Motley Fool Hidden Gems Investing - Restaurant Record Highs and The Cult of We

Episode Date: July 23, 2021

Domino’s delivers. Chipotle serves up big earnings. Snap surprises. Netflix slips. Crocs kicks it up a notch. Zoom Video buys Five9. Johnson & Johnson rises. And Boston Beer fizzles. Motley Fool analysts Jason Moser and Maria Gallagher discuss those stories and share two stocks on their radar: PayPal and Squarespace. Plus, Wall Street Journal reporter Elliot Brown talks about the new book he co-authored, The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion. Looking for more stocks for your radar? Get 50% off our Stock Advisor service just by going to http://RadarStocks.fool.com. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me this week, Senior Analyst Jason Moser and Maria Gallagher. Good to see you both. Nice to see you. We've got the latest headlines from Wall Street. Elliot Brown from The Wall Street Journal is our guest. As always, we've got a couple of stocks on our radar, but we begin with the red-hot restaurant industry. Domino's Pizza and Chipotle, both hitting new all-time highs this week after strong second quarter results. In Domino's case, Maria, it wasn't just that profits and revenue beat Wall Street's expectations,

they continue to increase their same-store sales, both here in the U.S. and around the world. Yeah, I think you've said it best, Chris, which is to never bet against pizza. So, U.S. same-store sales growth was 3.5%. International same-store sales growth was about 14%. It's the 110th consecutive quarter of international same-store sales growth and 41st consecutive quarter of U.S. same-store sales growth. What you see as well is that in the U.S., there was an increase in items per order. Internationally, a lot of growth was due to reopening. So, hopefully, farther down the line, that translates to that higher order. And the thing with Domino's is, you know what you're getting when you get Domino's,

and you get it quickly. So, their car side delivery consistently averages below two minutes from out the door to the customer. Or you have delivery, and then you have autonomous delivery being tested out in Houston. So, it's a good place to get pizza, and pizza that is delivered fast, and pizza is always a good delivery food. So, it's just another really good quarter for Domino's. Well, and you and I were talking about this earlier in the week. There are always going to be people who will look down their nose at Domino's. But as you said, part of the success of this business is the reliability, both in terms of the product and the product getting to your home. Yeah. And it's pretty interesting because their growth in rural areas outperformed in urban

areas. And so, it's interesting to see that reliability, even when you're going maybe a little bit farther, whereas in urban areas, like I'm in New York, I can walk to a Domino's in one block. But when you get that delivery and it's probably a little bit farther away, it's that consistency and that reliability that I think continues to drive it. With Chipotle, Jason, the digital sales have been strong for a while, but it seems like part of the story with this latest quarter is the return of dine-in customers. I think that's definitely a fair assessment. I mean, one could look at these results and say they are the product of a very challenging quarter from a year ago, and maybe that investors should curb their enthusiasm. I think that's a mistake.

I think this is a company that's poised to keep on winning. Chris, imagine what happens if they actually mention breakfast in an earnings call for once, which they didn't do this quarter, by the way. But to those numbers, into the digital sales that you were calling out there, digital sales grew 10.5% from a year ago, represented 48.5% of sales for this quarter. But if you look back just a quarter ago, it was around half, so it was a little bit more a quarter ago. But a year ago, digital sales were greater than 60%. So, we're seeing that moderate a little bit. That speaks to your point about people actually being willing to either go back into the restaurant or pick up from the restaurant. But all in all, comps

up 31.2%. Restaurant-level operating margin up to 24.5%. That was double from a year ago. And to me, this really is all about the opportunity, because they're back to their peak $2.5 million annual average unit volume. Now, they're gunning for $3 million. So, that's $3 million on average per store per year that they're aiming for. Now, for a company that is still running around 2,800 stores or so, they see an opportunity for 6,000 stores in total. So, you put the Matt, together there, you're talking about potentially $18 billion in revenue based on those numbers in a company that's doing currently about $7 billion in revenue today. So, I certainly understand the optimism behind the stock. Yes, it's richly valued, but it's high-quality,

it's a proven operator with a lot of market opportunity yet to capture. Just real quick, and I don't want you to get my hopes up here, but is breakfast a catalyst for Chipotle? Is that something they're considering? Because from an investing standpoint, we saw what All Day Breakfast did for McDonald's shareholders a few years ago. It is definitely something they continue to test, and it's something that I think eventually will roll out. It represents incremental opportunity. If you can open your stores earlier in the day and get those additional sales, it really should do nothing but really boost that top line. Starbucks reports their earnings

next week. That stock also hit a new all-time high this week. You think back a year ago, Maria, every restaurant chain was struggling. A few months ago, hiring was a huge challenge for most, if not all of them. But you look at how Chipotle, Domino's, and Starbucks are all performing, and it seems like these three are starting to separate themselves and show everyone else, this is what it takes to succeed, both in terms of hiring, how we treat our employees, and how we deal with our customers. Yeah. And I think it's a combination of all of those things. And it's food that's good for delivery. I think delivery is going to be continued. If you're bored of cooking and maybe you're not quite sure that you want to go back

to restaurants yet, these are good places to get delivery. Or in Starbucks' case, just go in and out really fast. Chipotle as well, just go in and out. Even if you're dining in, you might dine outside. So I think it's just interesting to see how consumer habits will shift in terms of how much loyalty they have to these companies. Well, and Jason, a point you've made before, I know Starbucks has lagged the other two, but the mobile app that Domino's and Chipotle have developed really is key to their success. I don't understand how any business out there today can't be focused on a mobile presence. This is just where the consumers are. That is not going to change. The companies like Chipotle, Starbucks, Domino's, Papa John's,

had the wherewithal to make these big investments and to take this chance so early into the game, and it's really starting to pay off. Snap's second quarter included an adjusted profit that apparently no one was expecting. Daily active users are up, revenue per user is up, and shares of Snap up more than 20% on Friday, Maria. Yeah. When you think about social media in general, I think the real question is, how much time can people waste on these apps every single day? Snap has continually proven that it's a lot of time. They've reached nearly 300 million daily active users. Daily time spent on the app per user grew over 60% last quarter. Revenue was up 116%. Revenue is up over 100% in

North America, 94% in Europe, 86% in the rest of the world. People are spending a lot of time on the apps. It's an integrated part of their daily habits. If you have those top five, 10, you have Snap, you have Twitter, you have TikTok, Facebook, and Instagram. People will rotate through all of them throughout their days. On average, a user of social media spends over two and a half hours every day on these apps, and you filter between all of them. I think that Snap specifically continues to prove just a lot of people spend a lot of their time, and that leads to a lot of advertising dollars and spending on these platforms. It is interesting to see how this business has grown because when they were going public, a lot of the questions were

around the monetization. But as you said, their ability to not just help people waste time, but also to satisfy advertisers has been so key to their growth. Yeah, I am a person, I always say I'm an advertiser's dream. I get any targeted ad, there's a 90% chance I want it and I buy it. And so you see in all of these social medias, they understand your spending habits better than you do a lot of times. And so I don't mind it when I go. I know that there's a lot of concerns, but I like scrolling through the apps and seeing targeted ads for stuff because a lot of times it is stuff I want. It's not kind of something random. It's targeted to you, which I think is useful. Shares of Netflix down a bit this week

after a less than amazing second quarter. Profits were lower than expected, but they added 1.5 million global subscribers, which puts them somewhere in the neighborhood of 210 million paid subs, Jason. Yeah, I think this was a lot more of what you would expect, I think, from a company that continues to make just really big investments in content. To quantify that, streaming obligations now stand at just under $22 billion versus just over $19 billion at the end of 2020. That's the fuel that keeps this engine running, no surprise there. But you said it, global paid subscribers exceeded the guidance they set out last quarter. That's good to see. Always looking for management to exceed their

targets. Not so worried about Wall Street targets. They did acknowledge recent lumpiness for obvious reasons. Asia Pacific, believe it or not, represented the crux of the growth there in global subscribers, and average revenue per membership was up 4%, excluding currency effects. I think, really, probably the biggest story for the quarter for Netflix is this investment that they're making in gaming. Remember, they just recently hired Mike Verdu to serve as Netflix's Vice President of Game Development. Ultimately, they view gaming as another content category, something akin to their expansion into original content. It's going to be something that's included in members' subscriptions at no additional

cost. It's going to give them the opportunity to test and learn there. Who knows? If it gains traction, then they can do more with it. But I think this is all really pointing towards Netflix's ultimate aspirations of just becoming that modern-day 21st century multimedia company. It's not going to be just video streaming. They really do have bigger aspirations. Coming up, a reminder that comfortable footwear can be rewarding for your portfolio as well as your feet. Details after the break, stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Maria Gallagher and Jason Moser.

You can catch Motley Fool Money every week on your favorite podcast platform and on radio stations across America, including our newest affiliate, WHTC in Holland, Michigan. Shout out to Michigan. Welcome to the family. Welcome, indeed. Shares of Crocs up nearly 20% this week after the footwear company put up record revenue of $640 million in the second quarter. Maria, Andrew Ries took over as CEO four years ago. Crocs, they were at $7 a share, and today it's at $130. Crocs is a shoe that I judge, but it's a stock that I'm interested in. People started buying these in the pandemic, and they have no interest in stopping. They appeal to such a wide audience.

I mean, I was thinking about it, how many other brands can have partnerships with Balenciaga, Justin Bieber, Drew Barrymore, and Bad Bunny? So, it leads to consistent beats on revenue, like you said, with the past quarter revenue of $641 million, which translates to $29.1 million shoes sold. This was their 17th quarter of double-digit e-commerce growth, and it raised its guidance for this full year. So, it's really an interesting stock, even if I don't think I'll ever buy the shoes. The digital sales is pretty interesting to see because there are companies in the apparel space that really struggle with that. And I think it's one more testament to Reese and his team that they've been able to do that with their digital sales.

Yeah. And I mean, their digital sales were up 25%. They are about 36% of their second quarter sales. So, a good portion of their sales are now through digital channels. And I think the good thing is with Crocs, I think you're pretty sure you know what size you are when you see them. There's not a lot of versatility in what you're getting. Earlier this week, Zoom Video announced it is buying Five9, a cloud-based call center operator for $14.7 billion in stock. Shares of Zoom Video down a little bit this week. Jason, are there people on Wall Street who think they pay too much? Or do they just think this isn't a good acquisition because of Five9's business? Well, no, I think it's just always the burden of proof is on the acquirer to really

show that it makes sense. And honestly, I look at this, the first thing I thought of when I read about this deal on Zoom's investor relations website was one word, it was Salesforce. And so, I mean, I think it's fair to view Zoom on the same playing field as Salesforce with this deal. It certainly shows management's grander aspirations. And when you look at what Five9 does, they run virtual call centers. They essentially open up the lines of communications in today's multi-channel world. So, I mean, customer service agents can respond to inquiries across all platforms. And really, it is, I think, ultimately about the market opportunity. Zoom definitely needs to figure out how to build out an arsenal of capability beyond its core competency. It's

done very well thus far, but they need to leverage that expertise in communications. And I think this is one strong way to do it, frankly. I mean, if you look at the market opportunity, Zoom sees that total addressable market today at around $86 billion. But if you look at the total addressable market in this space, by Salesforce's judgment, and Salesforce is a bigger business, they do more things. But now, all of a sudden, you're talking about a $175 billion market opportunity. So, there are a lot of dollars out there, even just a little success here. It can result in some big, big numbers for Zoom. In regard to the deal, it's all stock. They're taking advantage of a strong valuation. It'll dilute Zoom's current share

account by around 12.5%. But 5.9%, strong business, 58%, 60% gross margin. This price is the deal at around 30 times sales. That's pretty much in line with the way a lot of these companies are being valued today. Shares of Johnson & Johnson up a bit this week after second quarter profits and revenue came in higher than expected. J&J also raised guidance for the full fiscal year. Maria, this is one of those quarters where I think if you're a shareholder, there is a lot to like. Yeah, I think Johnson & Johnson is a company that even if you don't realize it, it just touches your life almost every day. It had global sales of $23.3 billion, and that breaks down to three segments. The first

is worldwide consumer health sales. That was up about 13.3%. That's brands we know and use like Aveeno, Neutrogena, Motrin, Zyrtec, Band-Aid. Then you have pharmaceutical sales, which are up 17.2%, and that's their largest segment. That's selling medications from problems like plaque psoriasis to immune inflammatory diseases, prostate cancer. And then you have worldwide medical device sales, which that section was up over 60%, with everything from surgical vision to hips and spine devices. So, it's just such a behemoth, and there are so many moving parts to it. And in this quarter, at least, all of these parts seem to be moving well and moving in the right direction. Is it safe to assume that Johnson & Johnson

is one of the companies that benefits from an increase in elective surgery? Because that's something we've, for all of the obvious reasons, we've seen a big reduction in that over the last 15 months. Yeah. When you look at their medical device platform, you see so many things. A lot of eye surgeries, which I think is one of those elective surgery. I think that that will help. Shares of Boston Beer Company falling more than 20% on Friday after second quarter profits and revenue came in much lower than expected. The company said sales of their hard seltzer brand truly were weaker than they had projected. Jason, the stock's down more than 20% in a single day. How bad were the hard seltzer

numbers. Chris, you live by the seltzer, you die by the seltzer, my friend. I am unfortunately not surprised to see the market's reaction based on these numbers. I am a little surprised, though, to see these numbers. That's a pretty steep drop-off in seltzer demand. We know that their beer business has been having some problems for a while now. Ultimately, what this boiled down to was, they thought there was just going to be greater demand for seltzer than materialized. They had really devoted a lot of their production to seltzer, less so to their other offerings like Twisted Tea and whatnot. Thanks to competition, thanks to the economy opening back up, people getting out of their house, less pantry stuffing, we just saw lower numbers in the demand for

their Seltzer product. Depletions of 24% were down from 48% just a quarter ago. And they made some significant revisions to guidance as well. And when I say significant, I mean, they took full-year earnings per share from a range of $22 to $26. They reduced that to $18 to $22. And they reduced that shipments and depletions number from 40% to 50% to 25% to 40%. You put that all together. Now, with this selloff today, the stock is trading at somewhere around 35 times full-year estimates. That actually seems pretty normal for what is a high-quality business with some powerful brands. I think there was just a lot of enthusiasm baked into that stock price based on that seltzer performance that they had seen over the past year. And at some point, you have to be

able to deliver those numbers. If you don't, the market's going to correct the stock price based on those new expectations. And I think that's just what we're seeing here today. Is there an opportunity for them this fall with hopefully more people returning to stadiums for football games, or is that not anything they're projecting? I think there's plenty of opportunity as the economy continues to open back up. They have said the on-premise sites, you're talking about people going back to restaurants, games, and whatnot, that absolutely is an opportunity. But the competition in the space has just heated up so much. I think that's going to make a big difference. Jason Moser, Maria Gallagher,

we'll see you later in the show. But up next, Elliot Brown from The Wall Street Journal on the incredible rise and staggering fall of WeWork. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. In 2019, in the span of just a few weeks, WeWork went from being the most valuable startup company in America to losing more than 80% of its value. How it all started and how it all came crashing down is brilliantly captured in the brand new book, The Cult of We, WeWork, Adam Neumann, and the Great Startup. Elliot Brown, a Wall Street Journal reporter and co-author of the book, joins me now from New York. Elliot, thanks for being here. Happy to be here.

Let me start at the beginning for you, which was 2013, you're covering real estate, you meet Adam Neumann for the first time. What was your impression of him? I was interested in WeWork because they were this expanding office space company and doing co-working. And that was a trend I was interested in and was immediately just sort of captured by how much energy this guy had and this sort of, you know, he was not the boring suit of a landlord that I was used to. And he just starts name dropping like Ashton Kutcher and Rahm Emanuel and shows me a video of their summer camp with beer and him like on a boat in the lake. And it's like, wow, this is fun. And then the sort of other main thing that stood out,

or there were a couple, but he, one was very insistent that like, well, you're a real estate reporter. We aren't a real estate company. So why are you, I don't think you should be the one to write about us. Uh, and so that's one thing. And then sort of related, he, he just had this way of talking about the future that at the time I was like, uh, you know, he was describing how, when they open up in Portland in nine months, they will be full within two weeks. And he'd just say it with extreme confidence. And my thought was like, wow, that's amazing. Uh, that's a good business. And then afterward I was like, wait, how would he know that? Like, you can't know what's going to happen in nine months. Uh, but, but in the moment I was really there. So I know he's very

friendly and gracious. And you're really like he was just so warm and that you can really see why people give him money. One of the things I was thinking about as I was reading the book that you and your colleague Maureen Farrell wrote was something that behavioral economist Dan Ariely has said, which is how story is more important than data. Story has emotion, but data does not. And Adam Neumann was really good at telling a pretty compelling story, both to his employees and investors, wasn't he? Yeah. And actually, there's a moment we have an anecdote in the book where he says the quiet part out loud. He says almost exactly what you just said. And he's in a meeting with the CEO of Compass, a real estate company. And Adam was

just obsessed with valuation. And he tells the CEO of Compass, you know, why do you think your revenue multiple is worse than mine? Like, why are you valued so much less compared to me based on your revenue. And he has them all go around the room and they each say something, everyone in the office. And then he just says, you're all wrong. It's because of my story. And he was right. Like, I mean, that is the reason that WeWork was valued essentially like 20 times higher than a comparable real estate company doing the same thing. And there is, you know, not to leap to Adam Newman's defense, but there is a pretty rich history, particularly in Silicon Valley among startups, the whole idea of fake it till you make it. Early on, it doesn't seem like there

were necessarily a ton of red flags. Yeah, I think that's right. I think that's probably why they got one of the premier venture capital firms to invest in the benchmark early on. Actually, if you go back, WeWork is now known for just having these completely outsized losses in the billions, but they actually had a profitable year in 2012 by their own counting. And like, that was the one of the things that attracted benchmark. They're like, wow, this, not only does this guy have a story, um, and is just like this outsized personality that tends to be the type of entrepreneurs we invest in, but they also have a business that makes a profit. We don't see that very often. Uh, and you know, the thing that everyone was forgetting is that

most normal businesses raise, like have profits. That's, that's what a business is. Uh, the issue was, you know, WeWork was never something designed for venture capital, where you sort of fund investment upfront in building software, and then, you know, reap the rewards later once it grows to a certain scale. I want to come back to the venture capital in a second. But first, one of the great things about this book is there are a lot of anecdotes about excess, both in terms of behavior, but also in terms of how money is spent. What was the first indication that you had that something amiss was happening, either in the business of WeWork or in the corporate culture?

So, two separate answers. So, the business was, that one was pretty clear to me, where I was covering it as a real estate reporter, and then I found out their valuation. I was like, why is it worth $1.5 billion. Like I know what a building is worth and they don't even own their space. And, and, and the amount of space that they lease should bring them nowhere close to one and a half billion dollars. Uh, so, and then when you combine that with how they insisted that they were a tech company and they weren't, um, that, that sort of, sort of the light bulb went off. I was like, oh, I get it now. That's why they say they're not a real estate company because they need to sort of have this story to get evaluation. And then on the cultural side, it was later,

Like after I was learning more and sort of digging in because I was really interested in what this weird company that was saying it wasn't a real estate company was, uh, I found, you know, just like started to come on these anecdotes of these stories of just all of the drinking and, and excess where, you know, they would just have past tequila shots out to the entire staff. And like, cause that's the sort of cultiness of it where Adam likes tequila and therefore the entire company drinks tequila. Um, and, uh, you know, then, then I started to learn that like they're this tiny series B company, uh, like meaning they just raised their second round of venture capital and Adam was only flying private basically. Uh, and like private planes are extremely expensive. Like a round trip ticket to Tokyo is like $250,000 in the plane that Adam would fly. Like that's, that's more than a first class ticket.

So, um, like that was another pretty quick sign that it's like, what is, what's going on it, this really tiny kind of office space subleasing company that I'd like to cover. So one of the things that comes up repeatedly in the book is the idea of oversight. Because as investors, we like to think that any business that we're investing in has adults in the room and has some measure of oversight, whether it's the board of directors or whatever. You mentioned Benchmark. WeWork has Goldman Sachs, JPMorgan Chase, Fidelity, T. Rowe Price. some of the gold standard names that you would want to be involved with. And then SoftBank comes along. And I would love your thoughts on the relationship between Adam Neumann and Masayoshi

San, because part of me thinks, well, it could have been anyone with deep pockets to fund this company. But San comes along and tells him, you're not being crazy enough, which is probably not the advice that Adam Newman needed to hear. So, so when that happened, the staffers who, you know, were around Adam a bunch would, and he'd meet with Masa and then he'd come back from these meetings where Masa would tell him to be crazier. And they would just like put their, their hands on their palms because, um, you know, it's like Adam by his own telling is like crazy already. Uh, and, and then he'd be told you aren't thinking big enough. And they'd be like, Jesus, we just bought a wave pool company. Like what are we going to do next? Uh, and so, yeah, I mean, I think that

oversight was really lacking before soft bank. I mean, you know, to be clear, they, they did buy 42% of a wave pool company before soft bank came along, they were riding private all the time. They just didn't own a jet yet. Uh, and you know, then after soft bank came in with all this money, they started to do really crazy things where it was just like, let's start our own elementary school. And, you know, let's start, you know, Adam's mind went to a megalomania level where he's like, I could be president of the world and I can live forever. And, you know, I need to have eight homes. So I think SoftBank was a real accelerant. And yeah, I mean, it was the type of thing where I sort of initially came into this thinking, well, people who have billions of

dollars are like, there's, it's not going to be as absurd as just like throwing money around. Like there's going to be more thought that goes into that. But I guess one of the main lessons is kind of at all levels, uh, it was so much more reckless than I thought the financial system was. I mean, it was almost always the case that you had, or, you know, at a lot of these levels you had at the mutual funds at soft bank and private equity fund, you had the principles that, you know, the, the leaders of these firms in a one-on-one meeting with Adam or, you know, three on three and in the room with him. And they can within minutes are convinced to give an investment. And then they're like, okay, but we'll do due diligence. But then the analysts would come back

at their firms and be like, this is a real estate company. And it's valued at like 20 times a real estate company. This is not a good investment. And they'd be like, yeah, we're going to do it. So it was, uh, the, the process was there to look at it, but the, the decision had already essentially been made, which is just, yeah, like the recklessness was a quick decision. And then the not reckless part of it was kind of ignored. What do you chalk that up to? The idea that they do the due diligence, the analysts come back, say, no, this is a bad investment. We're going to do it anyway. Is it that there's so much money to go around in terms of venture capital? Is it fear of missing out? What is it? Yes. Yes and yes. And I think broadly what I learned,

and this is not new to anyone who's studied the history of these things, is bubbles, frenzies really just warp minds. And so they make it so if you're an investor, it's a lot harder to have critical thinking. Kind of in the same way that when a stock goes up 10x, then suddenly there's more people that are thinking, oh, well, it goes up from here. Uh, when, uh, like that, that's, uh, you know, theoretically the worst thing you should be thinking after a stock sort of irrationally just jumped up 10 X, um, cause it's a lot more overvalued than it was, um, presumably. So, uh, yeah, I mean, I think that what happens in a bubble is, is people don't think critically and there might be all these negative reasons, but there's just one positive

reason. And they, they, they zoom in on the positive and ignore the negative. Uh, and then, yeah, in terms of the FOMO, it's just like these guys needed to spend money. So the example with Masa was sort of what we, in SoftBank, what we learned, um, is he got, SoftBank got its check of, of $45 billion from the Saudis or committed, uh, in like November of 2016, in December of 2016, um, Masayoshi Son meets Adam and in 12 minutes on a high, like a pit stop on the way to Trump tower to meet the president elect decides to give him $4 billion. And so, you know, commits to the, the second largest venture capital investment in the U S, uh, ever. And, um, like, you know, that that's just, uh, I, I, there has to be a relationship there between like, I just raised

a hundred billion dollar fund. I need to spend it. I need to show my investors that I can get into big companies, Uber and Airbnb probably don't want my money. Um, or certainly not yet. So, like, here's this guy, he can absorb $4 billion, and he seems to have all the qualities that I like in terms of just sort of like hard-charging visionary founder who speaks really fast. Let's cut to August of 2019. WeWork's getting ready to go public, they file their S-1, and then people actually read it, which is when the dam breaks. And this is something you point out in the book. When companies go public, there can be businesses that have their skeptics, but there will always be defenders. There's always someone willing to make the bull case

for the company. WeWork's S-1 filing comes out, and it is just blood in the water. I mean, Scott Galloway, Jim Cramer on CNBC, Matt Levine at Bloomberg, and God knows how many people on Twitter are going through it and just ripping this apart because they can't believe what they're reading. Yes. Uh, that, that was, it's funny. Like I was on vacation, like I'd been, you know, we work with my baby and I'd been covering it forever and doing all these stories that, you know, had not been sticking where I'd be like, it's kind of looks like a real estate company and is valued like a software company. Uh, but then I'm on vacation and then like out of reception that come back with to all these alerts, like suddenly the world gets it. Um, so this is the

sort of emperor's new clothes moment or the parade moment in the emperor's new clothes where people suddenly start saying like, no, he's not wearing clothes. Like it's not a tech company because I think just, it was too absurd there. It was just like, you know, he restructured, this didn't even get pressed because it was, it was so esoteric, but like he restructured the entire corporate structure of the company to give himself better tax treatment on its stock options. Uh, he, uh, and he had a compensation package that would give him like another 7% of the company or something like that. If he hit certain targets, uh, these were things that didn't even get mentioned because there was so much, uh, he's leasing properties to himself, uh, or leasing properties to the

company and get the companies paying him millions. Um, so yeah, it was just like this endless parade of things you can write about. And, uh, then, you know, people rightfully also like had been starting to question why companies are, it just become routine to lose $2 billion a year before, uh, going public. Like that, that that's not like a normal thing in, in, um, you know, of startup history. We were talking during the break. Look, this is two years ago, and I know a lot of people have short memories, but it is worth pointing out. I mean, I don't recall ever seeing anything like this before. In real time, when it was happening, the idea that they're going to go public at this huge valuation, and in the span of a few weeks, it's, okay, we're going

to cut our valuation in half, or we're going to cut it even further. And then investment bankers are basically saying, en masse, we can't get anyone to buy this, and the IPO has to be shelved. These same investment makers, one of them told him it would be worth $96 billion a few months earlier. And yeah, I mean, it was just so extraordinary of a moment in business. And the market sort of came back with a real fire afterward eventually. But at the time, it was, and for a brief while, it was like, it really iced over Silicon Valley startups. I mean, people have a ton of trouble raising money. Suddenly, all these companies that had been funded with the same thesis of just light money on fire to try to grow revenue, they were suddenly

told, no, this no longer works. This predominant thesis of the era is wrong. They suddenly had to just start cutting. All of these soft bank companies were laying off huge chunks of their staff. Um, and it was, it seemed like it was going to be the end of the era or the punctuation on the era of startup and say, or like unicorn insanity. Um, but, uh, yeah, then, um, then the pandemic happened and things changed. Well, just like Theranos happened and we thought, well, we'll never have that type of thing happen again. And, and along comes Adam Newman. Yeah. Though I think one of the funny differences between Theranos and WeWork is, you know, Theranos was about a charismatic entrepreneur lying to convince unsophisticated investors,

you know, like former secretaries of state, uh, to, to back the company. Um, whereas Adam was able to use truth, um, but contorting it, uh, to convince sophisticated investors to see something that as, as real, that wasn't. So he taught sophisticated investors to, you know, look at, a real estate company and see a disruptive startup. The book is The Cult of We. We work Adam Neumann and the great startup. It is already a bestseller on Amazon. And by this time next week, I'm pretty sure it's going to be on other bestsellers as well. I should give you the caveat that it's a micro category on Amazon. So we still need everyone's help. So please buy our book. It's a fascinating read. Elliot, congrats to you and Maureen Farrell. Thanks so much for

Thanks for having me. Up next, Maria Gallagher and Jason Moser return with a couple of stocks on their radar. Stay right here, this is 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 once again with Maria Gallagher and Jason Moser. Radar stocks, let's get to them quick. Rick Engdahl is our man behind the glass this week. He's going to hit you with a question. Moser, you're up first. What are you looking at? Yeah, keeping an eye on PayPal,

PYPL. This war on cash staple has hit another 52-week high this week, Chris. Earnings coming out next Wednesday. They're pushing $1 trillion annually through their networks now. I want to hear how many times they mentioned the word, Super App, on their conference call on Wednesday. PayPal. Stock's having a great year to date, up 30%, doubling the market. I expect more. Rick, question about PayPal? Yeah. Whenever I have to use PayPal, I feel like I'm in a little time machine back to 1998. Just like the user interface that I come up against. Is there anybody under 45 still signing up for PayPal, Jason? No, I think they're all signing up for Venmo.

Maria Gallagher, what are you looking at? I'm looking at Squarespace, ticker symbol SQSP. They went public in May of this year. Together, Wix and Squarespace power 55% of websites that are built with a website builder. I follow Wix a little bit, and I think it's important to kind of understand the differences between Squarespace and Wix and compare and contrast the two. It's done pretty well since it IPO'd or did direct listing in May. So, I'm interested in it. Rick, question about Squarespace? I am actually a Squarespace customer. I have a couple of websites that I haven't updated in a couple of years, but I'm still paying for them. I'm wondering how many more customers like me are out there? How much do they depend on dormant sites? Interesting. It's

like gyms. How many people are paying for memberships even though they never step foot into a gym. That's something I'll look out for. Rick Engdahl, you got one of those two stocks you want to add to your watch list? To be honest, I own shares of both of them already, so you both win. All right. I'll take it. Rhea Gallagher, Jason Moser, thanks so much for being here. Thank you. Thanks for having us. That's going to do it for this week's edition of Motley Fool Money. The show is mixed by Rick Engdahl. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening.

We'll see you next week.