Motley Fool Hidden Gems Investing - The NY Times Goes All In On The Athletic

Episode Date: July 10, 2023

The New York Times leaves its sports desk behind as it puts its might behind The Athletic. (00:21) Jim Mueller and Deidre Woollard discuss: - Why the New York Times announced it is shutting down its sports department. - The future of sports coverage and sports entertainment. - The Barbie movie and the potential value of Mattel’s intellectual property. (15:53) Ricky Mulvey and Asit Sharma look at some ultra-luxury businesses... and why they’re beating the market. Companies discussed: NYT, DIS, RACE, RH, LVMUY, PPRUY, HESAY, MAT Host: Deidre Woollard Guests: Jim Mueller, Asit Sharma Producer: Ricky Mulvey Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Motley Fool Money. I'm Deidre Willard here with Motley Fool analyst Jim Mueller. How you today, Jim? Doing well. Had a good weekend. Awesome. Glad to hear it. Let's talk about the New York Times because they announced that they're disbanding their sports department in favor of coverage from The Athletic. That's the brand they bought for $550 million last year. And the news came after the New York Times sports department, they submitted a letter on Sunday, sort of asking what was up. And then Monday, we kind of get the answer here. Is this surprising or were we sort of expectedness? I think the sports desk at the Times should have been kind of expecting this. I mean, the purchase was February of last year, and the number of journalists working for the

athletic outnumbered the number of journalists working for Times on sports by almost a factor of 10, certainly a factor of six or seven. With that disparity and the overlapping of the coverage between the two departments. I think the journalists at the sports desk at the Times should have been kind of expecting this. And the fact that the answer came out pretty quickly indicates to me that management had been thinking that this is where they were going to go. They might have announced this a little early because of that push from the sports desk members, but I'm sure this would have been announced sooner rather than later. Yeah, so it sounds like they sort of knew it was coming and maybe they made this public

statement to sort of like get the Times to make that statement, perhaps? Perhaps, perhaps. If there had been talking and people talking to their editors and the editors talking to the management, management should certainly have known it was coming. And management probably was not surprised that this was coming, that this question was coming, but they might have forced their hand a little bit, but probably not by much in my estimation. The nice thing about the announcement is that they're saying, we're not laying you guys off.

What we're doing is we're expanding the way we do coverage of sports into other sectors of our business, to business news, to politics news, to culture news, because sports is such a big part of being human that it affects all these other things. And moving these journalists to these other desks, I think, will improve the quality of the reporting. I think, also, the other thing one of our colleagues pointed out is that sports reporting, especially for a local paper, they're what you'd call homers. You're not going to get that with The Athletic. They're much more objective reporting. What does that mean if you're a New York Times subscriber and you're a Yankees or Mets fan or Rangers fan?

Maybe not with a local perspective, but you're going to get coverage of your team and of the players on your team. That's what The Athletic does. They cover over 200 professional sports teams, The Athletic does. The Yankees, the Mets, the Nationals, the Commanders, the Seahawks, the Mariners, all these teams are being covered. So, you're going to get that coverage regardless, going forward, because you've been getting that in the past already with The Athletic. But you're not getting maybe the rah-rah approach of New York paper writing about New York teams?

Yeah, maybe. I'm saying this as a Boston fan who's used to having very raw, raw coverage of her own sports teams and her own sports papers. That's going to continue. I mean, is it the Globe in Boston? The Boston Globe? Yeah. Yeah, that'll continue.

I would expect the New York Times to continue to have slanted coverage of the various New York teams, but same with the Seattle Times, the Los Angeles Times doing their local teams and so on. So, I don't think that changes. So, The Atlantic, not profitable. They have grown their subscriber base since they've grown with The New York Times up to 3 million. Is there profitability in their future, do you think? Oh, sure. They had a very strict paywall and a very relatively limited membership of only a million people. The Times has managed to grow that, triple that in the past year.

They saw a 50% year-over-year growth in active users of The Athletic in the first quarter of this year, the last one that's been reported. Their loss of $6.8 million a year ago, Q1 2022, was only for two months. So, that'd be, on a three-month basis, about $10 million. So, $7.8 million loss this last quarter. So, that's actually an improvement. It's moving in the right direction. The revenue is up year over year.

So, everything is moving in the right direction. More subscribers and a higher price would help, of course, and move it towards profitability. But beyond that, what The Times is doing is focusing on a bundle subscription, a bundle approach. Because you have The New York Times, the news. You have The Athletic for sports. You have games, which is the puzzle, the crossword puzzle, and Wordle, and all those. You have cooking. You have Wired, which is reviews of all kinds.

And you can pay separately for them all. and each of them hopefully being profitable as a standalone entity. But if you bundle them together, you can get a higher price and get more engagement from the users and improve revenue and improve profitability and save a bit on the back end by giving the person access to everything rather than trying to figure out exactly what they have access to. The bundling and unbundling, we see it across all kinds of content these days. All right, so we just talked about The New York Times and The Athletic.

ESPN, they just went through a round of layoffs. This maybe is part of what's going on with Disney in general, but does it say anything about sports coverage in general? I don't think it says anything about sports coverage in general. I think it's more of a Disney problem and a cable subscription problem than a sports problem. Sports coverage is still very important. It's arguably what's kept cable going so strong all this time, along with local news and politics that the local TV stations have.

But it's becoming a lot easier to get sports from all kinds of different things. I have the MLB package, and so I can watch my baseball without having to go to ESPN. Thursday Night Football is on Amazon Prime, and so people can get their football fix on that. And there's a lot more bidding. We just got through the rights for NFL bidding, and it's a lot more broad than it used to be. And so, I think ESPN itself is becoming a bit less relevant because there's more sports coverage elsewhere. The Athletic, especially with The New York Times pushing it as much as they are, is becoming a competitor on coverage. I think it's more of a Disney problem than

a sports problem. It's interesting, though, what you just mentioned is, now you have to go all these different places to get your sports versus just a few locations. It's definitely a shift in how you experience sports. Yeah, well, that's true as well with all the streaming different things. If you want to watch Star Trek, you have to get NBCUniversal. If you want to watch House of Cards, I know it's an old series. That's the only one that pops into my head. You have to go to Netflix and so on.

So, everything got unbundled as streaming grew up. I think we're going to see some more consolidation and get it back to more bundles put together. It changes, and then it changes again. Right. Let's move on to talk about the Barbie movie, because this is just dominating everything right now. Pink. Everything pink. Everything is pink. And it's a particular shade of pink.

Yes, very important. So, they had their premiere over the weekend. It comes out in theaters July 21st. Tie-ins everywhere. Every time I turn on TV, you've got Progressive doing their Barbie thing. You've got a Barbie Airbnb in Malibu. I saw that Mattel signed over 100 licensing deals. are we getting too much Barbie? Well, as a guy who never had any

daughters, I'm not sure I have the right viewpoint on this, on whether you can have too much Barbie or not. But they are certainly pushing it hard. This is the first really big move by their CEO, I think it's Inon Kreetz is how you say his name. He came on in 2018, the fourth in four years of Mattel. And he has this vision of turning the company into an IP platform, kind of like what Disney's done so long. And when Frozen was out, everything was ice princesses, right? Oh, yeah, absolutely. So this is much the same thing with Barbie. Barbie, of course, has a fraught history. When it's resonated with the culture, they've done very well, but they've also had some pretty bad

misses on lining up Barbie with the culture and not done so well. The story by Greta Gerwig, the director of Lady Bird, which was a fantastic movie, and her... I know I wrote this out. Noah Baumbach. Noah Baumbach, that's our partner. In a Bloomberg article, I read that when they were writing the script, they were making each other laugh, but by the end, they were making each other cry, which really is intriguing to me, signaling that the movie might be more than just a toss-off on what Barbie is and what she can do, but has more something culturally important to say. So, it could become a really big hit.

It's a big risk for Mattel. If Creutz's goal is to turn the company into an IP platform, it's a risk the company has to make. Yeah, it's interesting. You mentioned the fraught history, because there was originally another Barbie movie that was going to star Amy Schumer. Diablo Cody was writing it. That didn't happen. And this one is supposed to be sort of irreverent, but also heartfelt. I think it's interesting because we haven't seen much of it.

The trailers cover the world, and then they cover that there's a transition, but they don't give you much after that. I think that's part of the reason that people are so excited about it. That and the fact that they might not quite take themselves so seriously. I know there's a lot of poking of fun at the history, as well as at the company Mattel itself. I know the CEO is represented in the movie as well. He has a screaming fit at some point. Yes, I think Will Ferrell is playing him. Yes, yes.

Yeah, so that ought to be good. Well, let's talk about that other IP. You've got everything from Hot Wheels to Uno. Is this all just nostalgia for the toys of our past, or is there really great IP here? There's the possibility of some really good IP. I mean, so Hot Wheels has J.J. Abrams behind it. Vin Diesel has signed up for Rock'em Sock'em Robots, the boxing robots in the ring. An old toy that they haven't sold in decades, Major Matt Mason, an astronaut, has Tom Hanks

attached to it right now. They do have some Hollywood horsepower behind this. Of course, there's the risk that this is just all nostalgia, but there's also the opportunity for Mattel to reintroduce or introduce these to a new generation of youngsters and allow them the flexibility to try to come out with other toy lines. But they have a whole bunch. They have Barney, American Girl, Thomas & Friends, which is the little train for the preschoolers, Uno, Matchbox. Clever writing can put these into some very interesting situations and could do good things for Mattel. But until Barbie shows that it can be a success, I think

everyone's going to be saying, let's wait and see. Let's see how it goes before we give you the green thumb on, you're going to be a growth company and an IP company, not just a toy maker. And then the money starts to flow, right? That's their hope, for sure. Well, it'll be July 21st. You've got Barbie and you've got Oppenheimer coming out on the same day. That's weird, right? It's this whole weird thing where it's called Barbenheimer, where people are planning on seeing both on the same day, which just blows my mind because I cannot think of a a stranger double bill. The order you would do it, though, is important. You would see the serious,

very scary story of J. Robert Oppenheimer, the scientist who led the Manhattan Project and led up to the atomic bomb, and then his angst afterwards. And I can certainly see that, because creating an atomic weapon and seeing if the physics works is a fascinating physics science problem, and then realizing it afterwards, what it's being turned into, and how it's being used. Certainly a dark-toned movie. And then you would see the Barbie afterwards to cleanse yourself and refresh yourself and say, oh, there is actually some hope in the world. There's been a lot of talk about which order to see that in. That's the order I would choose. I think that probably is the better order.

From what I've heard about Oppenheimer, Christopher Nolan definitely has taken the very serious approach there. But we kind of need a hit, right, from movie theaters. I mean, Indiana Jones did not perform as well as it could have. I went and saw it that weekend. I'm sorry, I didn't. There were 10 people in the theater. Oh, 10? Oh, that's sad. Yeah, it wasn't good. We need this hit, right, for theaters? Theaters certainly need something to get audiences back. With the shutdowns,

they're still trying to, from the pandemic, they're still trying to figure out how to come out and be relevant again. I used to like to go to movies because seeing it with a crowd is a much different experience and in many ways a more enjoyable experience than watching it by myself on the couch or with my wife in the family room, right? So theaters are trying to get people back. there's dinners theater, there's something called, I know it has a name, but if there's an eating scene in the movie, you get served the same food at your seat. Oh, cool. So that's a nice trick. I don't know how it would work in all kinds of scenes.

Sometimes you do not want to be eating during a movie. Exactly. Theaters are definitely struggling, and I think they'll survive in one way or another, but they're definitely struggling. Having a blockbuster hit would certainly help them out. Yeah, well, we will look forward to that. Programming note here is that we're going to have more Barbie coverage this week. We're going to look at Summer Box Office with Mary Long and Katie Piper on Wednesday. Thanks for your time today, Jim. Thanks. A pleasure. Tighter economic climate should slow down discretionary spending,

but the super rich seem to be doing just fine. Ricky Mulvey and Asit Sharma look at some ultra luxury businesses and why they're beating the market. Asit, it seems that even during what might be a tougher economic climate, maybe an arguable recession for many, the super rich are doing all right. Ricky Mulvey, always wanting to ride the coattails of the rich. I would love to. I looked at four stocks, and these are the ultra-luxury premium brands, Ferrari, Restoration Hardware, Louis Vuitton, LMVH, Kering, which owns brands like Balenciaga,

and Gucci. What I found was since the Fed started hiking interest rates, and even since before the pandemic, this basket of companies, Asit, has smashed the average return of the S&P 500. I'm not surprised, Ricky. What I was surprised is that the growth was uneven in the share prices of these companies. We'll get into this a little bit more. Some have done extremely well. Others are turning out great business results, yet to catch up to the meeting of the group. Since the Fed started hiking rates in March of last year, the S&P is about flat. These companies as the basket have returned about 12%. If we look at a total four-year return, because you know we like the three to five years,

this basket has returned 93%, while the S&P has returned about 56% with dividends included. But you're right. The top performer for this overall seems to be Ferrari. A great company, an historic brand, and plays in so many different parts of the luxury segment, not just cars, but it's also a lifestyle brand. I say this because Ferrari is a company that will sell you an automobile and makes a good portion of its margin with personalization. If you or I, well, I should just speak for myself, Ricky, if I go to the car dealership and ask for a bunch of customization, and I'm willing to wait a year or so. I think at the level of type of cars I buy, I'll just get some strange looks. They'll probably steer me gently

around out the door. Usually, it's enough to just put a fishtail on my Honda Civic so it stays on the ground while I'm accelerating on the highway. But in the case of Ferrari, you're right. They're able to add these expensive customizations because they're targeting a consumer that's not too worried about price. This is a company that makes about 11,000 to 14,000 cars per year, and yet it is worth, in a market cap sense, the same as about Ford and General Motors, which make cars in the volume of millions. It's so crazy when you think about that. I always try to figure out what is the market valuing when it values a company. We see a share price out there for a company that we follow. Is it earnings growth? Is it revenue

growth? Is it because of future cash flows? A combination of all three. With Ferrari, you've got all three. They're very cash generative, have had great revenue growth over the last several quarters, extremely profitable. Their return on equity, Ricky, 39%. Can you guess what Ford's return on equity is? You're setting up for a big one, and I'm not going to look it up. I'm going to guess 4%. You're very close, 6%. But this is where that pricing power comes in. This is where all the ancillary parts of their revenue stream come together. This is a company that is easing into electrification. It's got about 22% of its sales that are now hybrid, but it has had a long path to be able to tinker with that because it plays on the F1 circuit. It's also got

going for it a backlog, which is extending out to 2025, which goes back to those few vehicles relative to the large automakers you were talking about. This is an aspirational brand. People are willing not just to pay up, but to wait. I think this is also a case where the car itself, unlike a Ford or maybe a Chevrolet, when someone buys a Ferrari, they can be fairly confident that it's going to retain its value years and years down the line. Now, there was that blip during the pandemic where used car prices surged. But with a Ferrari, because you know there's that constant backlog, a lot of folks buy it, they would call it a store of value, or that seems to be better than an expensive toy. Totally. Management talks about this in earnings

calls. They talk about that secondary market and how the cars retain their value. The brand is really strong also because it competes in this F1 world that I talked about. Traditionally, Ferrari's been a top-three racing entity. They fell off in recent years. The last I looked, I think they're in the No. 4 spot in the Constructors Race for this year. That Caché is coming back. That's more sponsorship revenue for Ferrari. It's more aspirational brand building out in the real world for young F1 fans who also are part of this super wealthy network that buys these vehicles. But we should move on, Ricky. I feel like you and I could talk Ferrari the rest of the hour. Well, let's focus then on a company

that's spending a lot of money to build an aspirational brand, and that's Restoration Hardware, ticker RH. It has been an outperformer over the four-year period. However, since the Fed started hiking rates, this has felt maybe some of the pain of folks putting aside some of those renovation projects in their homes or spending a little less money because of heightened interest rates. Totally. RH is also an aspirational brand. I wouldn't call it super luxury yet. I think it's on the path. When you see a company like this, which has to do some inventory markdowns, and mentioned the phrase in conference calls, they're probably just out of that stratosphere where an inventory markdown isn't going to make

much of a difference. Also, they're not holding back product as some of these really rarefied retailers do. They're trying to sell product, they're trying to expand. This is a capital intensive company when you compare it to an LMVH, which has a history of acquiring small fashion houses and just cultivating those brands. RH has this very interesting strategy to invest in real estate. We're talking English Manors on, I think, 73 Acre Estates is the last one I read in their conference call. It's interesting. They're trying to build an experiential type of brand. They make no bones about it. You got to spend the money. They talk about the need to invest capital. In fact, they say, look, when interest rates were low, we took

on a lot of debt simply so we could invest and bring these experiences to the people. There you go. They're on the path. But as RH tries to build this ultra-luxury brand, is this vision something that's worth investors paying up for? It's nice to have this vision of ultra-luxury, but they're building estates where shoppers can look at Europe's largest herd of white-tailed deer, the clarity is less clear to me. I should note that they can enjoy a glass of wine or afternoon tea service while sitting around monolithic stone fire pits on that grand viewing terrace, Ricky. That's straight from the conference call. You have to admire Gary Friedman. He's such a storyteller. He's such a vision builder.

He's also a pretty good executor in terms of business strategy. I think it's worth investors to stick around. RH has been a pretty decent investment. To see where this goes, I wouldn't fall in love with this business, because they are getting very ambitious and taking some risks. But if you're not going to acquire all these small houses, this collection of houses that, for example, LMVH has, they have brands that have been around since the 14th century, the 16th century, the 19th century, then you've got to build your cachet some way. This is one avenue to doing that. Even if it's expensive. The other two in the basket, Louis Vuitton and Caring. Any reflections on those before we maybe add

to or fix the basket? I think Louis Vuitton is just such a monster in this world. It's one of the two stocks that I was referring to when I said two have really driven the returns. It's one of the world's largest retailers. You wouldn't expect that. You wouldn't expect that this company is twice the size, almost twice the size as Coca-Cola in annual revenue, and yet it is. There you have it. There is more revenue generated from people buying these high-end handbags, watches, champagnes, than there are the billions around the globe who buy Coca-Colas and Diet Coke. I find that part of it fascinating. I'm always surprised at the profit margins that a company the scale of LMBH is capable

of throwing out. I think they're looking at something like $15 billion in free cash flow for not this year, but next year. This gives you a sense of the scale and just the brute force of those margins when you sell aspirational products for these high-income earners who are poor if you're making $200,000 or $300,000 for some of these products, maybe the higher-end wines that LBH sells. We should also mention Bernie Arnault, though. The one thing that I want to point out here is that Bernard Arnault has been a great steward of a family business, and he's been great at turning those acquisitions into organic growth. If you read through their calls in 2023, it's all about having double-digit organic

growth, which again, for a company so big, seems like it might be a high hill to climb, but there you have that pricing power. Their customers are going to pay. The organic growth is easy. The pricing power comes from, we don't even know if we want to sell this product to you because we just have so many other people who are interested in buying it. As we look at this basket, are there any companies you would add, any tweaks you would make? Let's call it the ultra-rich will be okay stock basket moving forward. I love the companies you picked, Ricky. I think it's a nice basket. Maybe I would add Like & Hermes into that because it's got a

similar profile, revenues of about $12 billion. Very nice ascension there on revenue growth over the last several years, high profit margins, great brands in that house as well. That might might be one that I would add. I'll be completely honest with you and listeners, I don't know enough about luxury goods to suggest too many more. 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 Willard. Thanks for listening! We'll see you tomorrow. We'll be right back.