Motley Fool Hidden Gems Investing - The Long Goodbye

Episode Date: March 25, 2024

Boeing’s CEO is moving on, just not quite yet. (00:21) Jason Moser and Deidre Woollard discuss: - The ins and outs of Boeing’s CEO search. - Why Masimo may spin out its consumer division. - If Elliott Management can make Match soar. (16:21) IWG CEO Mark Dixon explores the opportunity his company sees in the global shift toward hybrid work. Companies discussed: IWG, BA, MASI, MTCH, PYPL, ETSY Claim your Epic discount: www.fool.com/epic Host: Deidre Woollard Guests: Jason Moser, Mark Dixon Producer: Ricky Mulvey Engineers: Chace Pryzlepa, Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Deidre Willard here with Motley Fool analyst Jason Moser. Jason, how's your Monday going so far? So far, so good. Just recovering from a little yard work Sunday, right? That's the downside of spring is you got to get back to that yard work grind, but that's okay. I'm getting older and it's my source of meaningful exercise. Awesome. Well, someone who may be having an eventful Monday is Boeing CEO, Dave Calhoun. He announced he's going to be stepping down at the end of 2024. It has been a turbulent four years for him in the top spot, to say the least. Got some other changes too. Their independent

board chair, Larry Kellner, he's stepping down in May. Their commercial airlines president is retiring. A lot of change, not a big surprise. It seems like change is needed. But the question I was curious about is Calhoun, he announced now, but he's not leaving until the end of the year. Why do you think they did that? Well, first, I just wanted to say, I see what you did there with the turbulent. Well played. So I don't know that there's any real rush to get him out the door. I mean, it's not really that far ahead. But I mean, I also think he probably will leave before that. But it at least gives them, the board, an opportunity to deliberate and give some real thought as to who they want taking over the position here.

This really matters. This is a very, very important selection here. Not surprising to see Mr. Calhoun step down. This communicates that there's action being taken, that the status quo is unacceptable. Clearly, from passengers to Boeing's customers, everybody is unhappy with what's been going on here. But this ultimately gives the board a chance to find someone new. With a company that just continues to bleed market share to its competitor in Airbus, there's no real end in sight to that, too. There's no reason to rush this because of the importance of who ultimately fills this role. Yeah, my old PR person's been on it was that when you announce something like this,

you've already signaled, okay, we know there's a problem, we're doing something, but you don't have to necessarily take the next step. It gives them like a little pause or something like that to kind of maybe, I mean, you'd think that Calhoun is maybe taking an active role behind the scenes now without having to worry that everything he does impacts how the board thinks about his stay or something like that, since he's already announced he's going. Yeah, his days are numbered. So, I mean, he can do his best to help with the transition to new leadership, and we'll see how that goes. But again, the only real surprise to me is, really, honestly, I kind of felt this should have happened earlier. It feels like this should have

happen sooner, but better late than never. Well, and also, it's a bit of a changing of the guard with the new independent board chair stepping in. You've got Steve Mellenkopf. He's the former CEO of Qualcomm, has the engineer's mindset, feels like a good thing. I'm wondering, if you're at Boeing and you're looking for this new CEO, you've got the president of commercial airlines that just stepped into her new role. She's a third-generation Boeing employee. I'm wondering for the CEO role, do you think that they're, I'm assuming they're looking both inside and out, but do you feel like it's more beneficial to have someone from outside the organization just because of potentially the transition needed? Yeah. I mean, this is something I actually do feel

strongly about this. This needs to be an external hire. I understand Ms. Pope, I mean, she has a long history with the company. She's been with Boeing, I think since 1994. It's not to say that She couldn't be successful on that role. She certainly could be. But by the same token, there are plenty of examples out there in recent history that show companies in this type of a position really can benefit from bringing in that external hire, those fresh set of eyes. It reminds me, the one that comes to mind is Wells Fargo. Obviously, a ton of culture issues that were going on with the company over the past several years. they actually hired internally, and things actually got worse. Then they looked to Charlie Scharf.

Charlie Scharf came in from Bank of New York Mellon. He had that new perspective, those fresh eyes. I think in this case, this really does need to be an external hire, because there's so many questions as to how this company got to where it is. This isn't something that just happened overnight. This is something that's a result of something that's been going on for a long time. From that perspective, I really do feel like an external hire is the only answer here. Looking to Ford, Alamalale, I think another good example there. A little bit further back in time there, but still, bringing in someone with just a new way of looking at things, they can be a real benefit. They're not only from a business model perspective,

but again, from the culture perspective. A lot of companies have really gone through The ringer here over the last several years, for obvious reasons, things are getting back to normal, and there needs to be this resetting of what this company means, what their mission is, what they're trying to do, and how they intend to get there. It seems that where this company is today is a product of what's been going on over the last several years, not just Mr. Calhoun's tenure, either. I think these these types of problems, they they they fester for a while. Right. So so external is certainly the way to go, I think.

Yeah, it reminds me when I was talking to Harvard professor Amy Edmondson about her book on failure. We talked a little bit about Boeing and she was talking about, you know, the previous incidences with the Max and sort of this culture of being able to report when things are going wrong or to be able to speak up is so important. And so, you know, I wonder if it needs to be a cultural shift. Do you think that the person who comes in needs to be inside the industry? I mean, it's such a tough industry, and yet you've got this independent board chair, CEO of Qualcomm, former CEO of Qualcomm. You could maybe bring in some tech talent, too. I'm wondering what you think about that. Well, I mean, it's hard to say.

I mean, this is obviously a very specialized skill set, given what Boeing does. I mean, there needs to be that background, whether it's in aerospace engineering, what have you. I mean, there are a lot of ideas out there as far as names that could be on the short list here. And it seems like most, if not all of them, have that type of background. I think in this case, that makes more sense. Well, I want to move on and talk about some other news. Massimo did one of my favorite PR techniques, the Friday afternoon press release. always, always an interesting one. They announced they're planning to spin off their consumer

division. Of course, that includes their Sound United acquisition, as well as the Stork Baby Monitor, the Freedom Smartwatch. You know, I found this interesting because I was looking at Massimo's investor relations page and they were at a conference in early March at the Raymond James Conference talking about how much sense it made to have the businesses together under one roof, how one fed the other. Well, they don't seem to think that anymore. Well, well, well, how the turntables have... Yeah, I'm glad we're talking about this, just because Massimo is a company I've followed for a long time. It's one I actually own shares in personally, and I've recommended it in one of our services. It sounds like this is something

that's going to happen. They have a plan. The board will assess it. But yeah, this all goes back to that Sound United acquisition that you mentioned. That deal is relatively recent. I think it was around $1 billion that Massimo paid for Sound United. Immediately, that headline, it seemed to be a very curious move at that time, given what Massimo does. Massimo, for those who don't know, this is a company that's really made its hay with its technology and pulse oximetry, measuring the oxygen levels in the blood, which is really a point of necessity for hospitals and doctors' offices. Massimo, through the years, has done a really good job of developing this technology and then developing products and services from that technology,

leveraging that technology. The Sound United deal came out of nowhere. It just was like, huh? When you start to look at what they were doing, it was all based on these high-quality speaker companies. OK, I understand the role that sound plays in Massimo's technology, but it never really seemed to add up. I think the investor skepticism has always been there. It's been there since. When you look at Massimo's business today, still a full two-thirds of revenue comes from its healthcare segment, the original Massimo business. A third of revenue now comes from the consumer side of the business, which is really what that Sound United acquisition is tied to. The revenue from the healthcare segment is

far higher margin. This is a healthcare business. I think that what this gives Massimo a chance to do is to maybe reinstill some investor confidence in the healthcare business. There are still a lot of questions out there in regard to the consumer side of the business, Sound United Acquisition and ultimately what that could bring to the table. But the healthcare side of Massimo's business is fully proven and very successful, and it's been that way for a long time. I think this could give investors the opportunity, this could reinstill that confidence in the healthcare business, and give the consumer side of the business a chance to succeed on its own. Now, it'll have to succeed on its

some merit there. But just from a shareholder's perspective here, this really does make a lot of sense to me. I think it really is steering investor focus back towards what Massimo does so well, and that is its healthcare technology. Yeah. And one thing that's interesting with that, too, is the healthcare business is really a razor and blades model in terms of what they sell, whereas the consumer side is, you know, it's not that. But I found it was interesting, though, that their chairman and CEO, Joe Chiani, he's going to be chairman of the new company as well. And some of the other analysts have been talking about, well, maybe it would be better if it was a complete separate break. But it's clear he does not want to let go of that.

Sounds like you want to stay with the core Massimo business and have less interest in the spinoff. Is that right? That's a fair statement. Yeah, I think. And so, Mr. Chiani, he's the founder of Massimo. Really, this was a garage startup. He's just done an amazing job with his business. I get and I appreciate his enthusiasm towards the consumer side. He was the one that really came up with the Sound United deal. Just to give you an idea of the things that they're pursuing in there, it's everything from these newfangled baby monitors to things like hearing aids. That alone, they see a $35 billion total addressable market. I think as hearing aid devices become more readily available to consumers without necessarily

having to get prescriptions and pay those just exorbitant prices, there absolutely is an opportunity here for that consumer side of the business. But yeah, I think I'd rather see the consumer side of the business try to go on its own in order to be successful. My interest in Massimo has always been based on the healthcare side of the business. You mentioned it, the razor and blade model there. They get those machines into doctors' offices and hospitals. Then, they do really well in selling those consumables that are required to make those machines work. That's really high-margin revenue there. There are just a lot of good qualities about that business that I remain very attracted to it.

Whereas, the consumer side is still an unproven entity. I'm not necessarily convinced that that market opportunity is as attractive as maybe they thought when they made the acquisition. Well, one more piece of news I want to get to is Elliott Management. Anytime Elliott Management takes a stake in a company, we always have to pay attention. They've had a stake in Match Group for a while. They've struck a deal. They're going to add two new directors to the board, including one of my favorites, former Zillow CEO Spencer Raskoff. We've got Laura Jones, CMO at Instacart, another heavy hitter. You know, they want to stabilize leadership, jumpstart the growth for Tinder and Hinge. Makes a lot of sense. Elliott is really interesting because they have a great

track record, you know, and they've recently taken a seat at Etsy. They're battling for Crown Castle, which is another whole other story. What's your take on Elliott? It tends to almost be, I start to get a little excited now when I hear Elliott is looking at a company that I'm also looking at? I think a lot of investors do. I think that's a fair knee-jerk reaction. We have to take a step back and then say, OK, let's see if this actually results in anything, because there's no guarantee that it will. But this is what Elliott does. They hold somewhere in the neighborhood of $65 billion in assets. A lot of what they do is finding these companies that have well-established positions in their

markets as leaders in those markets, but maybe they're going through some difficult times. I think it's fair to say that Match falls in that category. Etsy as well. If you recall, they held a position, a smaller position, but a position nonetheless in PayPal fairly recently, that they have since dissolved. I guess they just felt like, maybe with new leadership, either new leadership had a good vision of where they wanted to take the business, or they just felt like the juice wasn't worth the squeeze, so to speak. That probably is the tougher part of that line of work, determining when you have to bail on certain ideas. But they do, like you said, they have a lot of experience in this

line of work. While it doesn't always work out, it works out very often for Elliott. They have a lot of expertise in a lot of spaces. This could be something that works out very well for Magic Group. Yeah. I feel like Elliott is sort of house flippers. They come in, they bring in their experts, they do some renovation, and then they leave. That's good. Yeah, listen, hey, I mean, they're investors, right? At the end of the day, they're just trying to make a buck. Aren't we all? Thanks for the time today, Jason. Thank you. We talk about a lot of stocks on the show, but it's just a peek at the Motley Fool's

investing universe. This year, we're rolling out a new offering. It's called Epic Bundle. The service includes seven stock recommendations every month, model portfolios, and stock rankings, all based on your investor type. We're offering Epic Bundle to Motley Fool money listeners at a reduced rate. As a thanks for listening to the show. So for more information, head to fool.com slash epic. We'll also include a link in the show notes for you. Over the last several years, hybrid work has boomed. I talked to Mark Dixon, CEO of IWG, about his company's position as the top provider of flexible workspaces. I want to talk about your most recent earnings call because you talked a lot about the need

for coverage in offering flexible workspaces. So you're the market leader now in flexible workspace, how are you meeting this massive demand? There's a dramatic change occurring in the way people want to work and the way companies want to support their people. And really, it's all about reducing commuting. People don't want to travel distances, whether that's in a car, train, or any other mode of transport, long distances, to just use a computer in another place. Lots of people don't want to work from home. They want to work with other people in an office. They just want that office to be conveniently situated for what they have to do on that day or needs to where they live. So, you know, this is a fundamental and

far-reaching change that is transforming the sort of real estate industry, commercial real estate industry, which is unsuited to this new way of working, which is facilitated by technologies, Team Zoom, and, you know, better internet in more places, and so on and so forth. So that's what's driving demand. So a lot of companies, you know, the majority of global companies are thinking about this or doing this, because it allows them to cut about half their costs and it's what people want i mean it's one of those things that for a cfo he makes a popular cut i mean these things are quite rare so they like it and employees team members love it as well so we are seeing dramatic growth so we're growing unprecedented numbers of new centers we're

adding to the network in many countries we're operating about 120 countries this is a phenomenon that's happening pretty much everywhere in the world and so we're working with partners to grow the network we signed up last year in those results you were talking about 860 new buildings in a single year you know we used to open 200 now with 860 it's a complete change and we expect to do a minimum of that or maybe even more this year. Well, I think what's really interesting, and you talked about it in your earnings presentation, is that 88% of companies are thinking of going fully flexible. And it's sort of this mix that you just talked about, because there's the HQ that people go to far less often. There's working at home, which

people want to do, but not all the time. And then there's that flex space area. So if everyone's going hybrid, is this a permanent shift or do you think you'll see more flex space growing over time it's a permanent shift to flexible space look it's platform working it's the sort of thing if you just have in your mind uber i mean you can own a car but some people just use uber every day or twice a week or whenever they need it especially if they live in a city because the cost of parking a car looking after a car so it's sort of an infrastructure which is the uber infrastructure that's there and use it when you need it that imagine that and then imagine platform working which is a fixed infrastructure that's out there all over the

country all over the world that you use where it's convenient to you that could be close to home one day and then you have a meeting in atlanta or london the next day and the following day you want to be somewhere else, you can simply get on your app, add a workspace, use it. Or it might be your local office down the road from where you live, cycle there, meet other folks, have a good social life, and sort of work much better than working from home. Lots of social interaction is what workers want. So this new way of platform working will become the norm for about 30% of white-collar workers. And that's a population of about 400 million people. It's going to be a huge industry. The total addressable market, or TAM, is expected to be 2 to 3 trillion. So this is a

big segment of what will be the future of real estate. And it's transformational in many ways. It goes way beyond just commercial real estate and office. It's where people eat, where they have their lunch, and how cities are built. All of that's going to change. All technology facilitated. And my belief is that technology changes everything eventually. And this is just you know the next thing so building off that that uber idea because you had you've had sort of two separate pathways there which is one i'm an individual and i'm going all these different places and the second is more like my company is is offering me this space so in terms of your business is it more it's it's mostly companies at this point right but do you see opportunities

for individuals yeah as we're about 30 percent 35 percent are individuals but just to be clear you know these these individuals i mean it's a very significant group and this group is made up of business people that are business people of one consultants financial tax experts many many people lawyers and so on who want to have a great office near to where they live or near to where their clients are then that those are companies of one we then have the rest of the businesses enterprise corporates and sort of startups and medium-sized companies but all of those are buying a program for their people so you know these programs could be for a hundred thousand people they're not it's not but they sort of have everyone switched on uber do the same thing

you can have a company account with uber where you can just charge to your company and we do the same thing so and that is that's a big part of the business it's a bit of everything here and by the way we have 10 different brands so we've got brands specifically for startups and brands that much more for corporate. So, we're trying to pick off and supply to our customers what they want and where they want it. It seems to me a lot like you sort of have delivered on the promise that WeWork sort of had and wasn't able to deliver on. I'm wondering, as you watch that company shrink, are you still seeing opportunity to take both space and customers from them? I know you took some of their space in the past. Yeah, we've done, I don't know how many so far, but

probably around 45 50 buildings and you know we wish them the best you know they're it's going to be a huge market they're in the market as well but you know we you know we are basically our coverage is about 10 times their size and they're in a slightly different business segment to us they tend to have larger spaces larger units of space and things like that but uh yeah look we'll see they're still in their restructuring period at the moment chapter 11 um we'll see how it emerges and so on but you know it's a massive marketplace it's not a them or us or you know so it's a competitive market there's lots of people doing it we just happen to have the biggest coverage I want to get a little bit into your metrics because you've been reporting REVPAR, Revenue

Per Available Room. This is a metric I usually see when I'm looking at hotels. Really fascinated to see you reporting that. What prompted that shift? Clarity prompted that shift. So, one of the most important things for us as a public company, high growth, global, is how can we better communicate with our investors, our public company investors and analysts and so on. And what we found is that we were getting sort of caught on single metrics. So, you know, the thing that makes up REFPA is actually a whole number of metrics that we used to give individually, and you'd end up having a discussion about something like occupancy. REFPA is occupancy price and services that, These are three important metrics. It combines them into a simple, straightforward metric that you can sort of hang your hat on, we can give guidance on, and it helps people calculate, external people calculate what our revenues are going to be in company-owned centres and in managed estate, which is growing very quickly.

and it's been popular so we all of these changes that we made other changes going into three divisions and so on we taught a lot to investors not not on investor meetings but outside of the meetings to ask them what could we do to better explain our story it's a great story but you can get lost in the detail very easily. So, the outcome of that is what you see today. Three divisions, very clear. Very clear metrics. Rev part. Okay. And, you know, then we talk about the costs, the overheads, and it's all percentage margins in the end. Very easy to follow. You know where we are, you know where we're going to be, or you can better estimate. And it's been very popular with investors. They like it.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. I'm Deidre Woolard. Thanks for listening. We'll see you tomorrow.