Motley Fool Hidden Gems Investing - Motley Fool Money: 07.18.2014

Episode Date: July 18, 2014

Microsoft cuts 18,000 jobs.  Mattel slips on Barbie bearishness.   And Google climbs on stronger-than-expected revenues.  Our analysts discuss those stories and share three stocks on their radar.   And just how did LEGO go from near-bankruptcy to Everything is Awesome?   Chris talks with Wharton Professor David Robertson, author of Brick by Brick:  How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry. Learn more about your ad choices. Visit megaphone.fm/adchoices

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You want more? I'll give you more! Mobland, new season hits September 18th on Paramount+. 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 this week for motley fool one jason moser for motley fool income investor james early and for million dollar portfolio ron gross good to see you as always, gentlemen. We have got the latest news from healthcare, entertainment, technology, and more. We will go inside one of the biggest business turnarounds of the past decade. And

as always, we'll give you an inside look at the stocks on our radar. But we begin this week with a little company called Microsoft. In an email to employees entitled, Starting to Evolve Our Organization and Culture, CEO Satya Nadella announced that Microsoft will be cutting 18,000 jobs over the next year. Ron, most of these are coming in the next six months, and most of them, more than 12,000 of these jobs, are in the Nokia division. Little company, more little today than yesterday. A little bit more, yeah, definitely a little smaller. We've seen these reports for a week or so, but the reports were that they were going to cut 5,000 or 6,000 jobs first. Were

you surprised that the number was that high? Not really, because I think it jives with what Nadella is doing, which was moving away from the bomber era he's changing the culture and the focus of the company um less layers of management moving away from hardware moving at the cloud and mobility i have a feeling he wouldn't have done the nokia deal at all if he was at the helm at this at the time so he's really making a big change to microsoft perhaps the biggest change microsoft has ever under under gone underwent either way either way um underwent or has undergone right past participle wow with you So I'm not surprised to see this happen, but I have to say I love what he's doing.

I'm more excited about Microsoft, and we've owned it for a while, than I have been in a really long time, and I think he's doing a great job. It sounds reasonable. I've got to say that. It does, and yet he's only been in the corner office, Jason, for a few months. So anyone who thought that he was going to tread lightly in his first year as CEO, I guess they thought wrong. Yeah, but I can't believe you would have thought he would tread lightly. I mean I think we've been talking about sort of the layers upon layers of inefficiencies at Microsoft, the just seeming pointless sort of positions, and they can never really get anything done. So I mean it did seem like it had become sort of a bureaucracy of sorts that – I think that was probably one of the first things he really was trying to figure out was, OK, I need to whittle this down, cut the fat, and let's focus on what we're trying to do here to move this company forward. And if you're a big, fat, bloated company, you don't want to be going after the consumer market.

It's just too fickle and too difficult. And I think they've been out-nimbled by Apple. So they're wise to be getting more into business. And when we talk about these acquisitions, I mean, it's always a risk that we talk about. Integrating these acquisitions is really difficult because you do end up with a lot of sort of redundant positions or really useless positions, depending on how you want to take the company. And so, yeah, I mean, it's certainly not surprising to see a lot of these revolve around the Nokia positions that came in. Would you buy a Windows phone, though? You know, I wouldn't, actually.

Is it just a dork all over it? Wow. Or somebody gave it to you as a gift? No, I think for me now it is because I'm so set in my ways with the iPhone that I use that, I mean, just having to change the behavior all over again is a less than attractive proposition for me. But, you know, I mean, had Windows jumped out there and really offered up some kind of compelling product earlier, I mean, who knows? They probably could have picked up some share there. Ron, shares of Microsoft hitting a 14-year high this week. Is it getting a little pricey?

It's bumping up there. We have kind of a sell-around guidance out there at $48. Stock's at around $44 right now. But in light of kind of this new restructuring and some of the things we're seeing out in Adela, I think it's time to maybe revisit the $48. Could go higher. Not sure yet. But the stock's done well.

Shares of Time Warner up nearly 20% this week after 21st Century Fox made an $80 billion bid, which Time Warner rejected. And Jason, Rupert Murdoch looks like a guy who is determined to make this happen. And if he has to go higher, reports are that he probably will. Yeah, I think he probably will. I think that Rupert sees two really attractive properties from an acquisition standpoint here, a merger standpoint. Number one is HBO. I think that's just an attractive-looking situation there with a lot of content that really offers up a high-margin model there.

And then sports. I mean, sports is something that is still relatively protected from this on-demand society that we've become. And so I think the consolidation we're seeing, even in the delivery of all of this content, you want to try to get as many of these valuable sort of media properties under your umbrella as you can and then figure out a way to sort of disseminate that content a la carte if you can. Because, again, I mean, I think on-demand is really the direction that we're going. And thanks to Netflix and Amazon and Hulu and things like that. And I wouldn't be surprised at all to see him come in with another offer, bumping up the cash part of this offer. I mean, he's smart in using Fox shares, albeit they're non-voting shares, but they are performing very well, which is a cheap currency there. And he can bump that up to around $45 in cash per share.

That would be about a $40 billion cash component, which he could certainly afford, Because when you combine those two companies together, they're bringing in somewhere around the neighborhood of $12 to $13 billion in operating cash flow every year. Personally, I would rather see them separate. But my suspicion is that he will continue to pursue this. Why would you rather see them separate? You know, I think there's a genuine skepticism when you start seeing a lot of consolidation. And you start wondering, if you have one person pulling all of the strings in the media that you're getting, the content, whether it be news or whatever, I'd like to see the competition. I think it keeps these media properties on their game and trying to give us some great content and some news that we can rely on.

Second quarter profits for Johnson & Johnson rose 12 percent, thanks in no small part to strong sales of the new drug for hepatitis C. And yet a strong quarter on balance, James, but shares of Johnson & Johnson down for the week. Yeah, it was a strong quarter, but the problem is that there are at least two major competitors coming for this hepatitis C drug. So it's temporarily great, but it's not going to last long. It's a pity because otherwise medical device sales were up 0.7%, which is not great, but I think consumer product sales were up 2.4%. Pharmaceutical sales obviously were fantastic, but it short-lived. I'm still long-term bullish on J&J, but it's just a very competitive segment they're in.

J&J, the stock was just flat for so many years, and just the last couple years up more than 50%. Yeah, up 13% or 12% year-to-date, I think, compared to what, like 6% for the S&P, which is still great. Shares of Google up this week after second quarter revenue rose 22%. Ron, the search giant just keeps getting giant-er. More giant? More giant. Yeah. No, I like it.

Total paid clicks up 25%. Cost per click. Total paid clicks. Okay, okay. Just to make sure. Up 25 cents price per click, which is that metric that everybody watches. Still coming down, the amount they can charge for a click, down 6%, but somewhat moderating. It's not surprising to see, as things have moved to mobile, that they can charge less for those ads.

But the company continues to get it done, spending a lot for the future, we discussed earlier before the show, kind of like an Amazon feel to it, perhaps not to that extent. But they're hiring, they're building data centers, they're even buying real estate. That can eat into profitability or free cash flow. But it's for the future. And if you think these guys know what they're doing, I say spending for the future is just fine. They also have a new member of the board of directors, Alan Mulally, the former CEO at Ford Motor. What are the odds that at the first board meeting he shows up that Larry Page pulls him aside and says, hey, take a walk with me.

We're going to go check out the driverless car and just get him to weigh in? I think there's a good chance of that. I'm sure they'll be picking his brain without a doubt. Coming up, if there is a stockbroker Barbie, this week she was selling shares of her own company. Stay right here. You're listening to Motley Fool 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 Jason Moser, James Early, and Ron Gross. Guys, shares of Yahoo down 7% this week. After second quarter profits fell from a year ago, and Jason, the display ad market is growing, but Yahoo's play in that market is shrinking. Yeah. I mean, the essence of the problem here is that Marissa Meyer needs to convince advertising customers that their dollars are well spent on Yahoo properties. And you're doing that in the face of Facebook and Twitter and Google and the like, where those are obviously companies that are going to see a lot of return on those advertisements. Yahoo, it's just not quite as clear that the advertisers will see that return. The good news for them, they surpassed more than 450 million mobile monthly active users this past quarter.

I think Ron keyed in on something very important when he was talking about Google earlier. Wow, I did? Yeah. Yeah, hey, you know, every once in a while. But no, I mean, the move to mobile is one of those things where, yes, they are going to see the volume in those advertisements go up. However, they just can't charge as much. And so we've been looking for that organic top-line revenue growth for Yahoo, and it's still not there. Marissa Meyer is asking for a little bit more time.

It seems like the market's going to give her a little bit more time. I mean, I don't think Yahoo is an irrelevant business, but it's just, you know, they are in the face of some serious competition. Later this year, Alibaba is going to go public. Yahoo owns a big chunk of that, and they will reap billions when that IPO happens. What are they going to do with that money? And if you think they're going to put it to good use, do you look at the stock today and say, well, this is an opportunity to buy on the dip? Well, I don't know that I look at it that way, because they clearly have stated they're going to return at least half of that money after taxes to shareholders. And so, you kind of look at that as a dividend of sorts. It's going to be

essentially a special dividend or something like that. And then you have to wonder, after that happens, do shareholders take the money and run? I mean, Yahoo's acquisitions to date haven't exactly been the biggest value creators. It seems like they've made- You think they really have any interest in AOL? Yahoo? Yeah. I just, no. I can't believe that they would. That, to me, seems to be a business that is becoming more or less irrelevant as time goes on. So, I mean, that's the big question is,

I mean, what are they going to do with that money? How well will they invest it? Because you have to do more than just make acquisitions and shut them down. You've got to create some value there. How is portal traffic trending in the U.S.? I mean, like, in a multi-year sense, are people still going to yahoo.com just to kind of poke around? Or is that a trend that's kind of going away? I think that's just it. They maybe go there to poke around, and then they go out elsewhere. But I think now versus 10 years ago, I mean, 10 years ago, Facebook was just coming online. And so you can see over the course of 10 years, certainly, the attention has been diverted away from just something like Yahoo to where you have Facebook, Twitter,

Google, all of these different social networks. Yahoo Finance, I think, continues to be a force. And their sports property, too. Sports offering, too, yeah. Shares of Mattel down this week after second quarter profits were hit by lower sales of barbie and the line of fisher price preschool toys i mean they have a bunch of toys under their umbrella but barbie is far and away the leader and you look at the last six months james and they got a problem on their hands barbie has not been very popular lately you know it's unfortunate

the thing about being a toy maker and this is this is something that's true i guess of being an anything makers you got to make toys that people want and people just didn't want as many of Mattel's toys. I mean, sales were down 9% this most recent quarter. That's a lot. 15% drop in Barbie, 17% drop in Fisher-Price. Part of it is temporary. It was sort of a rough period for retail. Everybody's been saying that. I think the broader trend that analysts like myself are wondering about, and Mattel, Mattel is an income investor recommendation, as is Hasbro. You know, the overall shift to toys is to licensing of entertainment properties. Somebody develops, something. I mean, my son wanted a football

recently in Toys R Us, and he just wouldn't have the regular football. He had to have the Cars football. You know, and it's brilliant. From the Pixar movie Cars. I got to pay like $15 for this thing. And that's just how it is. It's brilliant for them, you know, bad for me. But

Mattel is less along this trend compared to Hasbro. So, you know, Mattel is kind of eating it. And they also bought, they paid $400-something million for this Canadian imitation Lego company called Mega Bloks. It's just like a big Lego. So supposedly that's supposed to help soon, although that's a lower margin business, which is not a great sign, but something.

You mentioned Hasbro. It's pretty amazing. You look at these two stocks over the last couple of years, and Hasbro has just been – the shares have just been crushing Mattel. Recently. It was not always like that. I mean, a few years prior, Mattel was on fire, and Hasbro was just in the tanks. And it's reversed, say, in the past year. I haven't checked the chart exactly, but we'll see what happens.

Shares of Intel up this week after second quarter profits rose 40% compared to a year ago. And, Ron, am I reading this right? Higher demand for PCs? You thought the PC was dead. What's going on? Third consecutive quarter of growth in the PC business. It's all about the PC refresh cycle finally coming to fruition, partly as a result of Microsoft no longer supporting the XP platform.

Intel says there's still 600 million PCs out there that are more than four years old that really need to be updated. That bodes well perhaps for continued growth. We own Intel. We've owned it for a while. Our thesis has always been that they were behind the eight ball in mobile but that they were going to catch up and it was going to just be fine. We now see that thesis as gravy because the stock has done really, really well

and that hasn't even come to fruition yet. I'm so happy to see this strengthened PC. AMD, the rival chipmaker, and I say rival in air quotes because its market cap is, I think, 180th that of Intel. Shares of AMD down about 15% on Friday in the wake of their latest quarter. At what point does AMD just throw in the towel? It's a real competitive business, obviously, and it depends whether you're on the commodity side of the chip business or not.

obviously the commodity side of the business makes it even more difficult. Intel has just been on fire lately. I think it's the top performing mega cap in the S&P 500 this year so far, and we still think there's room to run. All right. Before we get to the stocks on our radar this week, I should mention that we are hiring here at The Motley Fool. You can check out our jobs list at culture.fool.com. That's culture.fool.com. We're looking for financial planners, people in marketing, in our tech department. And we have a brand new editorial development program for our Fool.com business. So check out all our job listings at culture.fool.com. Steve Broido off this week.

Again. Where is he? Where is he? You know, reports are unknown. We're not allowed to say, because he'd just be stocked with all of his fans. But let's get to the stocks on our radio this week. Ron Gross, you're up first. What do you got? Little company called Apple, A-A-P-L. I really like the new partnership that they just announced with IBM. They're going to attack the corporate market. I think this really could be a game changer for Apple. I also think that the new products will eventually show themselves. We've been waiting and waiting, but I think there's not only new iPhones, but the watch and several

other things coming as well. So I think the stock looks real good at $93. Little bit of a surprise, the partnership with IBM, when you consider 30 years ago, Apple made its bones by attacking IBM. Yeah, well, that was the past. Let's buy guns, rebuy guns. Let's look at the future. James Early, what's on your radar this week? I'm going to take it on my own chin this week and mention female health company, FHCO.

This is a company that I have pitched a number of times here. It's a former income investor recommendation. I just sold it because they cut their dividend to nothing from 5%. These guys make female condoms and suddenly decided that they needed to innovate more, which I support in theory, but I guess they were not doing enough all along, so they cut their dividend. I had to sell the stock. We took like a 40% loss, so shame on me for female health on this one.

You sound awfully deflated. You know, it happens, and it happens. Jason Moser, what's on your radar this week? You know, I was going to come in here and talk about rocket fuel today, but the news we saw this morning of Amazon with Unlimited Kindle or Kindle Unlimited, To me, that is just a fascinating turn of events. I'm a reader. I enjoy reading. And this Kindle Unlimited thing, it's going to give you all-you-can-read books for $9.99 a month.

I mean instead of just the Prime relationship where you can check out one book from the Prime Lending Library, now this is just basically all the books you want whenever you want them. And for someone like me, our household, we're four people, two kids, and we're all readers. And it just seems like every week they need another book for a school project. So I suspect we'll be joining this program very soon. But, you know, again, it's just one more way that Amazon is working their content into just the mainstream there. I'll be interested to see how this is received. Don't public libraries allow –

What's a public library? You know, they actually do still exist. Oh, man. I'm just saying. That's a good point, actually. But there is a point of friction there, right? I mean, it's not just like you go into Amazon's bookstore. I think with a public library, you still have to go check in and use a passcode or something to get in there and borrow the book.

So there is some friction there, I think, that certainly Amazon takes advantage of. All right. Ron Gross, James Early, Jason Moser. Guys, thanks for being here. Thank you, Chris. Up next, it is one of the biggest business turnarounds of the past 10 years, the Lego Company. The Inside Scoop is next. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. Just 10 years ago, it was on the verge of bankruptcy, and today, Lego is the world's most valuable toy company. It's also one of the world's most profitable companies. David Robertson is a professor at the Wharton School of Business, and he is the author of Brick by Brick, How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry. David, thanks so much for being here. Thanks for having me, Chris. Let me start with how things got so bad.

And, in fact, how did they get so bad? I remember playing with Legos as a kid. I look at Lego as one of those stable toys that's always been there. At no point did I have any indication that the company was on the verge of bankruptcy. What happened? Well, let's go back to the 90s, because what happened in the 90s happened to a lot of companies, not just Lego. So everybody in the 90s, as they still are today, was talking about disruption and the threat of the digital and the virtual. And so put yourself in Lego's place.

You're making a product, a plastic brick. You had a patent for a while, but all those patents expired in the 80s, you know, 10 years before. You've got global competition. You've got, you know, half a dozen companies making the same product you make and selling it for cheaper. And then you've got this threat from Xbox and PlayStation and Nintendo and the web. And they became convinced that they were about to become a commodity and become disrupted and become irrelevant. And so the late 90s, actually it was 1998, they had their first loss in company history and they had to lay off a thousand people. It wasn't unreasonable to make the conclusion that they made. And so what they did is the grandson of the founder, who had been running the company for 20 years, said, you know, maybe I'm not the right guy. He brings in a turnaround expert, a guy named Paul Plowman, and they just started innovating.

They challenged their people to think outside the box, to come up with great new play experiences. You know, they became convinced that the brick was passe, and they started experimenting. And some of those experiments worked, and some of them didn't. The ones that worked really worked well and actually hid some of the costs of the failures. In particular, two toys, Lego Star Wars and Lego Harry Potter, were tremendously successful. But they were only successful in years in which there was a movie. There was a Star Wars movie in 1999 and 2002. There's a Harry Potter movie in 2001 and 2002.

But there's no movie from either franchise in 2003 and the first half of 2004. And so sales of two of the three big toys, the third being a toy called Bionicle, fall off a cliff. And Lego almost went bankrupt in 2003. It's interesting that you mentioned Star Wars because I think my favorite quote in the book is from 1997 when an executive at Lego, when thinking about partnerships and licensing deals, says, Over My Dead Body Will Lego Ever Introduce Star Wars? Why was there that sort of resistance? And given that they did issue Star Wars Legos just a couple of years later, what happened to that guy? You know, I could never find out who that was.

I could never get a name to attach to that quote. Did it end up being over his dead body? No, I certainly hope not. But Lego has some values that it holds, you know, very, very dearly to them, which is that they will never glorify modern warfare. And so, you know, you'll never see a World War II Lego set. As much as some of the fans of Lego, both adult and child, would like to see that, you will never see it. They don't want to glorify warfare. And so when Star Wars came along, you know, here's the first toy ever in LEGO history to have war attached to it,

you know, explicitly in this case, but, you know, implicitly or explicitly. And so the debate in the company was, is this Ivanhoe or G.I. Joe, to kind of sum it up. In other words, you know, G.I. Joe was, of course, an action figure that did celebrate modern warfare and was very popular with kids, but not something that LEGO would ever do. On the other hand, Lego had had castles and knights in shining armor for a long time. And so, you know, is Star Wars really a fable for, you know, a timeless fable of knights and damsels in distress? And, you know, is that which would be appropriate for Lego? And so to make the decision, they surveyed, in particular, not U.S. so much.

And I think they felt like Star Wars would be more likely to be acceptable in the U.S. But they went to German mothers and said, you know, is this appropriate? Would you want your kids to have this? And the overwhelming response was, yes, that's fine. You know, they saw it as Ivanhoe, not G.I. Joe. And still, there was a huge debate in the company. And it was only when the grandson of the founder killed Kirk Christensen, who really controlled the family fortune and who controls it to this day,

mostly the ownership of the company is closely held by the Christensen family, he said, yes, we're going to do it. And that ended the debate. And, you know, thankfully, right? I mean, because what Lego learned from Star Wars, it learned something about the cyclicality of that business, but it also learned something about the power of stories. And that has ultimately been what has saved Lego, is that both with Harry Potter and then Star Wars and Bionicle, the three big toys, all had very rich, very powerful stories behind them.

And what Lego learned is that the virtual, the digital, doesn't disrupt the physical at all. That if kids see a Star Wars movie, if they play Lego Harry Potter on the Xbox or PlayStation, they don't want less bricks. They want more. And so the digital doesn't disrupt the physical. And what Lego learned is that you actually have to incorporate that into the play experience. And when you do that, you start selling a lot more bricks. You're listening to Motley Fool Money, talking with David Robertson. He's the author of the book Brick by Brick, How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry.

So how do they turn it around? Obviously, the Star Wars and the Harry Potter, those help. But to your point, those are cyclical. What turns it around for Lego to get to the point where in the latter part of the first decade, we see, you know, 2000 to 2012, we see massive year-over-year sales growth and profit growth? Yeah, yeah. For the last six years, Lego has been growing at sales at 23% and profits at 38% every year for the last six years. So, you know, from 2003 to 2007, they were trying to kind of get themselves out of trouble. You know, let's not go bankrupt was really what the focus of the company was.

Always a good goal. Yeah, yeah. And let's go back to the brick. And we know there's at least some kids that like bricks and construction toys. So, you know, let's make toys for the people that want to buy our toys. And then from there, they started really exploring, you know, how can we start to grow the company? And once all the internal things kicked in in 2007, that's when we've seen this stratospheric growth. I'm guessing that when it comes to dealing with potential partners, when they're experiencing new licensing deals,

that Lego, given its financial strength right now, has so much more leverage than it did probably back in the late 90s when they were dealing with the Star Wars people. What are those negotiations like now? You know, I really couldn't tell you, but I think Lego's always had its great brand. You know, even in the darkest years of 2001 and 2002 when they were running away from that brand, you know, I think it still had a lot of value. But now, you know, I talked to Andrew Lynn, the guy who was the producer on the Lego movie, and I talked to him about the movie and what it was like to work with Lego.

And one thing in particular I asked him about was, you know, I said, you made a kid's movie and you brought it out in February. Did you want to bring it out at Christmas? And, you know, he kind of hemmed and hawed a bit, but he said, yeah, you know, we did. And that was a very tough discussion. But, you know, Lego's motivation for the movie was very different than their partner's motivation for the movie, right? I mean, if you're making a kid's movie, what you want to do is you want to make a movie that sells a lot of tickets. And the way to do that is to bring it out at Christmas.

Well, what Lego wants to do with the movie is it wants to create a story that really excites kids and makes them want to buy the toys in the story and play with those toys. And it makes the money from, you know, buying ABS plastic at, you know, 75 cents or a dollar per kilogram and selling it at $75 per kilogram. That's how it makes money. And it doesn't need any help selling those boxes of bricks at Christmas. Where it needs help is selling those boxes of bricks in February. And so they had a very firm discussion with the producers of the Lego movie to say, you know, we know you want this movie to come out at Christmas, but it's not. you know, it's going to come out in February. And it's an interesting challenge that if you're trying to not just do a box of bricks, but also tell a story and maybe have a game and do

promotions around it, you've got to be thinking about, you know, how is everybody going to make money? And where are we going to optimize that and not? And how do we coordinate all that? And it's really a different approach to innovation. And Lego's masterful at it, which is why I wrote a book about them. I want to get to the innovation part in a second, but let's stick with the Lego movie for a moment. How has that changed the way Lego thinks about its business? Because I have to believe, given the success of the movie, that there are people within the company who are saying, we got to double down on this. We need to be doing much, much more of this. Oh, they already have. You know, I've lost touch.

I've never been employed by Lego, and I was lucky enough to hold the honorary title of the Lego professor when I was at my old school, IMD, in Switzerland. But I lost that when I moved to the Wharton School. But that said, their announcement that there is going to be a sequel to the Lego movie, that there's going to be a Lego Ninjago movie, there's a lot more Lego-themed movies coming out done using that bricked style. So it looks like everything in the movie is built out of Lego. There's a lot more of that happening now, but your question was really, how has that changed Lego? And I see it as just a continuation of a change that started happening back in, well, really 2003, that Lego realized that if all they make is a box of bricks, they're going to become irrelevant.

They're going to be out of business, really, because other companies can make a box of bricks more cheaply than Lego can in Denmark. If, on the other hand, they can get kids excited about a story, you know, a situation, some kind of drama that they want to play out with a box of bricks, then they can sell that box of bricks for much more and they can continue to grow and expand. And so, you know, they've been experimenting with different ways to tell stories. With something called Ninjago, which came out in 2011, it was one of the chapters in the book, they had a cartoon show related to that. And then they also had a game, and there's this whole rich story behind Ninjago that really excited kids. And so using a feature-length movie to tell a story is something new, and, you know, it's a pretty big bet financially for Lego.

But I see it as just, you know, Lego continuing on with a path that they've been on since 2003. Coming up, more with David Robertson. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here talking with David Robertson, author of the book Brick by Brick, How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry. Let's get back to the innovation, because one of the things you write in the book is how Lego's approach to innovation as a company is much more transferable for businesses around the world than, for example, Apple's approach to innovation or Google's approach to innovation. Why is that?

Well, yeah, I've got to be careful there because, you know, I talked to – I went to Apple, and I presented the book there. And I said, you know, I teach innovation, and I wrote this book about Lego because I'm so sick of Apple. And I explained what I meant is that, you know, whenever there's a book about innovation, everybody talks about, you know, the iPod or the iPhone or the iPad. And we're just sick of hearing those stories. I mean, it's not that they're not a great innovator. They are. But we're just sick of hearing about it. And the Apple guys kind of laughed, and they said, yeah, we're sick of reading about it, too.

And the other part of Apple, though, is that the way it's often written about is Steve Jobs was a brilliant innovator. And so he was this genius at the top, and he demanded that the company make insanely great products and got his hands on every piece of the total customer experience. And that's why Apple is such an amazing company. And number one, the Apple guy said, well, that's not really true. There's other people that work here besides Steve Jobs. And number two, the other part is that even if it was true, what can you do with that? If you were a company and you wanted to innovate like Apple,

Well, let's hire somebody like Steve Jobs, somebody really abrasive and difficult and brilliant, and let's promote them to the top of the company, and let's run all our innovation decisions through them. You know, that's the model we're going to repeat. I mean, you know, finding somebody like Steve Jobs is really difficult, and then deciding to promote them. I love the story in Walter Isaacson's book about how Steve Jobs, in one of his first jobs, you know, one of the first roles that he had, he believed that because of his macrobiotic

diet. He didn't need to shower. And so he smelled so bad that they made him work the night shift. That's the guy you're going to make CEO. You know, so what I like about Lego is that here's this old line company that's making a commodity product made out of a commodity material, ABS plastic. And it's in an industry with global competition and, you know, tough, aggressive competitors, and it's got a really fickle customer, like your son, Chris. You said your son is an eight-year-old boy. What excites an eight-year-old boy can be very different month to month. And yet, here's this company that's doing tremendously well, using some pretty basic things that I think any company can learn from.

Technically, I'm the customer, because I'm the one buying the Legos. He's the consumer. And you're only buying them for him, right? for the moment. At The Motley Fool, we study stocks and public companies. Lego is a private company, but it is quickly rising up the list of private companies that we would love to see go public. Is there any talk of that at the company? Because there are many people, myself included, who would be very interested in owning a few shares? There's rumors about that. And the rumors all revolve around the idea that the ownership and the control of the company is moving from the third generation to the fourth generation. And

I don't have any inside view of that or knowledge of that, except to say that the fourth generation of the company isn't much involved. There's nobody from the fourth generation of the founders of the Christensen family that is involved in any significant way in the management of the company. And so, you know, is it possible that once Kilkirk, who's the grandson of the founder, you know, once he moves away from control of the company and turns it over from the third to the fourth generation, that they might want to do something different with the financial structure of the company? Sure. I mean, of course that's possible. But, you know, I'm just speculating. I have no inside knowledge. It's a fascinating story. The book is Brick by

Brick, How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry. It's available in paperback now. So pick up a copy because it's a great read. David, thank you so much for being here. Okay. Thanks for having me. That's going to do it for this week's Motley Fool Money. Before we go, I want to mention once again, you can always drop us an email, radio at fool.com is our email address. That's radio at fool.com. Send us your questions. Send us the stocks that are on your radar, radio at fool.com. And as I said earlier in the show, we are hiring here at The Motley Fool. We want you. Our job listing is posted at our culture blog, which is just culture.fool.com. That's culture.fool.com. So if you're looking for a job

or you know someone who you think is a true fool, we want them. We're hiring financial planners, folks for our marketing department, our tech department, and our brand new writer development program at fool.com. So check it out at culture.fool.com. This week's show is mixed by Gail Año Nuevo. Our engineer is Steve Roido, even though he's on vacation this week. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.