Motley Fool Hidden Gems Investing - SeaWorld's Sea Change

Episode Date: March 18, 2016

FedEx delivers. Oracle rides the cloud. Chipotle stumbles. And SeaWorld Entertainment makes a big, big decision. Our analysts discuss those stories and USA Today San Francisco bureau chief John Swartz talks South by Southwest. For a chance to win your own investing library, go to podcasts.fool.com.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. 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 from Million Dollar Portfolio, Jason Moser. And from Million Dollar Portfolio and Supernova, But Matt Argersinger and Simon Erickson, good to see you as always, gentlemen. Hey there, Chris. We have got the latest headlines from Wall Street. We will head to Austin, Texas for a report from South by Southwest.

And as always, we'll give you an inside look at the stocks on our radar. But we begin this week in the healthcare industry. Shares of Valiant Pharmaceuticals down 60% after the company said it would miss a deadline to file its annual report. CEO Mike Pearson sent a memo to employees assuring them that the company was not on the verge of bankruptcy. I guess it just kind of looks that way, huh, Matt? Well, Chris, it was, gosh, three weeks ago, I think we were on the show, and we said,

you know, where there's smoke, there's fire. Well, it turns out there's actually napalm when it comes to buying pharmaceutical, not to be dramatic. But this is a company with a lot of problems right now. So, delaying the 10-K filing, companies do that a lot, but usually for the wrong reasons. It's usually there's an accounting irregularity, and it Turns out, they probably have several. What that does, more worrisome, is that that's going to trigger, possibly from their bank lenders, accelerated debt payments. This is a company with $30 billion in debt, three times the market cap right now, a shrunken market cap. You have the CEO who's potentially leaving, you have a shifting back towards

what they say is going to be organic growth versus acquisitions, which is what they're known for. There's so many red flags, I don't even know where to start with this one. And if you're an investor who's looking at this company and thinking, hey, Bill Ackman's buying this, or he owns it, and it's down 80% from its all-time high, it's got to be, well, be very, very aware. Sure, yeah. I think that's something that we all have agreed on for a while here and now. This is a business that is obviously in big-time trouble. I find it interesting when you ask management, are you on the verge of bankruptcy? Well, we're not on the verge of bankruptcy, but we're kind of getting close

to the verge. So, we're going to try to back away from the verge. We're a couple blocks away. I'm not saying these guys are on the verge of bankruptcy, but their strategy is going to have to make a massive shift here. When you have a business that grows via acquisition and typically issues equity to do so, and Now that equity has gotten hammered. No one wants those shares as currency, no one in their right mind. Again, Matty said it, and I think we said it last week, there are more red flags than we can count here. There's no reason at all for a rational investor to jump in here, unless you just really feel like flipping a coin or taking a bet. And

to his point about Ackman, I'm not quite sure why he gets all that press. Maybe it's the hair or something, but he has a number of poor investment decisions he's made, and it sounds like this is another one. But that's a whole other topic we could get into, and we should get into at some point. Bill Ackman, his fund is down, not only just $3 billion roughly in Valiant, his fund has lost about 50% of its value since roughly mid-2014. It's amazing to me the investors like Lemmings who continue to flock to this guy, in the media or wherever else. We talk all the time about emotions for investors, and I at least understand the emotion.

This is a stock that eight months ago was over $250 a share. Now it's in the high 20s. So from just the emotional standpoint, I can see that, well, gosh, it's not going to zero. It's got to bounce back up at least a little. Well, I would say, I mean, I've had that question asked on Twitter a number of times over the past week. That very well may happen. But before you make that leap, you better identify that catalyst that's going to turn this around. Don't think it's just going to automatically turn around because it used

to be there. I mean, there are good investors that really did a lot of work on this business over the past year, felt like it was a good investment, that have really gotten burned here. So, there was something that was more or less under the radar there that they weren't able to find. So, it's not to say that if you called Valiant as being a good investment and therefore it's not, so you're a bad investor. That's not how that works. But you really do have to make sure that you understand it just doesn't automatically bounce back because it was once there before. Yeah, and Jason, I think the thing that was under the radar that the rest of the investors

were missing was the underlying business itself. The whole growth by acquisition, that's great, but we're in the era of personalized medicine, and there's a lot of other competitors out there developing core competencies that are actually investing very heavily in R&D. We haven't seen that from Valley, and I think they're behind the curve on this one. And let me just say this, to be fair, we're not just picking on Bill Ackman here. I think the bigger point here is to not look at any of these investors that get all of these headlines in the financial media, and just make the assumption that, oh, that investor's doing it, therefore I should follow in their footsteps. Always make sure you do your own work and

come to your own conclusions, because nobody's batting $1,000 out there. Tiffany's fourth quarter profits were higher than expected, but their guidance for 2016 was a little grim, Jason. Well, sure. But, I mean, there are number of reasons for that. I think what differentiates Tiffany from other retail investments, and we've talked about this before, it's the power the brand holds. I mean, if we look at their one greatest asset, it really is that brand. It's not affordable luxury, and I don't think they ever will be. If they do go that affordable luxury route, then I would be a bit concerned as an investor. But there are a number of factors that are working against Tiffany right

now. The stronger dollar not only hurting sales overseas, but it's also hurting the tourist sales within the United States. Typically, tourists will come into the United States, and Tiffany is one of those brands that they'll flock to. We're not seeing that same kind of strength there. Also, another interesting note I read about here, the average Wall Street bonus fell 9% in 2015. This is something that I think you could also say would have an effect on a business like Tiffany because it is such a luxury brand. Again, though, I think this management team has done a very good job through the years of sticking to their guns, sticking to what they know. They're not going to be running these promotions to try to gin up

sales. I mean, you have to take your lumps with this one. And anytime you see that stock at under 20X earnings, I think you have to take a little bit of a closer look because it is a retail brand that has a bit more staying power than your typical fashion retail brands that we might find out there. FedEx on the rise after strong third quarter results. A bunch of divisions. I mean, their ground division really putting up some nice revenue growth. Well, Chris, it's important to see which of these divisions are really accelerating within FedEx. Well done.

The one that really stuck out to me was actually the express division. Saw operating income up 51% in that group. Ground transport, meanwhile, was down 4%. So, I think we're in a world now of two-day shipping. A lot of that's due to Amazon and the Amazon Prime subscriptions and stuff like that. And that's been really good for FedEx in the shorter term, and we've seen that in this quarterly report. But still, for me, I'm a little bit hesitant on this, because Amazon is also aggressively building out their own logistics infrastructure. We've seen that with Prime now, which ships in some locations for $8 for one-hour delivery now, or free for two-hour. And it's going to be interesting to see, how is that going to compare with something like FedEx, which has

traditionally relied on ground shipping? Now they're getting more into express shipping, but are they going to be able to compete against a company like Amazon? If you thought Chipotle's monthly same-store sales report was going to be bad, you were right. February comps down 26%, Matty, and shares of Chipotle falling right along with them. Not 26%, only about 10% this week. But Chris, that was an improvement from the 36% lower comps in January. No, it was a bad number. It missed expectations. Chipotle's calling it an improvement, and the numbers got even better in March. But hey, we're still looking at a bad year-over-year numbers. It's important to remember that the CDC just came out in February

and gave Chipotle and everyone the all-clear about the E. coli scare. It's going to take a while for Chipotle to work through that. They also hired James Marsden, a food safety specialist. He's going to come in, and he's an expert in E. coli food pathogen elimination. The company is giving away a lot of those free burritos. I'm sure everyone at this table has gotten one of those in the mail, and I've gotten several. So, they're going to try to build traffic back that way. It's going to be a tough climb, though, and the business is much more expensive. I think, as a million-dollar portfolio, guys, we think Chipotle gets through this, we think by the second half of the year, and certainly in 2017, the numbers look a

lot better. My longer-term worry, though, is that all the measures they take, food preparation, they're talking about, for example, cooking a lot of their beef now outside of the restaurants and changing a lot of their fresh ingredients. Does that impact the brand? Does that impact the taste of the food? That could have longer-term implications for Chipotle. I don't think that's a major risk, but it's something I'm thinking about when I'm looking at Chipotle. Chipotle's CFO just recently had an investor presentation. He said that he thought that up to 7% of his customers were not going to come back after this whole food scare thing that they've been going through. I think that's the bigger thing we're looking at. We know

this is probably a short-term hiccup. It's not going to be continual that you're having E. coli problems. But has the brand damage been done that consumer habits change permanently from something like this? I think that's something we need to look at as investors. Do you think he was being conservative with the 7%? Do you think he was padding that, or do you think he was being optimistic? Oh, I think it's conservative. I mean, 7% and not coming back. We saw what was a 26% drop in Sam's Store sales right now. Maybe that's ... I still think it's conservative in the bigger picture. Am I the only one stuck on the fact that they brought in someone who is self-identified

as an E. coli expert? I mean, is this someone you want to hang out with at a barbecue or something? Can you imagine introducing them? What do you do for a living? Well, let me tell you. You go to shake hands every week. It sounds better, though, than, I guess, in this past week with the NCAA tournament, there's the bracketologists. There's actually people called bracketologists who literally study the NCAA tournament brackets for a living. I couldn't believe that. I don't know. Everyone's He's got a profession these days.

O' Coming up, your weekly reminder that apparel retail can be an ugly business. 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, I'm Chris Hill, joined in studio by Jason Moser, Matt Argersinger, and Simon Erickson. Shares of Guess down 15% this week after weak fourth quarter results, but that pales in comparison to Aeropostale, which reported a loss for

the 13th consecutive quarter, Jason. That and a ham sandwich will buy you shares of Aeropostale. I think I would rather just have a ham sandwich, actually, Chris. But I think with Guess, the problem Guess is facing is that basically the entire business is levered to that brand. And that brand just isn't resonating with consumers as it once did back in the early 90s or whenever Guess was really bigger than it is now. I think the good news is that management has this plan to grow sales approximately $800 million over the coming three years. The bad news, I don't think it's going to happen. Again, we're looking at a business here, margins are getting killed, this has been a long slow

decline, the writing has been on the wall for a very long time with this business, and I don't see anything just turning the ship around. Now, when we look at Aeropostale, I think Aeropostale is a great indicator of where guests could be headed. Aeropostale, what is there left to say? When a brand loses sway with its target market like it has, and it doesn't take the steps to try to get that target market back, that market just avoids it like the plague. You look at how outdated Aeropostale has become, you half expect to go in there and see them selling Microsoft Zunes. So, I just don't know that you're looking at any real endgame here for Aeropostale. I'm not sure why those assets would be attractive

for anyone. And if Guess doesn't watch out, they could find themselves in the same position a few years from now. O' Oracle's third quarter profits came in slightly lower than a year ago, but revenue from the cloud business up pretty big, Simon. Yeah, and Chris, let's talk about Oracle and Salesforce being frenemies over the years. built their entire infrastructure on Oracle's database. But in exchange for that, Oracle learned a thing or two about CRM software and cloud-based stuff like this. Now, Oracle is the one that's crushing it. They saw over 40% growth in their cloud-based revenue. Gross

margins popped from 43% to 52% in one quarter, and now they've got $1.5 billion of recurring revenue from customers from the cloud. I think that Oracle came out better from this and has learned a couple of things from Salesforce over the last 16, 17 years. Shares of SeaWorld Entertainment up 14% this week after the company announced it will phase out its orca breeding program. This seems like a very humane thing to do, but I don't know, guys. For as long as I can remember, the whole brand identity of SeaWorld was the killer whale logo, the show, all that sort of thing. If they don't have that, what are they?

Well, yeah, we talked before the show. Essentially, SeaWorld's now, it's an aquarium. It's an aquarium. And there's plenty of great aquariums on the East Coast or around the country to go to. Yeah, I agree. I mean, in a way, I think all of us kind of look at this and say, you know, this is the right thing to do. This is a humane thing to do. But just putting on my cold-hearted business hat, this can't be good for SeaWorld long-term. This was the major draw, and I don't know what gets people back to SeaWorld. I think you just change it over. Now you have a clown fish, and it's called Nemo World.

I mean, that's a no-brainer. You're probably bringing a whole new demographic while you're at it. I'm going with piranhas and deadly jellyfish. Wow. Preserving the fear that we had from the sharks. Man o' war world. Nice, nice. You know, the first indication I had that SeaWorld was in trouble was from our man behind the glass, Steve Broido, who saw the documentary Blackfish. It was called Blackfish, wasn't it, Steve? It was. And not only did I see it, but I sent a very nasty letter to SeaWorld saying,

I am never going to SeaWorld. You guys are terrible, and this is a horrible, horrible business. Any advice for them on what they can do to rebrand? I think they can call it Coral World. Go for the color scheme? Go for the color scheme. Nice. We recently discussed the food innovations that McDonald's is testing in Japan, and now Nestle is getting in on the act with new flavors of Kit Kat bars, including Sake-flavored Kit Kats from Jay Melton, one of our listeners and Fool of One members

in Kumamoto, Japan, sent over a box with a note that said, I haven't tried them myself. I'll leave the taste testing to you and your team of experts. Let me know what you think. Matty, you're munching into one. I'm munching away. I definitely get the sake. It's a nice, it tastes like half-white chocolate tastes half-sake. I'm liking it. I'm going by the look on Simon's face that he's taking the other side of this. I think you've got to be a sake fan. That's fantastic.

I don't know if I even taste the sake. I feel like there's more just a white chocolate vibe and a little bit of banana. Yeah, it is. I get the sake. I get it. Alright, put down the wrappers. Let's get to the stocks on our radar. Our man Steve Broido will hit you with a question. We've just got three minutes left. Matty, what are you looking at? I'm going back to Activision Blizzard. Simon and I just got back from ... Chris, as well, South by Southwest. I'm convinced more than ever that esports is big, and it's

going to get bigger. You've got Activision, who recently bought Major League Gaming. I happened to talk to one of the principals at ESL, which is the Electronic Sports League. I asked him about Activision's entrance into the market. He was visibly worried, because Activision, of course, has deep pockets. So, one of those really exciting options for the business. And the ticker symbol? Oh, sorry, ATVI. Steve, question about Activision Blizzard? It seems like on multiple occasions, they will release a product, and the stock will go straight down. Hundreds of millions of dollars are sold in a single day, and the

market is always disappointed in this company. Why is that? Yeah, it's buy the rumor, sell the news a lot of times with these big releases that Activision has. A lot of people just don't think some of them are going to live up to the hype. Usually with Activision, they do. Jason Moser, what are you looking at? Sure. I had lunch with a friend this week. We were talking about a lot of ideas. was Grubhub, ticker GRUB. I think Grubhub is an interesting look here at a new aspect to the dining industry, really. Grubhub owns Grubhub and the Seamless sites. I think it's

a great solution for restaurants to be able to leverage the fixed costs involved with keeping their operations open. Outstanding solution for consumers as it gives us more choice. It's fully mobile. And hey, how can you not like a company that has a metric called daily average grubs. I mean, that right there alone has piqued my interest. The DAG. Steve, question about Grubhub? When does the name become a liability? That's just Grub and Hub. Neither of those sound very appealing to me.

Yeah, I have a feeling when the first grub sighting comes from an actual delivery, we've got a problem. Simon Erickson, what are you looking at? Chris, I'm going with NVIDIA. Ticker is NVDA. Matt and I both took a closer look at this in Supernova's Explorer mission this last month, and we were looking a little bit deeper into virtual reality. NVIDIA has got 80% market share in graphic processing units. There's a lot more improvements I think are needed in virtual reality. I came away from headsets feeling a little seasick and motion sick. I think that's actually good for NVIDIA, who's

going to make this a lot better. Steve, question about NVIDIA? Does AMD have any shot? It seems like they've been fighting that war for so long, and NVIDIA seems to be winning all the time. They do have a shot. They're about 18% market share compared to maybe about 80% for NVIDIA. They're the distant No. 2, Steve. is going to be a tide that rises all boats, though, and I think AMD will do all right, too. I'm sorry, Nvidia has 80% market share. 80%, 8-0. Dominance.

You're like the Alibaba. Steve, Grubhub, Nvidia, Activision, Blizzard, three interesting stocks. Any of those you feel like adding to your watch list? Nvidia, all the way. 80%, that's a good number. All right. Shares of SeaWorld up, and maybe if they take your Coral World into effect, maybe you add SeaWorld as well? Definitely not.

All right, guys. Thanks for being here. Up next, we are heading to Austin, Texas to check out the scene at this year's South by Southwest. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Thirty years ago, South by Southwest started as a small music festival in Austin, Texas. Over the years, it's added film and interactive components and has grown to the point that hundreds of thousands of people now head to the Lone Star State to experience some part of South by Southwest. This year, I was one of those people.

Earlier in the week, I was joined on stage at the Austin Convention Center by John Swartz. John is the San Francisco Bureau Chief for USA Today. He's been covering Silicon Valley for the past 15 years. And since this was my first time at South by Southwest, and he's a veteran, I had a lot of questions about the tech scene and the festival itself you've been coming to south by southwest for the past seven years the better part of a decade yeah how has it changed over the years well you know it's it's gotten bigger uh it's reached the point where i think this year a quarter of a million people are going to be visiting during the stretch of the festival either they're traveling here or they're just coming into town to be part of the events

in some capacity so it's gotten larger but the one thing i want to say is it's actually gotten more relevance and we had been talking earlier about the the i guess an excess of trade shows especially tech shows and how much bigger they've become i think this one in relation to a ces is much more manageable and in terms of the the topics and the products that are here they seem more relevant they're not i mean ces they talk about the future here's something you're going to see in three years three years later you go you come back here's something new you're going to see in three years and you never seem to see the thing you want to see here actually with robotics and voice activation those those two areas especially they are here and you actually

see them in intangible form you had written something earlier this week about you know forget robots the geminoids are here what in god's name well a colleague of mine rick jervis wrote that story so basically i mean what he's trying to say is we have forms of robots like there's one a couple of aisles away from here called innovates they basically can have a conversation with you now i was a little bit skeptical when i first went over there and i read my colleague's story about another robot that he had seen and he was right in the case the robot was having a conversation with people about where they were from and it was a deeper conversation than you could have ever imagined which is a little spooky but it also showed

you and it shows me that the progress that's being made in terms of robotics and in terms of the intelligence of those of those devices it's funny um last year there was a bit of a somewhat farcical but somewhat serious protest against robots in this whole man versus machine theme and i think there's a little bit of of traction to that argument because now you're seeing that the advances that are being made uh you see i think there was a instance of a robotics a game, a very incredibly complex game called Go, in which robotics and humans are participating with one another against one another. And it's happening in leaps and bounds. I mean, it's real and it is here. There are so many keynote speakers. There are so many breakout

sessions, so many topics being covered at South by Southwest Interactive. Is there a dominant theme to this year's festival? Certainly the Apple versus FBI story. That's an undercurrent. I was just going to say, it's almost like it looms over everything. It looms over everything. And so even Obama, when he makes his keynote speech during the Q&A session, someone asks him about that case. He says he can't specifically comment on it. Then he spends 10 minutes with a nuanced answer in which he, in a sense,

sides with the FBI, which creates a little bit of a blowback or some anxiety among the people here. So he does it. Several congresspeople are here, and they are talking about it. I went to an online harassment summit on Saturday and during the cyber bullying panel early in the morning, one of the speakers started talking about Apple, FBI, actually one of the themes that I, so that, that looms over everything. One of the themes that keeps cropping up is the whole idea of relevance of women in technology.

So Saturday was a day long event, which is kind of a reaction, whole controversy about gamergate the last couple of years there were a series it was a great it was a great uh series of panels uh google facebook aclu anti-defamation league members congress uh privacy experts were all at this this event my only qualm or quibble was that it was off-site and it was almost kind of hidden i think that's an incredibly important topic to discuss it was it was discussed well but it was off the beaten track didn't get a lot of publicity it was wasn't very well attended and i think that's a bit of a shame because i think women in tech is like one of those like diversity and gender topics it's resonating it's not that's not going to go away it has been

around for years and now it's finally being addressed and i think we need to do more coverage of that and our paper has done quite a bit of that and i think this shows and i give the show credit for tackling it or at least confronting it. Most trade shows ignore it altogether. We've seen over the years individual companies and or products get a lot of buzz coming out of South by Southwest. You go back to 2007 and it was Twitter. Last year it was Meerkat video streaming.

And here we are a year later. Where is it? Yeah, and Meerkat has done a lot of that business. Right, so our columnist, Ed Begg, did a story on that. It's funny, last year I remember when that happened. I remember arriving here and people were filming one another and they said they were meerkatting and I had no idea what they were talking about. It was a rage.

So what, as someone who has worked in Silicon Valley and seen that whole scene develop over the last 15 years, what is it that makes the difference that enables an idea that catches on, In the case of Twitter, that becomes a relevant, viable business versus a meerkat, which is an interesting idea that gets co-opted. Well, you know, it got co-opted by Twitter, right, with Periscope. There's so many factors. If I knew what was the formula or the secret sauce, I wouldn't be a reporter. I would go to a startup or I'd be a VC.

But it's funny. You're right. I mean, something will surface and it will resonate. Foursquare actually appeared here and it actually had legs for a few years. Now it seems to be kind of in a sense of kind of de-escalating. I mean, it's had some changes in management. Its market valuation or value has dropped, according to investors. Meerkat was interesting because that had so much potential.

And yet, you know, there was a time, and I can say it now, I guess, Meerkat was going to do a deal with U2, the bands. and and they were going to from every conference beam one song a night live over over meerkat and they i went to one of the first shows where they were experimenting with this and it didn't work it was it was too hard there was the wi-fi and the number of people streaming there made it really extremely difficult they tried a couple more times and that that deal kind of fizzled and i think if that had happens and if meerkat through uh that deal been able to do other similar deals it didn't happen so it's always about it's about serendipity it's about luck

it's about things working just the right time and place even periscope i mean i go to i go to concerts and i try to periscope bands and they they through their security we're told to stop to not do that and every time that that happens and i tweet about it um somebody from twitter or affiliated with it will retweet it kind of as a push as a pushback so even there in that case i mean sometimes there are forces beyond your control i mean the rights of the musicians and their their management so we've seen in the stock market so far in 2016 far fewer companies going public to this point in the year than we did a year ago as someone who covers silicon valley up close, what's going on? Is that VCs getting a little more careful or is that private companies

saying, you know what? It's a big ocean out there and we want to get our ship a little bit more tested and ready. Exactly. Everything you said is exactly true. And you're seeing it with fewer tech IPOs. You're seeing Fidelity lowering its valuation on some of these companies. It just happened with Dropbox. Dropbox is maybe one of the classic examples of a company that everyone expected to go public and it hasn't yet. And I'm wondering if the performance of Box, its rival, had a lot to do with the cooling of that. Zynga, it basically put its headquarters up for sale and its CEO moved out again for the second time, Mark Pincus. All these anecdotal examples of this happening of people scaling back. One thing I've heard is, I think it was Airbnb, had a huge number

of people being hired last year. Well, they just, in a sense, reduced the number of recruiters they have and plan not to hire as many people this year. I think it's just a case of kind of scaling back. One difference between this correctional phase, I'm not going to call it a bubble. One difference from this and the bubble is that a lot of these companies are making money and they do have services that are being used by millions of people that are real business models i think what they want to do is they want to avoid the kind of catastrophic cutbacks and uh i don't know fall out with their investors that's happened before they're looking around and they're seeing you know you're also here's another thing you see all these delivery food delivery services

there must be 20 or 25 of them that i know of in the bay area only a few of those are going to are going to surface they're going to survive they're going to burn through their cash eventually I think there's an expanded burden rate. I think there's just, people are overly cautious. They're also afraid about what's going on with the stock market. So the stock market had that incredibly deep plunge the first few weeks of the year. I think that scared people. So it's kind of an overreaction, perhaps.

But one company I really want to keep watching and see what happens to is Dropbox and what they eventually do. Because they're kind of in a purgatory. I mean, they can't go public, and yet they're still hiring, and something's got to give in that situation. Let's go back to Apple for a second, because certainly Alphabet and Facebook and others of that size have deep pockets. But number one on the list of companies with a lot of cash that could at any moment enter any market they want to. They get more than $200 billion, but the B in cash. I mean, they're sitting on a mountain of cash. The funny thing is that Apple actually has acquired

probably a couple dozen companies quietly over the last couple years. And these are companies that are usually smaller, that they integrate within the company, within Apple. They don't announce the deals. They eventually get up. They're in things like artificial intelligence, voice. They're moving into areas that Google is well-established in, internet of things type of type of areas so apple does have a ton of cash and i think they really

need i mean having covered them for for probably too long one of the things they they need to do is they need to diversify beyond that cash cow and i'm talking about the iphone that's 66 percent of their revenue and eventually that can't continue at its pace i mean and what i'm saying is the growth of that product year over year has slowed to the point now where it's causing concern. I mean, they're going to come out with a new iPhone next week. That's the SE, which is like a four inch screen, basically replaces the five. And from what I can gather, it's just a kind of incremental update. It's nothing that's going to blow your socks off. It's not like when the six came out or maybe when the seven comes out so that's that that that one

cash cow is is kind of propping up the company's propping them up well but you have to start looking at long-term how long that's going to continue plus you have the iPad sales and freefall the Mac sales are doing okay but they can't compensate for the other areas and there's the impatience about what they're going to do with a car or the auto technology. There's more mounting pressure for them to come up with something. The watch hasn't exactly knocked anybody's socks, blown anybody away. Yeah, it seems odd to say. They're like almost in cruise control, even though they're doing extremely well. But how long can you cruise at that speed? Eventually, when you're in cruise

control, you start slowing down eventually. It seems odd to say about the biggest public company in the world, but it sounds like what you're saying is, gosh, they really need a different hit. They need another hit. They haven't had one in a few years. It's been, I think 2007 was iPhone, 2010 was iPad, which was, you know, it was a hit for about a year or two or three. Watch, they thought that would be it. It wasn't. It doesn't have that app that people really, it doesn't have the killer apps. It doesn't do anything beyond what your phone does. uh yeah there's got to be something else and that it's unfair to them because it's as successful as that company's doing it it's happened to them before though i mean i remember recovering them

in the mid 90s when they had a glut of a product line and they had 80 different variations of the of the macintosh and eventually they had to bring jobs they had to buy next and bring him back basically to reinvent the company. Up next, John Swartz talks about a story that's not getting as much attention as it should. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Let's head back to Austin, in Texas now for more of my conversation with John Swartz from USA Today. Apple, Alphabet, Facebook, Microsoft, these are huge companies that dominate, and I would argue rightly so, the tech media coverage. But as someone who works in Silicon Valley, what's a

story that you and your team at USA Today are watching that you think, boy, this isn't getting a lot of coverage right now, but this might have legs? Well, one company I also would add to that The mix is Amazon, which I think is the one company that competes with everybody, and everyone's wary of them. I also think they have the smartest CEO of any tech company now. But the thing we were looking at, have been reporting on for a couple of years, and we're going to continue, even though the tech industry doesn't want us to, is diversity and the lack of it in the Valley. and the idea that these companies that want to expand overseas and want to reflect their customer base are not hiring people that mirror that,

I think it's a big deal. I think it's not just in tech, it's in multiple industries. I think it's gotten a lot of traction. I also want to look at the income disparity. So, for instance, Bernie Sanders and Donald Trump run on this kind of anger platforms about income disparity between the haves and the have-nots in various ways, different approaches.

But in Silicon Valley, it's the same thing. You have a very, very small group of people making an inordinate amount of money while a vast majority of the people in that area are being priced out of the area. I mean, the house costs are astronomical. It's more and more expensive. There are actually reports now surfacing

that people are leaving Silicon Valley because it's too expensive, it's too crowded. I mean, I think in a sense, they're driving them away. There's almost like a dwindling middle class in that area. You see there's a lot of homeless problems, a huge problem in San Francisco. It was 10 years ago, and it's improved slightly. But you see all this construction surrounding you in the city. You see billionaires.

I mean, you see Jack Dorsey. You see people who are billionaires walking down the street to work. And yet you look across the street, and you see more homeless people than before. And homeless encampments that are being displaced by construction sites, that's an important story that tech has an impact on. And actually, one of the things that I always hear about is this idea that tech can solve a lot of problems. So why can't it solve problems like that or address problems like that? Wouldn't it be interesting for tech to take on a really big idea like something in education or involving the homeless or involving diversity? and attack it.

Last question, then I'll let you go. 2016 is obviously an even-numbered year. The last three even-numbered years, you're San Francisco Giants and won the World Series. How are you feeling about the team this year? I went to spring training a couple days ago. How's the team looking? Well, they have a lot of minor nagging injuries.

So they were being slowly played into the lineup. They call it slow play. That's a Giants phrase they're using now. But I actually feel good. Their pitching staff is as good as it's been in several years. Gee, you think for the money they're being paid, they could play at regular speed? No. Well, they're older, too.

They're 30. They're so old. All right. John Swartz from USA Today. Thanks for being here. Thank you for having me. Before we wrap up this week's show, I want to tell you about something we just shared on our daily podcast, Market Foolery.

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edition of Motley Fool Money our engineer is Steve Broido our producer is Matt Greer I'm Chris Hill thanks for listening and we'll see you next week