Motley Fool Hidden Gems Investing - NY Times Buying The Athletic, Big Beverage Partnership, and Potential IPOs

Episode Date: January 6, 2022

The New York Times is reportedly buying The Athletic for $550 million. Rivian Automotive shares fall in the wake of Amazon's new partnership with automaker Stellantis. Bill Mann analyzes those stories, shares what he considers to be the most interesting businesses to watch in the EV industry, and discusses the potential for Constellation Brands' new partnership with Coca-Cola for Fresca Mixed Cocktails. Later in the show Dylan Lewis and Motley Fool contributor Brian Feroldi take a closer look at three private companies expected to go public this year: Instacart, Reddit, and Stripe. Stocks: NYT, RIVN, AMZN, STLA, TM, VWAGY, STZ, KO Host: Chris Hill Guests: Bill Mann, Dylan Lewis, Brian Feroldi Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Today on Motley Fool Money, in the wake of a record year, we've got three potential IPOs investors should be keeping their eyes on in 2022. That, plus the deal of the day, coming up right now. I'm Chris Hill, joined by Motley Fool Senior Analyst, Bill Mann. Thanks for being here. Bill Mann. Hey, Chris, how are you doing? Happy New Year. Happy New Year. We've also got a pair of partnerships, one in consumer goods, one in the EVs. We will get to those soon, but we're going to start with the deal of the day. Reuters is reporting that The New York Times has agreed to buy The Athletic,

a subscription-based sports site, in a deal worth $550 million, shares of The New York Times up 1% earlier today, perhaps an indication that Wall Street likes the price of this deal. There are a couple of things to get to here, Bill, but let's get the elephant in the room out of the way first, because you and I had the same reaction when we saw this headline, which was, if this is true, I really hope The New York Times doesn't screw up The Athletic. Chris, it's so funny because you put out a tweet late last year or last week saying that, just listing your love of The Athletic and how it was a great gift. I want to turn this into an advertising segment for The Athletic. But to me, it is a wonderful sports page. It is, I think, what the New York

Times sports page used to be and should still be today. It'll be interesting to see if the New York Times manages to screw up The Athletic from a user perspective, because to me, this $550 million that they spent is something that they should have had in-house anyway, starting 15 years ago. This is something that New York Times should have been able to dominate. So, let's talk about the business of The New York Times for a second. We'll come back to The But I mean, you look at the stock, it's basically flat over the past year, but you wind that out to five years, this has been a solidly market-beating stock. And the way that the iconic, maybe the iconic newspaper brand in the United States and one

of the few in the world. The way that the business has really adapted to mobile, adapted to online, built up their digital subscription business, you have to tip your hat to them because for years, they really weren't getting it done. Over the past five years or so, they've really had a great run in terms of growing the underlying business of what they do. They really have. To click out even farther, the stock of The New York Times is basically the same place as it was in 2003. That seems like bad news. That seems like, for people who've owned this company for a long time, it has not gone that well. They've basically just gotten whatever dividends were paid. But it's a 10-bagger since 2009. You can understand

very well in the newspaper business, in the media journalism business, what kind of existential crisis they faced in the rise of the internet and the rise of free content. So, the New York Times has done a very, very good job in reorienting itself into an online first world. So, they deserve all sorts of credit for that. As a business, though, some of the ways that they have done this was by stripping certain news bureaus and certain segments of their business bare. This is what worries me as someone who adores The Athletic, is that that's an easy move for them. They can look and they can say, okay, we're no longer going to have someone who's going to cover Boston College Sports, which they do now. We're no longer going to have someone who covers

Watford Football Club, which they do now because it's easier as a business to concentrate on the big stuff. But that's what's made The Athletic special. As a user, I'm concerned. As a lover of business, I understand exactly why The New York Times is making this move. I think it'll be a good one for them. Hopefully, it'll be a good one for us. Just to wrap up, you think about Spotify buying the ringer. This reported deal, if this gets finalized, it is going to be interesting to see if there are other sports sites out there that either get approached or put themselves out there on their own. But yeah, in terms of The New York Times, it seems like a smart use of $550 million, but this is one of the reasons we say acquisitions are tough, because not all of them

work out. No, not all of them work out. This is $550 million that, by all rights, the New York Times never should have had to spend. Whatever else you want to say about the New York Times, it is the journal of record for the largest, most important city in the United States of America, and one of the most important cities in the world. The moves they have had to make were the things that allowed entities like Barstool Sports, like The Athletic, to become the media powerhouses that they are. For the second day in a row, shares of Rivian Automotive are down more than 5%. Among the problems facing the electric vehicle maker is the fact that automaker Stellantis announced a partnership with Amazon, in which Amazon will

provide cloud services and in-vehicle software starting in 2024. Just a reminder, because I needed to be reminded of this, Stellantis is the company formerly known as Fiat Chrysler, a number of automotive brands including Dodge, Jeep, Maserati. I think among other things, Bill, this is maybe a little bit of a wake-up call for at least some people out there that just because Amazon has a financial stake in Rivian does not mean that Amazon is not going to work with other automotive companies. Oh, yeah. When you heard Stellantis, doesn't that sound like it's like a treatment for ringworm or something? Stellantis may cause excess hunger. I understand why they would rebrand. Yes. Rivian, I think in a world in which a lot of the most speculative companies

have been hit really, really hard. Rivian, up until this last week, was one of the final survivors. And it is a reminder that when you have a smaller company, which Rivian is, I know it's got a huge market cap, but it is a tiny company, and the big company that are paired together, the big company ultimately views that small company as an option, as optionality. And if they have other deals that they can sign that help the big company, they're obviously going too. Stellantis, now that we know that it's not a treatment for something, for athlete's foot, it's a huge company with huge nameplates that have an interest in the electric vehicle market. They have an interest in being a player in this segment. There's just no guarantee that Rivian,

with, I don't know, 200 cars on the road, 200 trucks on the road at this point, is going to be the winner. Amazon wants to be the winner, and they don't really care that much what the vehicle is that gets them there. By the way, on yesterday's show, Emily Flippen and I were talking about Nikola, and two things off of that. One, I mentioned Ford's F-150 in comparison, because that's where my brain went. Obviously, Nikola makes semi-trucks, not pickups, so I apologize to the dozens of listeners. They're all trucks to you, pal. We're not connecting the dots there.

All right, city boy. But one of the things we talked about was just, you think about a company like Apple and the years of rumors that Apple is going to produce a car at some point. We'll see whether or not that comes to fruition. You look at this announcement, this partnership between Stellantis and Amazon. Do you think somewhere in Amazon, there are aspirations to eventually be an automaker, or do you think they are content, at least for now, just to say, no, we want to provide the cloud services, we want to provide the software, we're not interested in actually making the steel

and the wheels? It's funny you say that, because I think a lot of people miss with Amazon now, particularly with their logistics business, they already are in the steelbending and the heavy capital markets. They really, really are. There is nothing about the EV industry or the automotive industry that I would put beyond a company like Amazon as forward-seeking as they are. The thing that is true about Amazon, though, is that they have gone about going into new markets in one of two ways. They've either tried to be first, they've tried to create a new market, or they have gone in once a market is situated, and there's the very famous Jeff Bezos quote, your margin is my opportunity. And you look at the EV industry and you look at the promises

that are being made. There was a great Wall Street Journal article that came out last year, and it was about the EV SPACs that came out. Five different SPACs for electric vehicle companies promised or forecast that they were going to make $10 billion in revenue within the next five years, which sounds awesome, and it is because it's only been done by one company ever, and that's Google. So, I think that Amazon right now is making lots of bets, and this is not necessarily a negative for Rivian, but they are not the only people that Amazon is going to dance with, and I think it would have been a mistake to consider that otherwise from the start. Last thing before we move on, just broadly, in the electric vehicle industry, what are you

watching this year? This is one of those industries that's grown significantly over time, both in terms of the players involved and in terms of the optionality for investors. What are you watching? To me, the most interesting companies in the EV space are not actually Apple or Sony or even Rivian. To me, the most interesting ones in the space are the companies that are already making a whole lot of cars that are making that shift. There was a report that Volkswagen and Toyota were preparing to put $170 billion into the EV industry, into their own EV gains. Now, I don't know about you, but to me, $170 billion is a lot. That is a lot of money that they are bringing to bear

to come into this market, they already have the manufacturing know-how. They have the supply chains. They really, really, really are the companies that are the ones that Tesla, I think, should be thinking about, as opposed to the Rivians and the Lucids of the world, which have a much longer way to go and have that same learning curve to go through that Tesla has already gone up. Constellation Brands is the beer, wine, and spirits company with a portfolio that includes Corona Beer, Modelo, Robert Mondavi Wines. Third quarter revenue was higher than expected, but the earnings report takes a backseat to the announcement that Constellation Brands is teaming up with Coca-Cola to create cocktails under the Fresca soft drink brand. Fresca mixed

cocktails are due to launch here in the United States later this year. I think if you're a shareholder of either of these businesses, you got to be excited about this news. I think you're pretty fired up about this news. Once again, as an American eater and an American drinker, I'm also pretty excited about this news. There really is a third player here, and it is this. I think the pandemic really pushed this forward. What you're seeing with companies like Constellation is a war that's going on with them versus the beer companies. They have found an opportunity where liquors can replace beer in a lot of segments. It has not been that case forever, down to the fact that there are different excise taxes for a serving of a spirit versus a

serving of beer. I think the beer manufacturers are the ones who need to be really, really nervous about this trend, about the canned and pre-packaged liquor and spirit drinks that are coming onto the market faster and faster and faster, especially as it pertains to PepsiCo and Coke getting involved, because neither PepsiCo nor Coke have any truck with the brewing industry. So, this to me is great news for them, it is further news to be concerned about if you are a brewing company, an InBev, a Boston Beer, companies like that. You look at what Hard Seltzer has done for various beverage companies over the past four to five years in terms of the growth of that beverage, and it makes sense that Coca-Cola would look at Fresca, essentially

a grapefruit carbonated beverage and say, oh, we think we can do something. Coca-Cola says that right now, Fresca is the fastest growing brand in their soft drink portfolio. I get that that's off a base that's much lower than Coke or Diet Coke, but still, this really seems like something to get excited about, not just for consumers of beverages like you and me, but for the shareholders of these companies. And I'm reminded, Bill, of Bill Newlands, who's the CEO of Constellation Brands. He's been there almost three years. He kind of spent the first two years on the job undoing a lot of what his predecessor did and dealing with the start of the global pandemic. But the stock is up around 50% since he took over. And that's pretty good when you consider

how much time he spent essentially rearranging things. You know, as funny as you were saying that, my mind started wandering. Is there any beverage that's more of a hidden MVP than grapefruit in the alcohol space as a mixer? It's really an underrated mixer. No, I think that's a big impetus for why they're doing this. I do, too. But as soon as you said grapefruit, I was like, you know, I don't really get excited for grapefruit juice or grapefruit. But grapefruit is a mixer for naughty drinks, I am all about. Constellation Brands has been a roll-up forever. They had a bunch of different disparate areas, they were in golf, they were in a bunch of different segments that had no real tie-in,

although golf and drinking really are a direct tie-in, but not something that's necessarily that exploitable. They have done a really good job streamlining in the last three years. Now they're making some moves, and they're making moves that have happened really because of the changes in habits that have been wrought by the pandemic. To me, Constellation Brands, it's always been an interesting company because it's been a mismanaged one. It's not mismanaged anymore. Well, when this launches later this year, I'm pretty inclined to just pick some up, invite myself over to your back patio, and we can sample for ourselves how these new- Trust but verify, my friend. Trust but verify.

Bill Mann, thanks so much for being here. Thanks, Chris. Good to see you. There were hundreds of IPOs in 2021, some splashier than others. businesses like Robinhood, Bumble, and yes, Rivian Automotive raised billions each in their IPOs last year. So what IPOs can investors look forward to this year? Dylan Lewis has more. I'm joined by Motley Fool contributor, Brian Feroldi. I think the one thing we can probably say with some confidence, Brian, is we're going to see some big names in 2022. We already have confidential filing from a particularly big consumer-facing brand. We have rumored IPOs for some other ones as well. We're going to talk about some of the most anticipated ones for 2022.

I think we should start with Instacart. This is a business that has really been at the forefront of the pandemic, like a Zoom-type business, where as soon as March 2020 hit, they were front and center because they were uniquely positioned to meet the challenges of the pandemic for consumers. Yeah, you said it right. Instacart had a fabulous 2020. If you're not familiar with the business, Instacart is an operator of a grocery delivery and pickup service, primarily in the United States and Canada. Users can go on their website or use their mobile app to order over 500 million products across their catalog and get deliveries from over 40,000 stores in 5,500 cities. Now, in exchange for doing so, they offer a pretty modest delivery fee,

$4 if it's a same-day order, over $35. You could also charge extra fees if you want a one-hour delivery or delivery from a club store or if the delivery fee is under $35. But to your point, this was a service that saw rapid growth in 2020 due to COVID. Yeah. I think what they're trying to do is really establish an ongoing relationship with these folks who have flocked to the platform. I'm someone who used the service in the pandemic, having never used it before because I got COVID in late 2021 and was in a position where I needed to be able to order groceries despite not being able to leave my house. It was absolutely fantastic, was able to put in an order and then within a couple of hours had the groceries at my door,

used it several times and it made staying at home a lot easier. I think they're trying to establish that ongoing relationship with users through more of a membership model. We see them aggressively pushing this Instacart Express membership, where it's a $0 delivery fee on every order over $35. They also bring down the service fees as well. Brian, I think one of the things that's interesting about this business is it was rumored to be going public in 2021. Those plans were later pushed back as Instacart transitioned mid-year from founder Apoorva Mehta at the helm to his chosen replacement, Fugisimo, who is now running the company as CEO. Typically, we tend to see a new management team get a little bit of a grace period before that company will come public.

Yeah, that makes sense. That might be a little bit unfortunate of the timing there. To your point, they reported some extremely rapid growth over the last year. It's going to be interesting to see if that growth rate maintains moving forward, which will allow them to generate the valuation that they want to get. But the bull case for this company is pretty straightforward. It's very clear that consumers really like having groceries and other items delivered directly to the door as opposed to going out and shopping for them. Instacart is the clear leader in the space, and they own roughly three-quarters of the third-party intermediary grocery sales market. It's obvious to me that that market is going to continue to grow, although at what rate is up for

Yeah. I think if you're looking for other things to be positive about this business, I think there's some optionality here. One of the reasons that they were looking to delay their IPO in addition to leadership changes is they talked about building out the services for the grocery stores that they serve. I think one of the other things to keep an eye on is what they're able to do with their ad market. They've talked a little bit about the ad business that they think they might be able to build. Long-term, they see it being worth something in the tens of billions of dollars. The new CEO, Fiji Simo, has a decade of experience at Facebook, and she was the head of the Facebook app before she left. I think she probably knows a thing or two about monetization,

Brian. The challenge, I think, for me with this company is, what does growth look like for a business? You mentioned the torrid year-over-year growth in 2020, 3X revenue from the year before. We're probably looking at something much more moderate in 2021, 10% to 15%. What does this look like long-term for this company? That is the real question, and it really is going to depend on, can they get that advertising business up and running, and will consumers continue to use this product moving forward? That's just something we're going to have to wait and find out. The second company we want to talk about is Reddit. If you didn't know about this company prior to March of 2021, you heard about it.

It was almost impossible to avoid Brian in the news cycle in the early part of the year. Yeah. For those that are unfamiliar, Reddit is a hybrid mix of a social media platform, a news platform, a content aggregator platform, and an online community all in one. This company burst onto the scenes in 2021 thanks to the subreddit WallStreetBets, which made a whole lot of noise related to GameStop and AMC, and that really put this company on every American's radar. Yeah, it's funny. It's one of those sneaky big internet properties that people either love or have never heard of. I think they benefited tremendously from basically the marketing event that was WallStreetBets and Reddit and everything that was happening with GameStop

and AMC in the early part of 2021. But just to give you a sense of the reach of this company, Reddit is in the top 10 most visited websites in the U.S., according to SEMrush, ahead of the likes of eBay, Walmart, Twitter, ESPN, and CNN. It's one of those sneaky big businesses, but it looks a little bit more like a Twitter or a Snap when you look at some of the user numbers. In fact, it's even smaller than those properties, Brian. Yeah, it's very clear that the company is still figuring out the monetization path forward. While they have about 52 million daily active users, they brought in about $100 million in advertising revenue in the second quarter of this year, that's a $400 million annualized run rate. They are well below the monetization rate

of many of their peers. Yeah. I think a lot of the things that people are going to look at when they see this business, it's going to be similar to criticisms that were lobbed at the likes of Snap and Pinterest when they were coming public. How big is the user group for this business really going to be? How effective are their monetization efforts going to be? While they aren't very monetized right now via ads and via some light membership model things they're exploring. It's a big opportunity for them. It's also something that they have to realize over time. It certainly is. Platforms like this that draw in that many eyeballs have a whole bunch of optionality naturally embedded

into them. While they clearly haven't made that advertising a superstar as of yet, with that many people coming to this platform every day, and it's clearly beloved by your users, it's very likely that they could roll out some services in the future that open up up new revenue opportunities. Yeah. I think one of the major risks that people need to keep in mind is because this is a user-generated content platform, they're going to run into a lot of the criticism of content moderation and really their moderation practices as they come public. I think there's going to be a lot more scrutiny on this business. We've started to see it already and there's a long history with content moderation for

this company. But when you're a publicly traded company, when you have a little bit more awareness your business exists, even for people who aren't users, that comes with more scrutiny, Brian. It certainly is. Another risk to keep in mind is, those 52 million users they have, they tend to be very tech-savvy users themselves, which means that they're very confident with using things like ad blockers to make sure that those things don't see their eyeballs. That stands in direct contrast to other platforms that have billions of users, some of which may not be as tech-savvy. That might be a long-term headwind for for Reddit to drive revenue growth. One final thing I'll throw in here,

and I don't know if this is necessarily a bear case item or a bull case item for this company, but a statement that could really go either way. Because the company was the gathering place for WallStreetBets, there is going to be a large retail following for the stock. It's just the way it is. Reddit co-founder and CEO Steve Huffman said, I want our users to be shareholders and I want our shareholders to be users. I think that's the attitude that you generally want management to have. But I think, Brian, we have seen the retail investor community on Reddit do some pretty wild things to stocks. Hard to know if at the valuation this is likely coming public at, $10 billion, maybe $15 billion. They'll be able to move it very much, but it's going to be a stock

that's in the news quite a bit once it comes public. Yeah, it certainly will. I'm very confident that their users are going to absolutely love the business and the brand. So it'll be curious to see once they start talking about the company's stock on Reddit, what happens next. Brian, the final company we're going to talk about is Stripe. It might be the most fantastic private company you've never heard of. I think it's the easiest way to explain this business. The odds are very good that if you're listening to this, you have interacted with Stripe and you probably didn't know it. Stripe is a fintech company that is focused on a software as a service business model. Essentially, what they do is they mediate payments between companies

and their customers. They have a whole bunch of tools that make it easy to accept payments in over 135 currencies all around the world. In addition to that, their platform can help things like accepting in-person payments at stores, rolling out buy now, pay later features. They offer advanced security. You can offer tools for reporting, for invoicing. You can issue virtual and physical cards. You can get financing through Stripe Capital. In essence, this company is a lot like Square. Yeah. We've seen that's a wildly successful business model. Payments are a wonderful place to be. It almost doesn't matter where you are in the value chain for it, Brian. It is a very lucrative place to be.

As a feather in this company's hat, not only does it have thousands of customers out there, including the likes of Instacart, Salesforce, Amazon, Slack, and more, but both Peter Thiel and Elon Musk, who are both co-founders of PayPal, were early investors in this business. Yeah, you generally like to see that. A lot of people have made a lot of money investing alongside PayPal Mafia. I don't expect this business to be any different. Of the companies we've talked about, Brian, this is the largest one by far. The implied valuation is deep in the tens of billions already. Yeah, that's going to be a major challenge for this company moving forward to grow into that valuation that it's likely to

garner once it comes public. But the bull case for this company is really strong. I mean, It's a natural tailwind from e-commerce growth, a natural tailwind from growth in emerging markets. The switching costs are going to be high. This is a founder-led business. In fact, I predict that once we dig into this company's S-1, we're going to really like what we see. And that's the thing with all these discussions, is we're going off of what we know. Private companies are notoriously secretive about their information, and so we're going to have to wait to get more until we can really make up our minds on these businesses. The nice thing is, Brian, over the course of the year, we're going to get to see all of these filings come in,

and hopefully even more, some of those smaller businesses that offer some even more upside. Can't wait until we do. Until then, thanks for joining me, Brian. Happy to be here, Dylan. That's all for today, but coming up tomorrow, a closer look at the news coming out of Las Vegas at the biggest consumer electronics show in the world. 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.