they've never really been that successful in making that as popular as Slack has been able to make their own products successful. So what they're doing is they're essentially selling the IP of those two products over to Slack. Slack's going to pay them a bit for it, but then Slack is going to shut those two products down and just roll those users into Slack, I guess. But through this, Atlassian is actually taking a stake in Slack. So, this is really the end of competition for these two

companies and the beginning of collaboration. And I think that's a big deal. Both of these companies now focus on two different parts of enterprise collaboration software. And I do think we'll be able to see more integrations over the next few years. And I think that's going to be a big deal. Yeah, it is so rare to see a company that accepts the fact that they have the inferior product in the marketplace. To a smaller competitor. Right, and immediately says, you know what, we're shutting down our own products, or at least we're going to do a partnership deal, and we're going to adopt their superior product and see if we can work together. I mean, it's a fantastic decision by Atlassian.

And I would just say, too, that Atlassian also makes tons of money, and they've done such a good job rolling up other competitors, too. So, they're kind of in a deal-making kind of zone. So, I expect this will free up more cash so that they can then put to use in areas they can dominate even more. All right. David Kretzmann, Aaron Bush, Matt Argersinger. Normally, this is part of the show where I say, thanks for being here. But no, you're sticking around because earningpalooza continues to roll on. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Matt Argersinger,

David Kretzmann, and Aaron Bush. New radio station to welcome to our family of affiliates, News Radio 1240 and 93.5 FM WTAX in Springfield, Illinois. Welcome to the Motley Fool Money family. All Starbucks did in the third quarter was post record profits and record revenue. Shares of Starbucks up a little bit on Friday, Matty, but it's not really getting the response that we've seen, certainly when you're posting record numbers. Right. Mainly because they pre-announced pretty much all of this about a month ago. And I remember that day, the stock got hit pretty hard, and they guided their comps down, and that's kind of the news that's kind of just flowing out of that. And the 11% increase

in revenue, which took them up to a record, it's mostly from new store openings and the fact that they consolidated their East China business, which was previously licensed, and those are now owned and operated stores. And so, yeah, there's not a lot to like, actually, about this release, because we know that comps have been trending down. Well, they were down again, only up 1% in the current quarter. What's interesting here is that China comps, which have been so strong, were actually down 2%. That was surprising. And on the call, management talked about the fact that in China, they're really just focusing on new store openings right now. They feel like a lot of their new stores in very urban-dense cities

like Shanghai and Beijing were kind of cannibalizing some of the older stores. They're okay with that right now, because they're really just focusing on the footprint. So, there's that to worry about. Again, we just want to see those comps bounce back. And the trend is right now not in Starbucks' favor. It's really not, and it sort of seems like it's almost like they need to clean up their house a little bit over the next couple of quarters. And I'm a shareholder of Starbucks, but I look at this company and I think, I don't really have any expectations for the rest of 2018 for this one. I agree. I think domestically, they probably know that they've overextended in certain

places and they need to roll back. One bright spot in the U.S. is that they're finally seeing growth in their digital platforms. They now have over 15 million active Starbucks Rewards members, and that's up 14% year-over-year. It's been a while since we've seen that kind of growth, and they have more plans over the next year to revamp that digital platform. I think that'll be key. Shares of Chipotle up 4% this week after a solid second quarter report. Chipotle's same-store sales were up due to higher average tickets. So, David, foot traffic down a little bit, but it looks like Chipotle's exercising a little bit of pricing power. Yeah, and I'd say that the biggest

bright spot for the company right now is the fact that they're going all-in with their digital platform and their initiatives there. And they're seeing some nice traction. So, now they have 4 million monthly active users on their app or their website. That's up 65% so far this year. Digital sales this quarter were up 33%, now making up over 10% of revenue. And now, they have a second line in the back of the kitchen that's plugged into that digital platform in over 500 locations and more to come. So, those digital tools, I think, really help engage customers, keep people coming through the app and the website much more convenient. They're also testing out pickup shelves, similar to Panera, so you can order

online, walk right into the store, and pick your food up off the shelf. So, they have that rolled out. And a few locations in New York will probably be coming to more locations soon. What about the queso? Have they fixed that? Have they done anything to fix the queso? All they'll say is that queso is still a positive contributor to sales. I personally haven't tried queso in about six or seven months, so I might have to try the recipe again. I can see Mac shaking his head behind the glass. He's obviously not a fan of queso. That is the investor equivalent of damning with faint praise. That's about as as faint as it gets. PayPal's stock hit an all-time high this week after strong second

quarter results, but guidance for the third quarter sent the stock falling. PayPal's chief operating officer said that some investors misunderstood their guidance. What do you think, Aaron? I think they might have misguided their guidance. I mean, this quarter itself was really strong. Revenue grew 23%, earnings grew even faster. By all key metrics, they're making steady progress. They added 18% more accounts year-over-year, and the number of transactions grew 28%. That tells me not only are they adding new people, but the users who use PayPal and their services are using them more frequently. There's a strong network effect going on there. I don't think that's

going to go away. I think it's also important to mention that Venmo has been on fire. Their Payment volume was up 78% year-over-year, and it now represents a quarter of all of PayPal's payment volume. And so, I do think part of the slowdown could come from just a natural slowdown in Venmo, now that it is becoming a larger part of their payment volume. But they do have a lot of other stuff going on. They announced a $10 billion buyback, which told a lot of investors that, like, wait, you don't have anything better to do with $10 billion? That was my reaction. This is a relatively young company. It's got a market cap of $100 billion. That was exactly what I thought when

I saw that. Like, really? You've got nothing else to do with $10 billion? Yeah, so I don't know really what to make of that. I will say, though, just in the past quarter, they have made four acquisitions, and they've made plenty of acquisitions before. So, I don't think that is true, that they don't have anything to do better. I just think that gushing lots of money is a good problem to have, and they're just figuring out what to do with that. International sales for Under Armour rose nearly 30% in the second quarter. And that's good, Matty, because here in North America, Under Armour sales were barely positive.

Right. And barely positive, considering we had three consecutive quarters of negativity in that number, is not bad. But yes, I think after Nike reported last month and reported fairly good North American numbers, I expected Under Armour to do a little better. It's nice to see the growth, but the international is where it's happening right now. I think Under Armour has a lot to do to fix its North American business. Overall revenue growth of 7%. When you factor in all the restructuring they've done, the debt they built up on the balance sheet, the inventory issue they're still facing, it's not a great number, especially when Nike and other competitors are growing about twice that rate. And so, I feel like Under Armour still has a lot of work to do.

Well, and that's the thing, where you sort of felt earlier this year that 2018 was going to be pretty pivotal for Under Armour for a lot of reasons, one of which had to do with just sort of management and the team that Planck has put around him. And can he put that team to use, and can he keep them in the building? Yeah, keeping being the operative verb. Exactly. But it does seem like, coming into this, like, OK, maybe they are finishing their cleanup work and then they can sort of unleash the business, but it still seems like they're not nearly at that point. No, yeah. I mean, maybe as we get closer to the holidays, maybe this could be a final nice push

for the second half of the year. But all evidence that I saw, at least on this quarter, is that it's still a work in progress. Coming up, we've got a few thoughts on self-driving cars and a few stocks on our radar. Stay right here. You're listening to Motley Fool Money. Quick shout-out to LinkedIn. The right hire can make a huge impact on your business, and that's why it's so important to find the right person. And where do you find that individual?

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And that's what you want. You post to job boards and you hope you'll find the right person for your job. But be honest, how often do you check job boards? For most people, it's an every now and then kind of thing. But LinkedIn is a place where people go daily to explore job opportunities and to grow professionally. So hurry on over to linkedin.com slash fool

for $50 off your first post. That's linkedin.com slash fool. Terms and conditions apply. That's money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill, here in studio with Matt Argersinger, David Kretzmann, and Aaron Bush. Quick shout-out to producer

Mac Greer for hosting the show last week, and to Ron Gross for hosting the week before that. Well done. Good work, guys. Yeah, I mean, they did so well, I was kind of thinking, maybe I'll just stay on vacation. Second quarter profits for Tractor Supply came in higher than expected. David, I get that selling equipment to farmers and ranchers is not the sexiest business in the world, but Tractor Supply's stock has had a good run over the last 12 months. Yeah, up 43% over the past year. And this was a great quarter. Same-store sales up 5.6%, which in a relatively challenging retail landscape shouldn't be overlooked.

And I think the company really has a formula for surviving and thriving in the age of Amazon. Like you mentioned, they have a specialty retail focus. They're going after farmers, gardeners, ranchers with e-commerce, with their strategy there. They're using their stores to their advantage. So right now, buy online, pick up in store makes up 70% of their e-commerce orders. And by the way, they've had 24 straight quarters of double-digit e-commerce sales growth. It's still a relatively small piece of the overall pie, but they are seeing some progress there. And then finally, they also have a loyalty program, the Neighbors Club, which has 8.7 million members.

And those members spend three to four times the average of non-loyalty members, and they're aiming to get 10 million members by the end of the year. One other cool thing that they're doing in their store is that they have kiosks. So when you're walking through the store and you see an item that's not quite the right size or fit for what you're looking for, you can just order online through that kiosk. So, definitely thriving in the age of Amazon, but are they going to thrive in the age of Trump and all these tariffs that are probably coming and, well, that are coming and kind of hurting potential agricultural exports in the U.S.? I was just wondering if there's any comment about that on the call or in the release.

It definitely came up on the call. I think that'll be something to watch, especially for those bigger-ticket items like mowers or larger pieces of equipment will suddenly be a lot more expensive if those tariffs go through. But at this point, I mean, they actually raise guidance for the rest of the year. So, clearly, they're still optimistic. See, Matty, that was your thought listening to David. My thought was, I didn't think I could feel worse about Starbucks' loyalty program until David mentioned that Tractor Supply, which I'm just going to go out on a limb and say is more of a niche market business than a company that sells coffee. Tractor Supply's loyalty program has 50% as many people

in it as Starbucks. And it just launched a few years ago, too. It is confounding about Starbucks. I mean, we should almost send a question out to our dozens of listeners. How many are Starbucks Rewards members? It feels like it should be bigger, and yet Starbucks just doesn't have a very sizable number. It doesn't make sense. You can drop us an email, radio at fool.com. You can hit us up on Twitter, at Motley Fool Money, not just with the Starbucks feedback, but also send us a question. We got a question from Bryant Conger, who writes, when it comes to self-driving cars, who are the market leaders and are there alternative

ways to play this industry? You guys rock. Thank you, Bryant, you rock for listening. Self-driving cars, where are we now? Because I'm the old man at the table, and I just look at self-driving cars and I think, probably not for me in my lifetime. Oh, I think certainly in your lifetime. We mentioned Alphabet and Waymo, and there's Uber doing a lot. I think for self-driving cars, at least in the next five to 10 years, I think you have to look outside the U.S. And I'd say, you particularly probably want to look at China. And you want to look at things that Baidu is doing, or a company called BYD, which is a big electric car manufacturer in China. I say that only because China is going to be a lot more open,

I think, to experimenting, testing, and ultimately rolling out autonomous vehicles much faster than we are going to be able to do that here in the U.S. I think it's going to take a long time for this to fully catch hold. But I do think that there is an in-between zone. It's not like this is a light switch where you suddenly turn it on and all the cars start driving themselves. So I do think that there will be a ramp-up period where maybe in certain areas you can have self-driving cars do certain things, and then it slowly starts to build. And I do think that Waymo has a good start right now, and they'll probably do a good job partnering with a lot of others. I mean, Tesla is working on it. GM acquired Cruise and is working on it. Ford recently consolidated

some efforts there, too. So, everyone is thinking about it. Yeah, I'd say Waymo, at this point, in the U.S. anyway, has the biggest head start. It just came out recently that their Waymo self-driving cars have now logged 8 million miles on public roads. By far, that's the most of any company out there. Tesla is also supposedly dabbling a little bit, autopilot or autodrive, whatever they call that. NVIDIA is also one of those suppliers with their general processing units, essentially the backend chips or technology that can be used to power these self-driving vehicles. Still a small part of their overall business, but it is continuing to grow. But I agree, I think

this will be further out than a lot of people expect. If you go back a year or two ago, there was so much hype and excitement about self-driving cars. But I think we're still looking at at least a decade before it's common to step into a self-driving car. I'm glad you mentioned NVIDIA, because that was one of my thoughts, that maybe for investors, the better way to invest into this trend is not with the manufacturers themselves, but more with the suppliers, because there's going to have to be so much testing. And the companies that are producing these vehicles, they're going to continue to buy these parts and technology long before they're actually selling stuff on the road, right?

Yeah, and I think it's also important to remember that, at this point, you're not going to have any small pure-play companies only focused on self-driving cars that are publicly traded. You might have some private companies dabbling in it. Uber has been doing a lot with self-driving cars. They're allegedly going public at some point at the end of 2019, so that will be something to keep an eye on. But, yeah, at this point, I'd say focus on Alphabet, Nvidia, some of those companies that already have a dominant core business and they just happen to have some promising technology or starts. And in the case of Alphabet, they also have $100 billion on the side.

Eh, it can't hurt. Yeah, it definitely doesn't hurt. Yeah, I just wanted to underline the Uber part. Also Lyft, too. And both those companies will probably go public in the next couple of years or so. I do think that probably at the end of the day, 20 years from now, whenever this happens, the two big winners will be those who own the technology that makes it possible, and those who own the networks of fleets.

And so I think all of the pieces of the value chain are worth thinking about here, because this market is going to be worth probably like a trillion dollars at some point. So, it's not too soon to start thinking about it. Our final story, not earnings, but wonderful news, and that is Radio Shack is back. Oh, sure. Radio Shack filed for bankruptcy twice in the last three years, but it is being reborn as Radio Shack Express, a store within a store that's going to open in 100 Hobby Town locations across the United States. Let's go to our man behind the glass, Steve Broido.

Steve, overjoyed at this news or ecstatic about this news? Well, you've got Express and Hobby Town in the same sentence, so there's nothing but goodness there. Am I the only one who had never heard of Hobby Town before this? It's, I guess, a specialty toy store of some sort? Is it like Hobby Lobby? I don't think it's Hobby Lobby because that's more crafty. This is more like specialty gadgets and toys, I think.

I went a deep dive into the internet to figure out all things about Hobby Town. That's always dangerous. There's all sorts of goodies there. So, where are these stores? Did you find that out? I have no idea. It wasn't that deep a dive. I was lost in the merchandise.

Steve, I'm wondering, though, because you've made the point on this show in the past that Radio Shack really needed to rebrand. I'm wondering if they missed an opportunity here. I think so. I think Radio plus Shack wasn't so good. So, maybe something more current, a little bit more today. Although, adding Express, that has a dynamic quality to it, don't you think? Absolutely. Express means better. That'll appeal to millennials, for sure.

Let's get the stocks on our radar, and Steve, I'll hit you with a question. David Kretzmann, you're up first. What are you looking at this week? Alright, Steve, you ready for this? I'm going with Kush Bottles, ticker KSHB. They're aiming to be the go-to supplier for the cannabis industry. Everything from containers, packaging, branding services, vaporizers, and much, much more in their 12 facilities here in the U.S. They're already serving more than 5,000 clients in every major U.S. market where cannabis is legal. They still have two co-founders with the company, including one who's remaining as CEO, Nick Kovacevic.

Those two co-founders still own about 30% of the company, so you have some skin in the game there. Steve, question about Kush Bottles? How important are accessories in the cannabis industry? Is this that big of an industry for when you're buying cannabis accessories? Well, they're mainly a business-to-business supplier. They're supplying products to dispensaries, things like containers and packaging. That's their main business. Then, the vaporizers, which are more used by the end consumers, those are important, as far as I know. But I'm not a user myself, so I can't speak from direct experience.

Aaron Bush, what are you looking at? I am looking at Ubisoft, ticker UBSFY. This is a French video game company behind big franchises like Assassin's Creed, Far Cry, Tom Clancy Games. And just like pretty much every video game publisher out there, I mean, there's a huge runway for new games, new gamers, mobile, digital, licensing, esports. So, there's a lot of tailwinds there. But I'm also feeling deja vu, because they recently made a deal that is eerily similar to what Activision made a few years ago. So, Vivendi, which owned over a quarter of their shares, they recently came to an agreement where Vivendi is going to sell its entire stake, the founders are going to buy more, there's

going to be a big share repurchase, and Tencent is coming in and buying up part of Ubisoft to help them expand into China and grow their mobile presence. So, there's a lot to like here. The stock isn't cheap, but they're smaller than other top publishers, and I think it could be an interesting investment. Steve, question about Ubisoft? In five years, what will be the biggest platform that Ubisoft is on? I would still guess probably PS4 or Xbox, but probably PlayStation. Matt Argersinger, what are you looking at? Going with JD.com, ticker JD, I think one I've spoken about before.

China's second-largest e-commerce company, but largest overall retailer. You look at revenue growth, over 40%. It's got China's largest shipping and logistics network. It has partnerships with companies like Tencent, Walmart, Alphabet. And you can buy shares for less than one times revenue. I still don't know what I'm missing about this business. I'm missing something, obviously, but it looks like an incredible bargain to me. Steve, question about JD.com. Does the news that we're hearing politically about China concern you in regards to this company?

Not so much for JD, because 90% of JD's business, if not more, is just in BTC revenue retail in China. So, nothing in terms of import-export or U.S. relationship should get in the way of that. Oobie Soft, Kush Bottles, JD.com. You got a stock you want to enter your watch list, Steve? I think I might go video games. It's my first win. I'll take it. Can I just say, I love the names of this week's radar stocks. I mean, if you told me, it's like, ah, I got this new company, it's called Oobie Soft. You know, it's a video game company. It might as well be like Baby Products or something like that.

Cush Bottles I mean because it was you pitching it I figured it had something to do with the cannabis industry but I don't know

Cush Bottles maybe like a new acquisition for Coca-Cola Just call me Cush Kretz What? Cush? No

I don't think I will and I don't think anybody else will Alright, scratch that Aaron Bush David Kretzmann Matt Argersinger Guys, thanks for being here

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

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