Motley Fool Hidden Gems Investing - The Chips are Down (and Up!)

Episode Date: October 18, 2024

Chipmakers are seeing “extremely robust” AI-demand for chips, so why are industry suppliers like ASML missing the mark?  (00:42) Jason Moser and Matt Argersinger discuss: - The totally different outlooks for chipmaker Taiwan semi and equipment provider ASML and what it says about demand in the semiconductor market. - Netflix’s ad-supported offering, and why live sports might keep pushing the company to new all-time highs.  - Uber eying Expedia and air travel, and Amazon reaffirming it wants employees back in the office. (19:03) What does CEO tenure have to do with shareholder returns? Bob Stark heads up the succession practice for Spencer Stuart – a leadership consulting firm – he’s also the author of The Life Cycle of a CEO. He and his team looked at performance of all chief executives at S&P 500 companies this century – and noticed some trends in company performance.  (33:03) Jason and Matt break down two stocks on their radar: SEMRush and JP Morgan. Visit our sponsor at www.landroverusa.com Stocks discussed: TSMC, ASML, NFLX, UBER, EXPE, AMZN, PLD, SEMR, JPM,  Host: Dylan Lewis Guests: Jason Moser, Matt Argersinger, Bob Stark Engineers: Tim Sparks, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

In Toronto, every arrival is a statement, and nothing says it better than this. Cadillac Optic was the number one selling luxury EV in Canada for 2025. Find your rhythm across a seamless 33-inch display and an immersive 19-speaker AKG surround audio system. This city demands agility, and Optic delivers with precision to make every drive extraordinary. Let's take the Cadillac. Find out more at cadillaccanada.ca. Luxury sales claim based on S&P Global Mobility Canadian New Vehicle Total Registrations for calendar year 2025 for the Cadillac definition of luxury. The future will be ad supported with Uber getting you from door to door.

Motley Fool Money starts now. Everybody needs money. That's why they call it money. The best things in life are free. But you can give them to the birds and bees From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Dylan Lewis.

Joining me over the airwaves, Motley Fool senior analysts Jason Moser and Matt Argersinger. Fools, great to have you both here. Del Addy. We've got research on what CEO tenure has to say about stock performance, stocks on our radar, and updates from two of the biggest names in the chip supply chain. That's where we're going to kick things off this week. A huge week for Big Chip. Fresh earnings from Taiwan Semi, the world's most important chip maker, and ASML, the company behind the machines most of the industry uses to make chips. Jason,

together, they give us a chance to check in on two crucial parts of the chip supply chain. What's the read? Yeah, well, let's start with ASML. I think you said it perfectly there, a crucial link, and perhaps, I think it's one of the most complex supply chains out there. As a reminder, ASML is the company that makes the equipment. It makes the machines that make the semiconductor chips that power all of our devices and all of these data centers that are going up everywhere. What really differentiates this company is the actual equipment side of it. It's the extreme ultraviolet lithography systems. That is the EUV. Those systems, that's what makes the high-end chips that are used for AI and other cutting-edge tech.

And so, yeah, it was a big week for this company. I mean, obviously, a heavy earnings reaction to the downside there. It wasn't a bad report. I mean, revenue and earnings per share grew versus a quarter ago. They did see a slight increase in the number of systems sold, I think up 3.6% from a quarter ago. But what really set this thing on fire was the bookings number, right? The net bookings came in at around 2.6 billion euros. That was up from a year ago, but it was way below what estimates were out there. I think estimates were close to $5.5 billion. That's a very significant discrepancy there. And really, it all boils down to just what we've seen this playing out as the cautious consumer, right? And in this case,

ASML's customers are these big chip companies, right? I mean, that's kind of how they make their money. And what they're seeing is that their customers, and they noted this in the call, they said the relatively low order intake is a reflection of the slow recovery in the traditional end markets as customers remain cautious in the current environment. So, that rhymes with a lot of what we've been seeing over the last several quarters with a lot of enterprise customers. Not a terrible surprise here. We know that investing is all about the future. And in this case, it's just right now the future isn't looking as bright as it once did. I think the good news here, it's probably really just a timing thing. I think these are orders that will ultimately be fulfilled.

It's just going to be a little bit further down the line. And ultimately, that might just be creating an opportunity for investors. Interesting to pair up what we're hearing from ASML with what we're also getting from Taiwan Semi, because they are out there trumpeting, we are seeing extremely robust AI-related demand and the market reaction to their earnings report much more favorable. Is this really just a matter of where they are and who their customers are? I think that's part of it, right? I mean, these are two very different businesses. And I think with Taiwan Semi, right, they did see very strong performance. They're the high performance computing sector of the business, made up 51% of revenue. That was up from 42% a year ago. And then smartphone chips continue to see increased demand as well. It's been a good year. It's been a good five years for this company. But I think the big question for them is this pace of AI investments. When is that going to start slowing down?

If it does, I mean, we're all assuming it will at some point or another. And when it does, how is that going to impact this business? But we just don't really have any clarity as to when that's going to happen, because right now it's the topic du jour. This week, we also got a read on the state of streaming. Everyone's favorite streamer, Netflix, out with earnings. And Matt, boy, did the market like them. Shares up 10%.

The company at fresh all-time highs after the report. Yeah, incredible. Ron Gross should be sitting here where I am because he would say, of course, Netflix is firing on all cylinders. It really is. I mean, 5 million new subscribers in a quarter. That was almost 500,000 more than expectations. They're now at almost 283 million subscribers around the world. Interesting, though, was that ad-based memberships, that's the big story here,

grew 35% quarter over quarter and accounted for more than half of the new signups where ads are available. So that's really where Netflix, the business, is gone, and it's showing a lot of progress there. Just looking at the numbers, revenue up 15%, operating income grew 52%, operating margin was up again, earnings per share of 45 percent members are watching an average of around two hours a day that seems high to me and not sure what that says about our society but often awesome for netflix that you know their average watch is two hours a day and they've just you know we were talking about it before taping guys they're really getting into more live sports live events they've got two nfl games on christmas day the wwe deal kicks in next year uh and next speaking of next year

targeting revenue growth of between 11% and 13%. So, very strong quarter, strong guidance. And according to one of the smartest analysts on the street, quote, this was a good quarter. Netflix remains a dominant force in the entertainment space, end quote. That sounds familiar. That sounds familiar. Who said that?

Matty, that two hours per day, I think that's remote work for you, right? I mean, that's remote work in a nutshell, I bet. Good point. More on that in a bit. We'll be talking about remote work later on the show. I want to zoom in on Netflix, where it is right now, at all-time highs, still fairly richly valued, having now fully retraced that 70% drop in 2022 that was originally tied to slowing subscriber growth.

Now, back at this level, Jason, we're looking at a very different Netflix, one that has a little bit more built-out membership offering, something for people who maybe don't want to be spending as much as they increase prices for membership. Do you feel like the company continues to have growth levers to justify where it's at, valuation-wise? I mean, I think it does. I mean, this is not the Netflix that we grew up with, right? I mean, in the early days, it was a very simple, straightforward business. But I think they realized over time, as the entertainment space was changing, that they would need to pivot at some point in order to find some new levers of growth.

And the fact that this company is in such a good financial position now, right, generating meaningful cash flow, $2.9 billion in operating income this quarter alone, it's enabling them to really start making these investments into things like live sports. I mean, you've got two NFL games coming up on Christmas Day, for example. And we've talked about the ad-supported model. They're going to continue rolling that out. So, yeah, this is a new Netflix, but you've got to give them credit for really seeing where the puck was headed. Matty? I will just say, you mentioned valuation, Dylan. Let's step back and reflect for a moment on the evolution of this industry.

I mean, if you just go back five years ago, we were starting to see so much more competition in the space. You had Hulu, of course. Disney Plus was kind of the new giant in the market. You had Paramount Plus, Apple TV Plus, all these pluses. Of course, we had Max. I think it was called HBO something back then. but even Roku was getting into original content. And here we are in the fall of 2024, and the OG, the original, the pioneer, the one service everyone was trying to catch up to,

I think the one company that had the blueprint for success is the winner. And I think we can almost definitively say that now with Netflix. But my question is, I think this is a $1,000 stock in probably less than a couple of years. But looking at the stock just today, should Netflix market capitalization be 2X that of the Walt Disney Company? Yes, the 100 plus year old or almost 100 plus year old Walt Disney Company. That to me is remarkable and I don't know what to make of it. It doesn't make sense to me. I got to be honest. So I'll push back on that a little bit. I think it makes a little sense. And I think we know investing is all about the future. And I think in this case, what we're seeing with that disparity, with that gap, I mean, the market is

telling us, they're saying, look, I mean, this is obviously, this is the company that really set us on this new path, right, this new streaming future. And there were a lot of questions early on as to whether it would work and how profitable it could be. I mean, those questions have been answered. But then kind of going back to my point now that this business is such a strong financial position, right, it's a much different position now because not only do they bring in these massive amounts of cash, it's reliable, it's consistent. And the market is looking at that and saying, this is a company that's going to keep on generating that meaningful cash flow for quarters and years to come. And it's going to enable them to continue

investing in things like bringing those NFL games on Christmas Day and rolling out more live sports offerings and becoming that different version of Netflix that ultimately will allow them to pull those new growth levers. I think the ad-supported model is just the icing on the cake. If you're keeping score at home and wondering when that ad-supported model is going to start showing up in the financials, you've got to wait a little bit, but management's excited about the initiative and where it's heading so far. We'll be keeping tabs, of course, here on the show as that develops. We're going to head to a quick break, but after, Uber wants more than just your airport drop-off. They want to help you book your flights. Stay right here. This is Mountainful Money.

Welcome back to Motley Fool Money. I'm Dylan Lewis, here on air with Jason Moser and Matt Argersinger. Banks and chips get a lot of the attention early in earnings season. One of our favorite bellwethers also reported this week. Want to make sure we're spending some time looking at those results. Matt, we got an update from Prologis and the industrial real estate segment. What's going on there? Well, it was an interesting quarter for Prologis.

They're still seeing some demand weakness, some excess capacity in some of their markets, including Southern California, which is a big one for them. This really all just stems from the heavy amount of new development in the aftermath of COVID. A lot of companies who got into inventory problems, supply chain problems, they leased a lot of new capacity in those years. And it turns out some of that space is just not being used or needed. And that's sort of weighing on the market overall, but not so much Prologis. If you look at their results, occupancy across the portfolio was almost 96%. Cash chain store net operating income up 7.1%.

That's a key figure. and core funds from operations per share up 10%. Those are great numbers for REIT. They're also seeing about a 68% bump in the rents on new or renewing leases. That's pretty impressive. I think what stood out to be most from the call, the results in the conference call,

was the fact that you had CFO Timothy Arndt come out on the conference call and say that they're seeing a lot of attractive acquisition opportunities. Prologis has got a great balance sheet. So they're now upping that guidance for full-year acquisitions. This is the second straight quarter they've done that.

They entered the year thinking they were going to do between $500 billion and $1 billion in acquisitions. That number is now approaching $2 billion at the midpoint for acquisitions this year. So they're seeing opportunities, taking advantage. And so I think, maybe not in the next several quarters, but by the end of next year, early 2026, those moves are really going to literally, Dylan, pay dividends to shareholders. Matty, just one quick point I wanted to make out. I mean, I own this company thanks to you, and so thank you for that. Right on.

I intend to keep on adding to it in my retirement portfolio. One thing that really excites me about this company, I love the warehouse and distribution side of it, but every earnings call now I go through and I search the term data center because I think that is an underestimated opportunity that this company is capitalizing on. Absolutely. So they've got a $40 billion land bank that they want to develop, And it seems from what I can read, I'm sure you are too, Jason, is that the lion's share of that new development is going to data centers, which is pretty interesting. Speaking of acquisitions, we had some fun scuttlebutt to wade through this week.

Uber already owns the world of micromobility and last mile with ride-hailing, food and package delivery, and two-wheel rides. Word out this week on the street that Uber is interested in acquiring travel booking site Expedia. Jason, why do you think Uber might be interested in longer trips? Dylan, you know, I am a big fan of Uber as a customer and as an analyst. I mean, we recommended this stock in our next-gen super cycle service several years back. It's been a winning investment. And when I saw this news, I really had to step back and think for a minute, like, is this something I really want to see happen? This would not be a simple deal.

I mean, Expedia today, around $20 billion market capitalization, and so for Uber to make this acquisition somewhere in the neighborhood of $6 billion on the balance sheet right now, they would have to resort to some borrowing and issuing of shares to do it. As a reminder, CEO Dara Khosrowshahi, he was CEO of Expedia before moving to Uber, and he actually still sits on the board at Expedia as well. And so he has plenty of familiarity with the business. And on the one hand, I can certainly see a merger could create a more seamless travel experience. You combine ride-sharing with travel booking, it expands the customer base, creates a more personalized experience with data integration. So I see those benefits there, but this would be a whopper of an acquisition that will require a ton of work in incorporating two cultures,

obviously eliminating redundancies. And we know acquisitions are tough, right? Acquisitions of this scale are really tough. I don't know that Uber necessarily needs to do it. I know they had these aspirations to kind of be this everything app, but I think on the flip side of that, we've seen a lot of companies that had those aspirations.

PayPal, for one, stands out. they've started to pull back on that, realizing that maybe they don't have to necessarily do everything. They just need to do one or two things really well. And Uber obviously does ride sharing really, really well. It isn't often that a CEO is weighing an acquisition of a business that it knows this well. I mean, it's kind of rare for that to happen. And so while I do see this as a relatively high degree of difficulty acquisition, the familiarity with the business gives me some sense that maybe there's something there. It really looks like, to me, this is Uber saying, okay, we are an $165 billion company right now. How do we get to a

$250 billion-plus company by expanding our TAM and really creating other use cases for our customers? It absolutely would expand that TAM. We know how large the travel industry is from a global perspective. I mean, we're talking about a lot of money, right? Billions, trillions even. I mean, we're talking about a lot of money, so I get it. And the good thing is, I mean, Expedia is, and it's an established business, it's profitable, they generate healthy cash. So it's not like they're buying some sort of speculation play here. But the integration, it would not be easy. It just would not be easy. All right, bringing us home here for the segment, Amazon continues to double down on its return to work program.

In September, they announced they're expecting employees in the office five days a week, beginning in January 2025. This week, the company's head of AWS, Matt Garman, telling employees, if there are people who just don't want to work in that environment and don't want to, that's okay. There are other companies around. Matt, I can't help but look at this and also some of the news we are seeing from Meta this week related to layoffs at Instagram, WhatsApp, and Facebook and say, I think big tech is trying to get a little bit smaller with their headcounts. Right. That's my maybe cynical view of it,

which is this is just a very convenient way to reduce headcount, knowing that a lot of these companies did a ton of hiring in those post-COVID years. And especially with meta, we've seen a series of layoffs. And Amazon's gone through some layoffs as well. But I think Amazon knows its business. And I do think there is some credence to the idea that they see better collaboration, more productivity, more innovation when they get employees together in the same office. And what's interesting is this announcement is from the head of AWS, and it was made in Arlington, Virginia, which is right kind of in our neck of the woods here in the D.C. area. And so this is not just a Silicon Valley thing going on, right? This is across the

for Amazon and other companies. So it's a mix to me. But I do think the momentum is that for most corporations, and these tech companies seem to be leading the charge, we are heading back to the office. Jason, Matt mentioned the kind of normalization there post-COVID. And these companies heavily invested in a lot of more far-field growth initiatives, a lot of headcount as a part of that. We saw the year of efficiency focus for a company like Meta and for a lot of big tech, it does feel a little bit like we're entering a next wave or next chapter of that, where maybe some of these businesses of right size, but also started to realize that there could be some efficiencies coming by way of AI. Yeah. Well, I mean, I don't even think it's

terribly cynical to think that this is a way to call the workforce a little bit. I think this really serves two purposes. It obviously will result in some people leaving, and I think they'll be okay with that. It's also a business that relies heavily on collaboration, right? Collaboration begets innovation. And, you know, remote work just isn't the most collaborative environment for most people. And so, you top that off with, yes, bloated workforces and plenty of efficiencies coming down the pipe here. This is just another way to kind of work towards that efficiency. And honestly, as investors, we should always strive to get our businesses, our holdings to be as efficient as possible. All right, Matt, Jason, we're going to come back to you guys for Radar

Stocks a little bit later in the show. Up next, we've got a sweeping survey of every S&P 500 CEO over the last 24 years and the connection between their time in the seat and your investment returns. Stay right here. You're listening to Mountain Full Money. Welcome back to Motley Fool Money. I'm Dylan Lewis. CEOs get the big bucks, but what does the data have to say about their performance? Bob Stark heads up succession practice for Spencer Stewart, a leadership consulting firm. He's also the author of The Life Cycle of a CEO. He and his team looked at the performance of all chief executives at S&P 500 companies this century,

and they noticed some trends. This week, Bob walked me through the misconceptions around the C-suite, the life cycle of a CEO, and what it means for total shareholder returns. So the cover of the book that I have here lays out a subtitle, The Myths and Truths of How Leaders Succeed. Why don't we start out there? What are some of the common things that people get wrong or maybe don't quite understand when it comes to the CEO role and what success looks like? Well, the book, I think, touches about six myths, but let's start with the myth of linearity. So when CEOs get into the role, we have certain expectations about how they'll perform over time. And in fact, we surveyed directors, I think this was about six years ago, on their views of how CEOs perform over time. And the picture they painted was effectively an inverted U, where the CEO starts as a newbie, they're learning fast, and they keep learning every year.

And so their performance goes up every year as they reach mastery. And then around year eight or nine, their energy wanes and the performance starts to dip and it's time for a new CEO. That's conventional wisdom. I had that perspective. I think most people did when we, and we can talk more about the specific research that we did and how we got to these conclusions. But when you look at the data on TSR by tenure year, it looks nothing like that.

It looks absolutely nothing like that. And I think it's a good lesson because in life too, there's a, we want to assume things are linear, even when they're not, it's a simplifying tool. But the reality is that life is more complex and life is much more complex for CEOs. And just to put this a slightly different way is that we, when we think about the stories of CEOs that are the heroes, we usually talk about Hubert Jolie started Best Buy at $3 a share and he finished at 94 or whatever the number is or 70. and just assume that he was amazing at every, there were no steps. It was just a straight line

from A to B. But when you talk to Hubert and you, I think you, you read most of the book, Dylan. So and here's some of his story. There were lots of failures in there. There were a lot of moments when the stock really crashed and he had self-doubt and other people doubted him and lost confidence in him. So it's very much a story of ups and downs, not a story of A to B. It reminds me of this chart. It's kind of a visual. It's not a true data point chart. I've seen it on the internet a bunch. It's, what do you think success looks like? And it is that up and to the right 45-degree angle. What does success actually look like? And it looks like a kindergartner drew it. It's all over the place. And then it finally winds up up and to the right,

but with quite a few bumps along the way. Yeah. It's interesting. I'd forgotten about that. But it almost looks like, what do you call it, a seismic chart? When an earthquake hits, that they're so jagged, you know, along the way. Um, so for the book, uh, you mentioned the research there, you and your coauthor Claudius Hildebrand embarked on a deep dive into tenure and performance for every, uh, CEO in the S and P 500, uh, in the 21st century also did interviews with some leaders. Walk me through some of your process there. Yeah. So, uh, we had been researching CEO performance and we had lots of data for like 20 years. And the initial reason for doing that is we'd work with clients in, for example, CEO succession situations and clients

would say things like, well, are insiders better than outsiders? And we realized that the answers are knowable. Like if you actually have the data, you could analyze it. And so we started doing that a long time ago. My coauthor, Claudius, came into the picture about seven years ago. He had been at BCG in their CEO advisory practice. And, uh, when he joined, we added him to the team that was doing the research and he just basically kicked out on the research team, inspired a lot of people, brought new people in and seriously upped our game. And the breakthrough, I mean, it was a team effort, but the real brilliance that Claudius brought to it was, so we, if you take all that data, say 2,000 CEOs, every CEO of the 21st century, S&P 500, as you said, tons of performance

data, all kinds of performance data, including TSR. Total shareholder return. That's right. It's not that, there were some interesting results, but the breakthrough was rotating the data based on tenure year. So let me say more about that. So every CEO has effectively a birthday as CEO. Dave Cody, he was at Honeywell for 16 years. I think his was like February 2002 when he started. Then somebody else might have started in August of 2007 as the financial crisis was just heating up. But if you organize the data by 10-year year and then normalize to what's going on in the S&P generally for that year so that you take out or neutralize the effects of those head market, headwinds and tailwinds. And then organize every Dave Cody and everybody who started

in 2007 around their tenure year, you have 2000 who started in year one, a slightly smaller number get to year two and tenure and so on. And you look at the data that way, that was the real breakthrough. That's what allowed us to see that tenure year makes a huge difference. Performance varies significantly based on tenure year. And I'll pause there, but happy to talk about what we actually learned. Yeah. Let's dig into some of the different phases of the CEO life cycle and what you guys found in terms of shareholder returns during those periods. Yeah. So the whole thing was quite remarkable. You've seen the chart in the book and others can see that too. The first thing is, we call it the launch. The chapter is called the launch,

the first year in the book. And the book is organized by tenure year. So launch is year one. And that first year is characterized by a honeymoon effect. So there's a lot of excitement and this and we anticipated this, but we confirmed it through the interviews you talked about. So when we did this big data crunch, we then went to over 100 of the CEOs who are in that data set and said, what was happening? Talk about that first year. And what we established is that there's a honeymoon effect.

So everyone has high expectations for the CEO in the first year and for good reason. So the CEO is going to actually come in and pick some of the low hanging fruit. The incumbent might've been hesitant or blind to some things that needed to change. So change is going to happen and people are excited about that. It gets built in to the stock price right away. So there's a lift in the first year. So first year is a great year for many CEOs. When you look at the average of those 2000, it's a fantastic year. The issue is that a lot of the things that you do in the first year may not pay off for a few years. And so then you get into the second year and CEOs tell us, eventually you're going to run into a buzzsaw sometime in

year two. And when you do, all that excess value priced into your stock in year one just disappears instantly. And just to further emphasize this, I've worked with so many CEOs. At the time we were first doing the research, I was working with the CEO of a huge healthcare organization. And she, stock price was up 30% in year one. And we just happened to be doing this research at the time, long before we published anything. And I got to talk to some of her directors and forewarn them that they should not expect that trend line to continue in year two. They should expect a check back. And it did. Now, fortunately for her, she only lost half the value that she created in the first year, but 73% of CEOs have a worse year two than year one in terms of TSR.

Bit of a cautionary tale there for some of the folks that are excited to see Brian nickel at Starbucks. There you go. I haven't looked at the stock lately, but there's probably some of that price then. And then that gets us to the third stage. So we call that second stage calibration, but you can also think of it as like a sophomore slump that applies to, or the second album effect. And then we get to years three through five. And years three through five, we call reinvention. That is what CEOs should be doing, not always what they do. So in the reinvention phase, all of the good work you did in your first two years is starting to pay off. CEOs say things in this period, like my team, I got the right people. The team is humming.

Uh, the board is, you know, I have the board's confidence because we delivered on this and this, and this is a moment, kind of a fork in the road where now I actually, there are three groups to some flight. There are three groups at this point in time. There are those who've struggled through the first two stages, but are that are going to about to leave the job or be pushed out in years three through five, because they just couldn't put runs on the board. Then you have the two other groups, the groups that were successful and they're successful in years three through five, but a group that is starting to get comfortable with where they are. And another group that's thinking about how do I stay on the front foot and imagine what's next,

a kind of second chapter for this organization. And what will I need to do to bend the curve going forward? When I, we first shared some of this research with CEOs about five years ago, big group of CEOs. I'll never forget that somebody in the very front row put up their hand after we talked about this stage, years three through five. And they said, I totally get this. Every role I've been in on my way to be the CEO has been three to five years. I've never had to reinvent in place. And that's the challenge that I'm facing now. And that is the challenge. So can you reinvent? Can you adjust? Can you act boldly when it doesn't feel like you need to. There's no burning platform and there's no external stimulus to make you

change. And that then brings us to a really amazing finding, which is the complacency trap. So years six through 10 are generally lower performance for CEOs in our data set than years one through five. And complacency says it all. People get comfortable. So it might've started in the reinvention phase if you didn't reinvent, and then you just slide into the complacency trap And also the boards are much less likely to push a CEO out based on repeat years of underperformance in the complacency trap than they were in the first five years. So the board gets more complacent. The CEO and the team might be complacent. So it's a team effort in terms of not being willing to change things up or recognize the need for change.

And lastly, another really big surprise is the legacy period. So for those, about 20% survived beyond year 10. And for many, those are the biggest value-creating years. I talked about Dave Cody earlier at Honeywell. He was one of the first CEOs I called when we had done the quantitative analysis, because I knew Dave well. And he talked about his 16-year tenure. If you cut the data on Dave around year 9 or 10, we would not talk about him as a successful

CEO. but all the value that he created in those last five or six years made him worthy of our attention. You noted some of the different points where there's some natural attrition in the group that you're looking at here and studying. I think one of the stats that came out in the book was, I think it's 25% or 30% of CEOs last less than three years. I'm guessing some of that is the trough after that launch period and that honeymoon period you're talking about. Do you feel like three years is a fair enough amount of time to be assessing CEO performance? Yeah. I think that the, back to the point I made earlier about the rate, the probability of a board

pushing a CEO out declining over time, I think they might be too impatient early and too patient later. So I do think it's important to break it down and really focus so that the time matters, but the time that matters is what are the time horizons for the priorities or the CEO agenda items? So, because some, I think boards are sometimes unrealistic about how long things take to unfold. So I think that there's a risk that boards decide too fast and hopefully we will disabuse them of a certain bias that they have, this bias that things should keep going up, up, up through the first three years. Because your point is well taken. If a board is not fully aligned behind a new CEO, the CEO starts okay, not amazing. So they're not building a ton of

confidence with stakeholders in the board. And then they have a sharp decline that should be expected in year two, but maybe isn't by most people today. Now the board is really worried and they're looking for signs that the CEO is failing. And I think that's part of the psychology of all this. Later on, they're looking for signs that the board, the CEO is succeeding and to confirm their hypotheses that they've got a good, you know, and also they want to avoid having another succession with a solid, when they have a solid person. So I think it's a little above. Listeners, you can catch the life cycle of a CEO wherever you get your books this fall. Up next, we've got a recent FTC ruling that'll make it a little easier for you to cancel your

services. What does it mean for the subscription economy? Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Jason Moser and Matt Argersinger. We've got stocks on our radar coming up in a minute, but first, we've got a new FTC ruling that might take a bite out of subscription businesses.

This week, the Federal Trade Commission announced a new click-to-cancel rule that will require businesses to make it as easy for consumers to cancel a service as it is to sign up to begin with. Jason, the aim here, less hoop jumping, more transparency, feels like a win for consumers. Yeah, I'll be honest. I have zero problem with this. To me, it just seems like it makes perfect sense. It's certainly very customer-centric.

And so, I mean, on the one hand, businesses who want to be customer-centric should be offering this in the first place. But, I mean, I remember just a personal experience from several years back. I, I was, we were ready to cancel our Sirius XM subscription. We just weren't using it anymore. It just really didn't need it. And it, I mean, talk about jumping through hoops. It took me, so there was no click to cancel. I actually had to call in and then I had to sit on wait for like an hour. I was on hold. And then I have to just suffer this barrage of offers just to get me to stay. And I'm like, I don't want it. Even if you gave it to me for free, I just don't want it. Can

Please just cancel. And so if this is something that goes through, I don't have a problem with it. But ultimately, I feel like businesses should be behaving this way anyway. Matt? Yes, I would say there's probably data that is against what I'm about to say here. But I find that the easier it is to cancel service, the more likely I'm going to come back probably at some point. Whereas if you make it hard on me, guess what? I'm not coming back at all. So I just think this is a great thing. To both your points, I kind of view that as a sign of a quality business. If it's easy enough to cancel something, it probably means that they trust that the product itself is going to be good enough for you to want to stick around and actually enjoy it all the time, right?

You hit the nail on the head there. All right, let's get over to our stocks on our radar. Our man behind the glass, Rick Engdahl, is going to hit you with a question, as he does every week. Matt, you're up first. What are you looking at this week? So, we have a show here at The Fool. If you're a member, it's called The Dividend Show. It's on our Fool Live platform. And this week we introduced our Dividend 7, which is our dividend version of the MAG 7. Just looking at companies that pay dividends, that grow dividends, that are also very dominant in their space, big competitive advantages, head and shoulders above the competition.

And so one of our inaugural DIV 7 recommendations was JPMorgan & Chase, ticker JPM. Of course, the country's largest bank. I think maybe also the world's largest bank by market capitalization. Totally global banking enterprise. Dividend growth of 213% over the last 10 years, 14 increases in the dividend since the end of the global financial crisis. Of course, incredible financial strength,

incredible brand strength, a major presence in so many areas, whether it's consumer banking, business banking, IPOs, alternative assets, wealth management. They do it all on a global scale. And of course, Jamie Dimon, like him or not, he's a very public figure and a very influential one. And so sometimes with stocks,

You just want to own the biggest and the best, and J.P. Morgan is definitely the biggest and best bank. And if you're looking for dividend growth especially, it could be a great pick. Wow. Rick, Matt going for a little bit of branding and a radar stock this week. A question or a comment about Matt's handiwork or J.P. Morgan? I'm just curious where you dug up this little gem. I've never heard of it. You know, yeah, it's definitely one of those companies that just doesn't come across most people's radar. So we were happy to find it. We're happy to find that hidden gem.

All right, Jason, you going deep this week or are you doing a household name? Sheesh, man, I love that dividends. I can't believe I got to follow that. I couldn't have gone first, Dylan. So I'm going with a new company this week. One I just found out about this week thanks to a member on our live platform for the morning show. Brought up SEMrush Holdings. Ticker is S-E-M-R.

It is in the digital marketing industry, ultimately helping its customers. identify and reach the right audience. They do that through its set of tools and its SaaS business. So they make money from monthly and annual subscription fees. And then they offer some ancillary sort of add-ons that can offer additional value. But it's a founder-led business. The two co-founders of the business, they own about 50% of the shares outstanding and they control the company, I think somewhere close to 90% of the voting power via a dual-class share system. But it's worth noting, at the end of 2023, they had over 1 million free customers. They have that freemium model. 1 million free customers and approximately

108,000 paying customers. That was up from 803,000 and 95,000, respectively, a year ago. Balance sheet is healthy. It's profitable, cash flow positive. It's one I'm digging more into. Rick, a question about SEMrush, ticker SEMR. Just a quick question about SEO in general. I mean, I know it's optimizing search results, whatever, but in the world of AI moving forward, does it even matter anymore? I think that is a question yet to be answered, but a good one. So, sounds like there's some existential risks there. Rick, which one's going on your watch list this week?

I like little companies, so I'm going to go with the J.P. Morgan. Yeah, it'll become a household name one day, I think. Jason, Matt, appreciate you guys being here and bringing your radar socks. Rick, appreciate you weighing in. That is going to do it for this week's Motley Fool Money radio show. The show is mixed by Rick Engdahl. I'm Dylan Lewis. Thanks for listening. We'll see you next time.