Motley Fool Hidden Gems Investing - Is Peloton the Next Chipotle? (No, seriously)

Episode Date: February 8, 2022

In one announcement Peloton announced layoffs, cut its investment in a new factory, and replaced its CEO. Are these the moves of a company preparing itself to be sold or retooling for the long haul. Bill Mann shares why he thinks new CEO Barry McCarthy is the right choice for the job and how the company's situation reminds of what Chipotle went through a few years ago. Also today: - Nvidia abandons its attempt to buy Arm Limited due to "significant regulatory challenges" - Steven Spielberg proving that past performance is generally a good indication of future results - Alison Southwick and Robert "Bro" Brokamp discuss how to talk about money with that special someone in your life (16:00) Interested in more stock ideas? Our free Investing Starter Kit includes 15 stocks and 5 ETFs. For a copy just go to http://fool.com/StarterKit Stocks: PTON, CMG, NVDA, SFTBY Host: Chris Hill Guests: Bill Mann, Alison Southwick, Robert "Bro" Brokamp Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

The Royal Canadian Legion is celebrating its 100th anniversary. And now, our change has a $2 coin to mark this milestone. Honour the Legion's mission to carry forward stories of service and sacrifice to new generations. And their dedication to supporting veterans and their families from coast to coast to coast. Celebrate this enduring legacy. Find the 100th anniversary of the Royal Canadian Legion $2 coin today. Chris Hill. Past performance is not indicative of future results, except when it really, really is. We'll explain in a bit. Motley Fool Money starts now.

I'm Chris Hill, joined by Motley Fool Senior Analyst, Bill Mann. Thanks for being here. Bill Mann. Hey, Chris, how are you? I'm doing all right. Cutting investments, cutting jobs, cutting a CEO loose, these are all things that companies do and they are big decisions. In one fell swoop, Peloton just did all three. They filled the bingo card, didn't they? They really did. They announced they're cutting nearly 3,000 jobs. They are no longer going to be building a $400 million factory in Ohio that they had planned, and co-founder John Foley is no longer going to be the CEO. They are bringing in Barry McCarthy, who is the former

Chief Financial Officer at Spotify, and then before that, Netflix. He'll be the new CEO. The stock is responding positively, let's just put it that way. Although you could look at Peloton and wonder how much further does this have to fall. Yesterday, the conversation around Peloton was, who's going to buy this company with the reports around Amazon and Nike specifically? Of course, Apple always gets thrown in there. They make these moves now. Let me start with this question. Do you think they are still setting themselves up to be bought by someone or are these the moves of a business that says, we are retooling and we are going to remain independent? I haven't heard anything that suggested that Peloton had put itself up for sale at all.

There was an activist investor that came out and said, these are the companies that could be buying Peloton. Maybe there's conversations that are going on in the background, or maybe it's just some guy throwing some spaghetti at the wall. There were companies on that list that were bizarre, like Berkshire Hathaway. Yes, Oracle. I think Oracle got name-checked. Yeah, exactly. I am not sure how serious that was, with the exception of the fact that Peloton has an unbelievable brand, it has an unbelievable franchise, and it has been misrun. And that is actually a perfect situation for a transaction to take place. But I haven't heard anything that suggests that Peloton was out there putting itself up on the market.

Yeah. John Foley talked about the mistakes that he made. He owned those mistakes. It was a guts-to-go situation for Foley, however. Yeah, maybe. And I think that a lot of people, for perfectly understandable reasons, look at this business and say, oh my gosh, this was a $50 billion company, and now it's a $12 billion company. So let's take it where it is, because investing is all about the future. This is a $12 billion company. They are laying people off. They are radically cutting back the amount of money that they are investing. What do you see when you look at this business in the wake of these decisions? You know, and I know you're quoting the stock. It was never a $50 billion company. It was a company

that the market got really, really, really excited about, and I think actually rightfully so. Now, I think that Barry McCarthy is a genius CEO appointment because the experience that he's had at Spotify and Netflix, he has gone through companies that have done very, very well in the long term, but have endured crises. Now, every single company that has had a hyper growth period and Peloton absolutely had that over, call it 18 months to two years during the pandemic, goes through a shift where that hyper growth period changes. And they're in the midst of it now. It does not necessarily mean that a lot of the moves that they made during that period of time were badly conceived. I mean, you remember the crisis for Peloton in 2020 was that people

were showing up wanting to buy the bikes and wanting to buy the treadmills, and it was a six-month wait. So, when you're looking at a company like Peloton, yes, it has been mismanaged in some way. It has not hurt the brand at all. And I actually, John Foley was not ever one of my favorite CEOs, but I do give him credit for recognizing, at least partially, that he needs to have professional management making decisions at the company. The company that I look at as the proxy for what Peloton is doing is Chipotle, when Stephen Ells kicked himself out of the day-to-day running of the company. I think we can say with 100% confidence that that has worked out spectacularly. It really has, even though at the time, there were some eyebrows raised at

at the idea that Brian Niccol, who made his bones at Taco Bell, was being brought in to run the place that was touting itself as food with integrity. It's so funny. It's like, have you had Taco Bell? Are you aware of the fact that that is only Mexican food by the thinnest of margins, in that it basically comes in Mexican food shape? Yes. But Brian Niccol, at a very minimum, knew exactly what it took to take a fast food or fast casual restaurant and make it as efficient as possible without harming the experience such as it is. Nobody is walking into Taco Bell going, I'm about to have the best Mexican meal of my entire life. That's not the conversation you're having

with yourself. But Brian Niccol made that company much more efficient, as he's done with Chipotle, without harming the experience such as it is for consumers. I want to go back to the brand for a second, because Chipotle's brand was harmed by those health scares. Perfectly understandable that people would not really trust the experience of going to a Chipotle after numerous health scares. It wasn't a one-time thing. So that brand was hurt. It needed repairing. Brian Niccol and his team have done a great job of doing that. Peloton, as best I can tell, that brand does not seem to be harmed. I get that maybe the reputation of the business among people on Wall Street isn't as shiny

as it once was. But in terms of people who use the product, I don't think there's any damage there, is there? No. And think about this. Peloton actually, on some levels, went through a crisis that was much greater than what happened at Chipotle when they had a death. A child ended up underneath one of their treadmills. And companies go through crises. They just do. And I don't want to belittle what happened in that situation. But I think that you can say that Peloton has been resilient to a couple of potentially harmful events for their brand. It even includes fake events, like Mr. Big from Sex and the City having a heart attack on a Peloton bike. They have dealt with certain

things that would be impactful to a weaker brand. To me, this shows that there is real, real value at Peloton that is extractable. And hopefully, Mr. McCarthy will get after it. Let's move on to NVIDIA. And we talked on yesterday's show about murders and acquisitions. And I don't know if I said this yesterday, but sometimes acquisitions don't work out. Sometimes you have to walk away from them. And that's exactly what NVIDIA has done. And it is no longer buying Arm in what would have been the biggest chip deal ever. NVIDIA says there are significant regulatory challenges to the deal, so they are walking away from that.

They are paying a breakup fee of $1.25 billion. But it's NVIDIA, they have the money. It's not like you or I went out and got a parking ticket. like, oh, my God, $1.25 billion. Where am I going to get the money for this? NVIDIA can pay that. It seems a little unfair, though, doesn't it? I don't think it's their fault. The terms of a breakup fee tend to be pretty ruthless and pretty direct, if for any reason. But in this case, it's been clear, I don't know about you, but to me, it's been clear for months that this wasn't going to happen. And it has nothing to do with NVIDIA's willingness

to make the deal happen. So this is a thought I had when I was reading over this story this morning, because you're not the first person I've heard say that today. When I was watching CNBC, I think David Faber made a similar comment. So as an NVIDIA shareholder, here's my question. why wasn't it apparent to Nvidia? Why wasn't it clear when they were thinking about making this acquisition? And part of it is I'm unclear on the regulatory process. Like, I don't know if they can go to regulators and say, hey, we're thinking about buying Arm. Are you guys going to be cool with that? Or like, that probably isn't happening. But why did it get to the point where pretty soon after the deal is announced, a lot of people like you are looking at this and saying,

this isn't going to happen. Yeah. You know, when they announced the takeover back in late 2020, there was a huge amount of fanfare. And I think in some cases, companies are really trying to create their own momentum behind moves that they want to make. But almost immediately, the business secretary of the United Kingdom, Ed Miliband, came out deeply opposed to the deal. They knew that there was going to be regulatory scrutiny. Some of the licensees to the architecture of Arm came out opposed to the deal. Competitors came out opposed. I think they always knew that it was going to be a hard thing to do. But I think because Arm was owned already by a Japanese company. They were hoping that an American company coming in to buy it, even though it was going to

be integrating it, was not going to be a bridge too far. And it turns out to have been the case. It may well be, though, Chris, that some of it has to do with what you see as an increasing nervousness around big tech in general that has only increased from 2020 to today. So that may be a part of it, too. Do you think NVIDIA starts to look for other acquisitions in the same category, albeit smaller ones? Or is this a situation where the signal from regulators is clear enough that they need to invest their capital in other ways. I love that question. I don't even know what a good proxy for Arm would be. Arm is a very, very special company. You could say Qualcomm, perhaps. I'm just throwing names out there.

Bill Mann says that NVIDIA is going to buy Qualcomm. No, I don't really know what would be a good proxy for Arm Holdings. That actually is probably at least partially why there was so much sensitivity around a potential merger from a company like NVIDIA. What about Peloton? Do you think they'd want to get into- I think Peloton would like to buy Arm Holdings. Yeah, sure. I think that's a good shout. Really, what I think is going to happen is that Chipotle is going to buy Arm Holdings, and it is going to be the merger between burritos and chip architecture is going to be huge. Let's close with the Academy Award nominations, which came out this morning and I was very quickly reminded of investing because Steven

Spielberg has been nominated for Best Director for West Side Story. He's now been nominated for Best Director in six different decades, which brought to mind the phrase we hear in investing all the time. Past performance is not indicative of future results." I just thought, well, sometimes it is. I think in the case of an artist like Steven Spielberg, I think past performance is a wonderful indicator of future results. I think for some of the companies that we talk about and some of the companies that we hold up as great examples of being multi-decade winners. It's like Apple, Microsoft, are they going to post double-digit returns from now until the end of time? No, but I don't know. They're pretty good.

They're pretty good. Past performance, it's often a good indicator of future results. Right. It's indicative. I don't think that word means what you think it means. Because, yes, it absolutely, positively does not mean that things will happen. But it's a pretty good way to bet. I mean, that's the David Gardner process in a nutshell, is that companies that have done well and have been managed well in the past tend to continue to be managed well and do really good things. I mean, that's what gave him the confidence to hold an Amazon through thick and thin for 25 years. I mean, that is truly, would we call Steven Spielberg the Amazon of directors at this point? Is he the Amazon of directors?

I think Amazon would like to be the Steven Spielberg of companies at this point. I mean, just if we're going by how long is your track record, his track record starts in the 1970s. Yeah, that guy's going to be something someday. Bill Mann, great talking to you. Thanks for being here. Thanks, Chris. Robert Brokamp is a certified financial planner and The Motley Fool's resident expert on retirement. Here's a fun fact, especially if you're new to the show, his nickname is Bro. If someone's saying the word Bro a lot, they're not trying to be hip,

they're just calling Robert by his nickname. Here to talk with Bro about how you can better discuss money with that special someone in your life? It's Alison Southwick. This Valentine's Day is going to be special. Picture it. You're at a fancy restaurant. There's a string quartet playing in the corner. A server entails pours you a glass from the third least expensive bottle of wine on the menu. As you gaze across the table at each other lovingly, the candlelight flickers in your eyes. You've thought of every detail, and now is the moment. You reach for their hand and whisper the words you know you should say more often. We need to talk about required minimum distributions. Wait, what? Yes, this Valentine's

Day, the most romantic thing you can do with your partner is talk about money. Or, as Bro likes to call it, and make it weird, make financial whoopee. Well, that term whoopee, by the way, was chosen for a particular reason, which we'll get to later in the show. But for now, here's what you need to know. How you handle money as a couple will have a significant impact on the quality of your relationship. A few years ago, I got a graduate certificate in financial therapy from Kansas State and read a ton about the nexus of love and money. One thing I read was Revisiting Financial Issues and Marriage by Dr. Jeffrey Du at Utah State University. It's an overview of the many studies that have looked at finance and

romance, so I'm just going to bring up a few excerpts. Four, in fact. Number one, one study found that sound financial management behaviors, things like budgeting, saving, maintaining insurance, were positively associated with relationship happiness, even after controlling for the participant's financial well-being. Number two, in a study of long-term couples who felt that they had, quote, unquote, great marriages, the couple said that having little to no debt and living within their means contributed to their successful and happy marriages. Number three, we've all heard that money problems are the number one cause of divorce. The evidence behind that claim is actually rather mixed.

Some studies confirm it. Others find that other issues are actually bigger causes of divorce. But the frequency of financial arguments were linked to the likelihood of future divorce in many studies. For example, in one, disagreement over finances on an almost daily basis had a predicted increase of 69% in the chance of divorce. And then number four, finally, one study found that having shared financial goals and values predicted relationship satisfaction even better than the couple's reports of good communication.

And so here's sort of the money quote, so to speak, from Dr. Du. These studies suggest that spouses need to jointly determine their financial goals and the means through which they will meet these goals. So we could call it a financial summit or a financial state of the union address, but that makes it sound pretty cold and calculated, whereas money is actually anything but. That's because when we think we're talking about money with our partners, we're also talking about our personal history, possible trauma, and all the other emotions wrapped up in money. Yeah. As any psychologist will tell you, arguments about money are usually not really about money, but about what money represents. Things like control, status, self-worth,

fairness, security, even anxiety. For example, one study found that if spouses argue about whether to combine their finances, they may actually be arguing about issues related to trust and autonomy. What money really represents to each of us, as you might expect, can be traced back to how we were raised. There may be some experiences that we had when we were growing up. These meanings of money, so to speak, really could cause issues between couples, Partially because they're often subconscious. We don't really know they are affecting our behaviors and attitudes, but they are. And they're often not aligned with those of our partner. I think it's funny that one study found that when it comes to money, opposites attract.

The study is entitled Fatal Fiscal Attraction, Spendthrifts and Tightwads in Marriage. And according to the authors, people are more likely to marry someone with different attitudes when it comes to spending, which actually can have some benefits. I think about my wife, who has occasionally pushed me to spend more than I normally would on things like vacations, and I'm grateful she did it. But as you might expect, the evidence shows that spouses with big differences in spending habits are more likely to argue and less likely to be happy. I can speak from personal experience about how your raise can result in having different attitudes on money. I know that my husband and I generally are on the same page about money,

but I come from a family of gift givers and that is part of our love language and he does not. And so, um, Christmas and my birthday can usually be some interesting times in our house because he's like, well, all I have to do is just spend a ton of money on you and you don't even care. And then I'm like, well, yeah, I mean, kind of a little, because in my family, that's how you show someone that you actually value them and care about them. So we get, we get by. How about you, bro? Uh, so I'll say my wife is the same way. And it It really comes from a place where she did not have great Christmases and birthdays growing up. So she wants to give something to our kids that she didn't have.

So similar, I suppose. But for me, I know that my attitude about money, especially as a spouse and father, was influenced by experience I had as a kid. I had a very happy childhood, very grateful to my parents, but money was an issue. And then when I was a teenager, my dad's business went under. And for about a year, things were pretty dicey. things like cars getting repossessed, utilities getting turned off, my dad going out the back door because there were creditors at the front door. And then within a year or two, my parents

were divorced. And I remember thinking back then, if I ever get married and have kids, I'm not going to let this happen. And it really has influenced why I am actually pretty anxious about money and why I take it very seriously. Yeah. So that's why it's important to have these conversations and understand that when you're talking about money, you're not just talking about money. Of course, we aren't suggesting that you pull up Excel tables and a PowerPoint presentation for your partner in between the second and third course, but we are suggesting that you start with an exercise we call The Foolywed Game. It's only 10 questions, and there are also 10 rules. We'll give you a brief overview here, but you'll want to

Google it for the whole thing. Bro, briefly describe the history of The Foolywed Game. Bro Kramer Well, it's play on the old newlywed game. It's a game show that first aired in 1966 and lasted for decades. By the way, legend has it that when the show started, you couldn't say sex on TV, so they used the term making whoopee, which is where that term comes from. It's pretty much been associated with the show to this very day. Now, as for the Foolywed game, it was created in the early 2000s, still available on fool.com. Just do an online search for it. Here's how it works. Each partner answers 10 money-related questions individually, but then the couple gets together

to compare their answers. It could also be interesting to try to predict what your partner's responses will be to see how well you know her or his attitudes about money. So, 10 questions. We won't cover them all. But Bro, what are some of your favorites? I'd say one is, you place a list of items in the order of importance. We're talking about things like retirement and college savings, as well as clothes and entertainment. It's a good way to see how much your goals are aligned. Another question asks, how much is too much to spend without consulting your partner? I think this question is important because different attitudes and spending is one of the key causes of conflict in couples,

it's also not just that level of spending, but whether one or both spouses are hiding it. This touches on something known as financial infidelity, which is a whole other topic. But suffice it to say, it's better to know upfront how much your partner thinks is okay to spend without checking in. And then a third one is, what are the three best purchases you've made as a couple, and what are the three worst? And these purchases could be things you bought on Amazon, buying a house, or even buying certain investments. Answering the question is another a way to see how well you're aligned, but it's also a way to identify what you've done well, and ideally, maybe you should do more of, and then what past mistakes you'd like to avoid.

Yeah. Some of these questions are a bit more cut and dry, but some of them are pretty creative and fun. Like we said, 10 questions, but there are also some ground rules. The ground rules are perhaps even more important because they are good rules for any financial chat you're having with your partner. Bro, what are some of your favorite ground rules? I would say the two that are most important are related. One is accept equal responsibility for changing your lives around. Studies indicate that when it comes to household finances, there's usually one person who's doing more of the financial work. But that doesn't mean it should be their total responsibility. So, you have to both accept responsibility for improving your

finances. And then another one is don't play the blame game. These discussions will almost always result in reviewing things that went on in the past that were not ideal. And that's good. You should identify things, mistakes that you've made, things you want to turn around, but you can't keep bringing those up. At some point, you have to say, all right, what happened in the past is the past. Today, we're starting out completely fresh and new and looking forward. It's possible your fully-wed game financial summit was harmonious and ended with dancing in a field of flowers. But it's more likely you discovered something new about your partner or some new topics where you aren't aligned or even areas where you flat-out disagree.

So next week, we're going to cover the most common money conflicts in relationships and some of the initial steps you can take to solving them together. And don't worry, you swinging singles out there, we have an episode for you coming as well. So, Bro, any final words of advice for our Fooley-Wood game players? Bro. First of all, if I were to update the Fooley-Wood game, and it is more than 20 years old now, I'd include a question about the financial logistics of managing money as a couple. Things like, who pays the bills? Who handles the investments? Who's going to find a lawyer, so you finally get an estate plan. And ask whether both people are happy with their

respective jobs. Because like any chore related to running a household, you want to make sure important stuff gets done and that the workload is shared equally. And then finally, I'll just say, if you play the fully-wed game or you just have a thorough, honest discussion about money in general, there could be three possible outcomes. Number one, you're perfectly compatible and everything's awesome. Good job. Number two, you discover a few key differences, which then leads to productive conversation and puts you on a better path, also a good job. But No. 3 is, this could really uncover significant problems that you have trouble resolving.

This whole Foleywood game could end up in, frankly, a big argument, and you're not sure what to do about it. We are going to talk on next Tuesday's show about how to resolve some of the biggest financial issues between partners. But for now, I'm going to suggest one thing, and that is, you consider getting professional help. The type of help really depends on the problems. There are almost cut-and-dried answers to some financial disagreements. For example, if you want to retire at age 65, there is an amount of money you should be saving. It might be that you just need to see a fee-only financial planner and get that objective, expert opinion to help you resolve your disagreements.

It could also be that you need to see a financial therapist. Such a profession does exist. It's relatively new, but you can go to the website of the Financial Therapy Association and see if there's someone in your area that has experience helping couples resolve their financial differences. Or you could just see a regular couples counselor. If money issues are an ongoing source of marital discord, paying for professional help could be one of the best investments you'll ever make. Do we know how to set the mood for Valentine's Day or what?

That's all for today, but coming up tomorrow, Ron Gross will discuss how to evaluate acquisitions and what to do when one of the companies in your portfolio gets bought. 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. I'm Chris Hill, thanks for listening. We'll see you tomorrow. Thank you.