Motley Fool Hidden Gems Investing - Reckless Earnings Predictions: ZM, BBY, DE

Starting point is 00:00:00 In the market for some reckless earnings predictions, you've come to the right place. You're listening to Motley Fool Money. Welcome, Fools. I'm your host, Tim Byers, and with me are longtime Fools, Rick Benares, Dave Meyer. Fellas, how we doing? Fully caffeinated? Good weekends? Yes and yes. Yes to all. All right. Today, we're going to be making some reckless earnings predictions for three stocks reporting this week. Zoom Communications, Best Buy, so Zoom ticker ZM, Best Buy ticker BBY, and Deering Company ticker DE. Zoom will likely have reported by the time you're listening to this. So please leave us a comment to let us know how well or poorly we did.

Starting point is 00:00:57 Now let's get into it. The Reckless Predictions game is going to be pretty simple here. And we're going to start with, I'm going to give you the numbers we've got for what we should expect for each of these companies. And you guys are going to tell me, is it going to be a miss? Is it going to be a beat or is it going to be a beat and raise? And starting with Zoom, which again, reported this afternoon, consensus is $1.21 billion for revenue and earnings per share. The consensus is $1.43 a share on a non-GAAP basis. So Rick and Dave, Rick, starting with you, miss, beat or beat and raise? Yeah. So I'm going to go with a beat and raise on this one. And I guess I'll explain it later, but I think you just want me to say beat and raise right now.

Starting point is 00:01:47 So we're going to, we're going to get into it, Dave. How about yourself? I'm going with beat going with beat. All right. I think I'm going to want you to explain first here, Dave. Nope. Just to beat no raise. Yeah. So, uh, looking back at the last, I don't know, 10 to 12 quarters, they have beaten the revenue, uh, beaten their numbers each time. And so, uh, to me, what I, what I see, I see a little sandbagging. I was just going to say, all right. So, because they're not, they're not big beats, but they are, uh, they are ahead of what management has been guiding. So clearly they know how to play this game, uh, if you will. But, uh, yeah. So that's why I say beat. I don't know enough to say if, if, if they'll continue to, if they'll

Starting point is 00:02:34 raise based on, uh, expectations. So I'm very curious to hear what Rick has to say about that. Yeah. Yeah. Rick, let's talk about it. Beat and raise. Why you, why you think the raise is coming in here? Yeah. So, so again, Zoom, it's like this toy you stashed away in the 2020 time capsule, but you forget to take out the battery. So it's still, it's still going. And I think people don't realize this is the fourth consecutive year of single digit revenue growth for Zoom. So yeah, single digit growth, sure. But growth. And I think a lot of investors figured, oh, well, Zoom, like there's no place for Zoom in the post pandemic future, but it's, it's matters. And to me, a funny thing happens uh when after years of slow growth you make sure that you have to impress on

Starting point is 00:03:12 the bottom line and as dave points out they have beaten in the past uh and yeah well it's usually like a slim margin i think there's enough there where they've had enough time and and they're starting to build momentum uh in their latest quarter revenue growth actually started to tick up a little bit that i think business is actually doing a little better so i i figured they still have enough room to beat yeah i think it's it's it'd be shocking if it doesn't happen and match the comments section at the podcast will tell how bad Dave and I may have gotten that. But I do think there's going to be enough room for a raise. So let's talk a little bit, and then we'll move on to Best Buy here, of some of the key drivers here. The Zoom AI Companion is something that

Starting point is 00:03:49 Zoom has been looking for to maybe drive some additional upsell in the seats on its enterprise plan. But this is a platform play here. And they have two parts of the business. They have the enterprise business, and then they have the regular consumer business. The consumer business is the one that's dragging. They make very little, really nothing on it. It is like an anchor to margins. The enterprise business is where they get all the big customers. If I had to ask you both, are you expecting some outperformance? There's a couple of ways this could go. If they beat, they could beat by just being very operationally efficient, Or they could be beating by getting some real traction and generating some platform business,

Starting point is 00:04:39 that enterprise business. So Dave, if I ask you this, are you expecting a little bit of momentum in the enterprise business? Or is this just, hey, man, Zoom knows how to play the game? So I think, again, if we go back to what happened, Zoom is one of the most quickly adopted products ever, especially by enterprise, right? There was a need, and it met it. And so if, if at that point it's all incremental, so doing things incrementally to make their

Starting point is 00:05:08 product a little better, a little more sticky, maybe they get a little bit of little bit of incremental pricing. I think it's all incremental businesses, a little bit better, especially on the enterprise side. All right. A little bit better goes a long way. Rick, you agree with that? Yeah, I do. But I think most of I'm expecting mostly on the operational side, just because again, when I did say raise, I'm talking about the smallest poker chip on your table. That's you're using to raise this. To me, this is a company that I'm not expecting great growth. And again, you are seeing sort of like, you know, three to go from 3% to 4% growth isn't such a big deal, but I do think there's minor improvements. I don't think any spectacular has happened in the

Starting point is 00:05:44 last three months, but I do see that they're getting better about their operations and making sure that they're delivering on the bottom line. So I think more operational than just the enterprise, you know, advancements and whatnot. All right, let's move on to Best Buy, ticker BBY, which has underperformed the market by close to 24% year-to-date. Our numbers here are $9.58 billion. That represents about 1.5% year-over-year growth, so pretty meager growth here in a consensus estimate of $1.31 a share, non-gap. I'll also give you the comps here. The estimate is relatively similar to what we've seen recently, so at least 1.5%. Rick, going back to you, miss, beat, or beat and raise on those numbers for Best Buy?

Starting point is 00:06:32 I'm going to go with a miss. I'm taking the long odds and rare miss. Yes. All right, Dave. Yeah, this one is hard, but I'm actually going to take the other side and go with the beat. Okay. Let's start with the miss. Rick, what makes you think that this is a miss? Yeah. Okay. So I imagine Best Buy, they sold a lot of iPhone 17s during the fiscal third quarter that ended at the start of this month. What else? This is the first full fiscal quarter of Nintendo Switch 2 on the market, but that came out in early June. So, most of those were sold in June and July before this quarter. I think consumers are leery of big-ticket purchases

Starting point is 00:07:06 like PCs and higher-end laptops. The housing market, which is really important to Best Buy because they do a lot of appliances and they've gotten into outdoor furniture and stuff lately, that's icy. I don't see anything improving there. And yeah, the expectations are low, sales up 2%, earnings up 4%, pretty much there. But even though Best Buy is 3 for 3 in its last three quarters. Um, I think this feels like it's a perfect time for it to prove mortal right now, uh, with, with so many retailers putting out some, you know, different mixed pictures lately. So yeah, I think this is the time where Best Buy is going to, you know, in the words of NSYNC Best Buy, buy, buy, uh, and not, you know, say goodbye. The last two is where the last two buys

Starting point is 00:07:40 were the buy, buy, not, not, I'm not saying BUI three times like Kramer. Yeah. Very nice. All right, Dave, let me tee you up to, for your beat. Can you really go beat with the, you know, they've really struggled in the appliance sector here, and that's a big business for Best Buy. Tell me why you're confident in the beat. So I don't think that their customers have really started to feel a lot of what's happening in the economy. I think it's typically more felt by customers in lower income brackets. That being said, I get what you're saying. But the other thing I would say is this team, like they know their business really well, and they're not going to set a target for themselves. That is a high hurdle to try to jump over. They're going to try

Starting point is 00:08:26 to set something that is, you know, something they can just step over. Right. So I could very well be wrong. I'll admit that. But again, if I go back to the most recent history, they have, uh, they have played this part of the game well as well. And I think they're, I don't think that they're setting themselves up. I don't think they would do anything to set themselves up for failure. So we shall, we shall see. I'm good to see we're on both sides of this one. Cause, cause it literally is a coin, like a coin flip. Yeah. I mean, it's interesting. It is probably going to come down to foot traffic and comps. If I had to make my own reckless prediction here, it's probably going to come down to foot traffic and comps. And if they're able to go,

Starting point is 00:09:06 let's say over 1.6%, then I think you're probably right here, Dave. But let's keep moving on to the biggest of the companies here, the big industrial monster that is John Deere. And when I started prepping to this, the John Deere song came back into my head again. It took me back to the days when the kids were really small. And it was like, why did I do this? Why did I select this ticker? I'll tell you why. It is an important indicator for this economy. And let's go through the numbers here. $10 billion in revenue is the consensus estimate. EPS, so earnings per share, of $3.96. Rick, miss, beat, or beat and raise for the big agricultural monster that is John Deere? Miss.

Starting point is 00:09:56 Miss. Okay. Dave, what do you say? Miss, beat, or beat and raise? I'm going with miss as well. Wow. Okay. This is going to be fun. Let's park on this for a couple minutes here. I need a little bit more from each of you because this is interesting because this is a company that doesn't just have a lock on the ag sector. They are introducing some AI features into some of their products, like the new CN spray for AI-powered weed killing. Why the negativity here and i'll start with you dave first of all i think there's a whole lot of farmers out there who are struggling okay so we'll we'll see just how much they're willing to excess spending they're

Starting point is 00:10:42 willing to do on technologies when some of their crops aren't even being sold the other thing is if i recall correctly through that throughout this year there was a drop earlier deer adjusted and has seen some momentum, some momentum come back. But again, the back, the, the demand picture, at least in my 10,000 foot level view of this, it seems dicey. That's why I would be, that's why I'd be probably betting more on the miss side than the beat side. All right, Rick, what do you, what else, what do you got to say for yourself here on that negativity? Yeah. I love that David, I was just having to get companies more, more, more, more than likely not. They're going to have a beat. That's just the norm. It's just almost a default setting with

Starting point is 00:11:29 some companies. But this one, and I hate, I'm becoming like a tractor detractor or an excavator hater or whatever rhymes with dozer or mower. I'll work that in next time. To me, the problem here is that this feels like a trap. Analysts, they already see profitability taking a big hit. So you're already thinking, okay, it's already discounted. It's already priced in. But just last week, just in the last seven days, three of these analysts lowered their profit targets for this quarter. When you kind of see that last minute adjustment lower, these people, these Wall Street pros that watch a lot closer than I ever will are starting to see some weakness. So, that's why I went with the miss. I mean, I didn't expect you to go

Starting point is 00:12:02 full Admiral Ackbar there, but that's well done. But there is an argument for this, and I'll say this and we'll move on. They have struggled with inventory. And if that inventory problem, if that backlog of used equipment is not moving off dealer lots, it's going to be really difficult to get new equipment onto those dealer lots. And that is a problem for Deere. All right. So, to summarize here, we have three earnings reports. Zoom reports this afternoon. Best Buy reports tomorrow morning, Tuesday morning. And Deere reports Wednesday morning. Our tickers are ZMBBY for Best Buy and DE for Deere, the old John Deere company. let us know what you think tell us were we right were we wrong do you think we're we're off the

Starting point is 00:12:55 mark here and do you want more reckless earnings predictions that's what we really want to know here but coming up next it's another game of faker or breaker all right welcome back to motley fool money it's another uh it's another game of faker or breaker as a reminder the rules here are very simple. We go through three companies and I ask you both for each of these companies, is it a faker or a breaker? And what we mean by a faker is a company that has plenty of growth or a lot of opportunity ahead, but that opportunity is capped or limited. It doesn't really, it looks like it might have the growth to achieve breakerdom, but it just doesn't have the attributes that would make it a rule breaker. And this one's going to be a little bit different

Starting point is 00:13:44 because this is kind of a turnaround edition of faker or breaker. Some companies that have had, and we've done this before, right? Sometimes with rule breakers, you have companies where you have dark clouds you can see through. And I want to know for these companies, and I'm going to start with you, Dave, for C3AI, ticker AI, do you think there are dark clouds we can see through for C3 AI? So in the AI space, it is nothing but clear skies, clear blue skies ahead. And this is a company that cannot navigate it and hasn't been able to for a number of years. I mean, this is the biggest faker that there's been, right? This is a company that started right when AI was picking up. They were so well positioned and they just haven't been able to

Starting point is 00:14:39 really capture the demand that's out there with their platform and then so if i give you new ceo steven uh i'm sure i'm butchering this name but hey kian as a new ceo that doesn't do anything for you no like seriously you should like you're at a point where your company should be selling itself you know what you know what i mean like like you should have a brand you should have a platform. You should have all the services that people are looking for, you know, and it's just the momentum just has not gotten there. And in fact, I believe the next year there are this year, um, or coming up very soon, they're expecting a decline in sales. So you're going to have to shrink in order to, to try to reinvigorate growth. So, so yeah, there's a lot, there's a lot going

Starting point is 00:15:28 on at this company. New CEO, reorganizing the sales team, reorganizing operations. This is not a rule-breaker turnaround, in my opinion. Fair enough. Fair enough. All right, let's move on. Rick, I'm going to give you the Honest Company, ticker HNST, the Jessica Alba-backed company here. Lots of consumer goods. I think maybe best known for diapers. So faker or breakery here, Rick, do you see some dark clouds we can see through? I'm going to go with a faker, uh, but I'm going to tell you why it's, it's, it's, it's, it doesn't feel like a faker, but it's definitely doesn't feel like a break either. So a few years ago, like right around, right around the pandemic, uh, you know, uh, I couldn't get enough of the

Starting point is 00:16:12 citrus vanilla shampoo and body wash. I mean, it's labeled as a baby product, but it's a baby friendly product that adults can use. And you wind up smelling like orange creamsicle. And I mean this in a good way as a fan of orange and vanilla coming together. But I haven't bought it in years. And sure enough, when I looked at the financials, I'm not alone. So, this is a company that had this blowout 2020 and the year before that, too, with double-digit growth. But it's been five years of single-digit revenue growth here for The Honest Company. You mentioned Alba, of course, the co-founder and superstar. She stepped down as the chief creative officer last year, but she's still on the board, I believe. But it's just hard to stand out with consumer products like this,

Starting point is 00:16:49 And even when your heart is in the right place, and again, you want them to succeed. It's almost like the food with integrity that Chipotle has. That's their approach to consumer products, making everything clean, eco-friendly, you know, efficient. They do everything right. You want them to succeed. But there's not really a lot of growth here. And it's sort of hard to stand out, even though it is, obviously, especially on the personal

Starting point is 00:17:08 care and the baby products for the baby wipes and the diapers. They have that market where they have their very fanatically devoted, you know, user base. but then we're sort of asking ourselves if baby is growth is the solution that we're talking about population rates and i don't want to play that math so i'm going to go with faker all right let's end with uh one that has been around for a really long time and i want you both to come in with a sentence on this one and that is yelp poor yelp ticker y-e-l-p faker or breaker and i'm going to give you this to tee it up to see if I can convince you that maybe there's some breakerishness here. They do have a conversational AI tool that helps users book pros. There's apparently 400%

Starting point is 00:17:54 increase in project submissions through the tool. So they're getting some usage there, but the numbers maybe aren't as great as we would like to see. So Dave, I will start with you faker or breaker? So a number of years ago, I was actually very bullish on this company from a valuation standpoint. I figured, uh, they have all sorts of data, all sorts of engagement. They should be able to, you know, continue to turn themselves around and grow. But man, it's, it just hasn't worked out how I anticipated. So I'm going with faker. And I think the reason is, is I don't know if they really have enough oomph to handle the substitute products that are out there that can do the job as well, if not, in some cases, better. So they haven't made their

Starting point is 00:18:46 switching costs high enough for people to stay, in my opinion. And that hurts them over the longer term. Fair enough. All right, Rick, faker or breaker? Can you see through the dark clouds here? I can eat my way through the dark clouds, but I'm going to go, I'm going to, again, with this case, I'm going to go also with a faker for Yelp. And the conversational, I think it's interesting, but again, Dave just shot down the company that has the ticker symbol AI and has dozens of enterprise platform software solutions based on AI for a long time. It's just not showing growth. To me, that's Yelp has that problem. Yelp is, Yelp elite used to mean something. Now there's so many other places you can get reviews for just about anything,

Starting point is 00:19:27 even AI from the actual search engines themselves. But more importantly, this is a business that's been slowing for more than a decade and a half. So before the pandemic, revenue growth from six years up to 2019 went from almost 70% growth to down to 8% growth in 2019. The pandemic happened, everything cratered. Then it picked up, bounced naturally in 2021-22, but we're in the same boat. This will be the fifth consecutive year of accelerating growth, and now it's a mid-single digits i don't see yelp uh finding a way out of this so i went faker as well fair enough all right three fakers your tickers are ai that's for c3 ai the honest company ticker h n s t and for yelp ticker y e l p poor poor yelp i mean they just they they have not been able to to get over i'll

Starting point is 00:20:19 I'll tell you, it's been, I was cheering for them. I was cheering hard. I mean, yeah, they hate, you hate to see it. All right. Up next we'll preview Tuesday show. You're listening to Motley Fool money. All right. We're back. Thank you for listening to Motley Fool money up tomorrow. Emily Flippen welcomes Jason Hall and Jeff Santoro expect plenty of stock banter and maybe a bit of Thanksgiving gratitude. As a reminder, there will be no podcast on Thursday this week, seeing as that is the Thanksgiving holiday here in the United States. Allow all of us here at The Motley Fool to wish you and yours a wonderful time together. But again, tomorrow, you've got Emily Flippen, Jason Hall, Jeff Santoro, bit of banter, bit of turkey talk,

Starting point is 00:21:03 and we'll have more for you next week. But for today, thank you so much to Dave Meyer and Rick Thanks, guys. Appreciate you being here. 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. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Rick Benares and Dave Meyer, our engineer is Dan Boyd, and our producer is Anand Chakravallu.

Starting point is 00:21:48 I am your host, Tim Byers. Thank you for listening to Motley Fool Money. See you again tomorrow, fools. Fool on!

Motley Fool Hidden Gems Investing - Reckless Earnings Predictions: ZM, BBY, DE

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