Motley Fool Hidden Gems Investing - Uber's "Seismic Shift" and Farming's Future

Episode Date: May 9, 2022

More companies are getting more serious about cutting spending. (0:20) Jason Moser discusses: - Uber's CEO telling employees they are cutting marketing and treating hiring like a privilege - Meta Platforms placing a freeze on hiring - The huge opening weekend box office for "Dr. Strange and the Multiverse of Madness" - Encouraging data around younger Americans' comfort level with going to theaters (14:55) Motley Fool contributor Rachel Warren talks with AppHarvest CEO Jonathan Webb about why he founded his company, the future of farming, and trends investors should be watching. Stocks discussed: UBER, FB, DIS, PARA, CMCSA, SONY, APPH Host: Chris Hill Guests: Jason Moser, Rachel Warren, Jonathan Webb Producer: Ricky Mulvey Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

This family is on the brink of civil war. On September 18th, Mobland, the hit original series, is back on Paramount+. We are the Hartigans. Don't know them yet? Then Google us. From the underworld of Guy Ritchie. Do you want to step up the ladder?

I want Comet dead. Starring Tom Hardy, Pierce Brosnan, and Helen Mirren. Do I have to do everything myself? You want more? I'll give you more! Mobland, new season hits September 18th Today on Motley Fool Money, a conversation about the future of agriculture and a sign that more companies are cutting back on spending. I'm Chris Hill and I'm joined by Motley Fool

senior analyst, Jason Moser. Thanks for being here. Jason Moser. Hey. Wouldn't it be nice if we woke up and the stock market just was bouncing up magically? What is this you speak of? But that's not the case. That's not the case. We're in a rough patch. For anyone who wasn't paying attention previously, we are in a rough patch. The new wrinkle is that it's clear now, we're getting a growing body of evidence that the people running public companies are keenly aware of where we are in the market. The latest example is with Uber, because CEO Dara Khosrowshahi sent an email to employees

saying Uber is going to cut their spending on marketing, they are going to treat hiring as a privilege. I will just quote from early, and this is posted online for anyone who wants to read it. But early in this e-mail, he writes, after our earnings report, I spent several days meeting investors in New York and Boston. It's clear that the market is experiencing a seismic shift and we need to react accordingly. We can go in any number of directions, Jason, but the striking thing to me is the use of the phrase seismic shift. It's one thing for us as investors to say, boy, we're in a bad stretch here. It's another thing for the CEO of a public company to say, we are, as of this moment, rethinking pretty much everything we're doing. Everything is on the

table. Yeah. Well, it makes a lot of sense. I do appreciate the fact that they're going to pull back on unnecessary marketing spend. To me, Uber has hit verb status. I think that it's in that pantheon of companies that don't really need to market a whole heck of a lot because a lot of people really already know what it is and what it does. Whether it's Uber, Uber Eats, the more obscure freight side of the business. Ultimately, this is a business about mobility and getting things or people from point A to point B. I'd imagine most people out there know Uber at this point. It is interesting commentary, I think, the seismic shift he mentioned. Given the meeting and who it was with, you wonder if the consensus of the investing

community is pivoting away from these adjusted metrics in these companies where we always talk about the path to profitability as opposed to actual profitability. You can only tell that story for so long and that story really gained a lot of steam during a time. We've talked about this before, but those stories really gained a lot of steam during far different economic conditions. We're now seeing a whole different approach here as now we start to see interest rates tighten, the money supply tighten. There's more and more talk of recession and whatnot. It does feel like maybe the investing community writ large is a little bit more focused now on, okay, we've been talking about this path to profitability for a long time. We either want

to see profitability or I really want to be able to see that path. With a company like Uber, I mean, really, that path should be pretty clear. The business itself, and I have to admit, this business is growing increasingly attractive to me as this valuation starts to come down. But the most recent quarter, when you look at the numbers, this is a business that's really growing. I mean, gross bookings up 35%. The problem is, and you see that headline net loss of $5.9 billion, and that's $5.6 billion of that is just a headwind related to their equity investments in companies like Grab and Aurora and the DD Stakes. Turning maybe more towards cash flow, that shouldn't be a surprise. I think for the most part, the investing community has

always appreciated cash flow. I think it's just been lost in all of the hype recently. It's a little bit cleaner, it's a little bit less cluttered. Granted, we all make adjustments to cash flow as well. There will be ongoing debates, I'm sure, as to whether stock-based compensation should be adjusted out or not, but that's for another show. I think that ultimately, though, it's an astute observation from him in that the investing community is demanding more now. It is a tricky time to be an investor, but when you have a business like Uber that really dominates its space. There's really no excuse for a business like this not to shine. You always say you're much more interested in companies meeting their own expectations

rather than Wall Street's expectations. Earlier this year at Uber's investor day, he said they're going to be cash flow positive by the end of the year. Now it looks like he's going to be pulling every lever possible to make sure that happens. In terms of the broader landscape, just last week, we saw the reports from Meta Platforms. They've ordered a freeze on hiring. I can't imagine we're not going to see more of this from large public companies. I think it is an absolute given. We will see more of this. I think there's only one direction really we can go, and that is in that direction. Meta was not the only one. Robinhood talking about not only freezing, but letting some of their workforce go. Clearly,

if Musk's Twitter deal goes through and it looks like it will, that is going to be a business where the cost structure gets right-sized very quickly. Those are just large publicly traded companies. right? I mean, let's not forget about all of the small to medium-sized businesses out there that have really been enjoying these easy financial conditions for a long time. I said it a few times, it feels like we're going to see the shoe on the other foot here at some point where these days where we have more jobs than people to fill them, that's not going to last forever. All of this stuff comes back full circle. As more and more businesses start to not only freeze their hiring, but also start to work on right-sizing their cost structures,

which usually means letting a healthy amount of people go, that shoe, I think, is going to be on the other foot here sooner rather than later. If we enter into a recession, when I should say we enter into a recession, because it is a matter of when, not if, I don't know when it's going to happen, but it will eventually. That's just going to be more thing for people to really be concerned with. Consumers are already feeling the pinch of record high inflation. If you add to that an unemployment situation where now all of the stimulus has really ultimately disappeared, we saw personal savings rates just a couple of years ago upwards of 30% plus, and now we're back down to 6% and lower. Those savings

are gone. I would not, if I'm a consumer, I am not counting on the government stepping back in to say, hey, let's just pump a little bit more stimulus into the system to try to encourage this soft landing. Soft landing or not, we got to land. This is the path to that. I have a feeling it's going to be a bumpy ride. You know who's not cutting back on their marketing spend? Movie studios. They are gearing up for a big summer and every studio with a tentpole movie has got to be encouraged by what happened this weekend for Disney. Doctor Strange and the Multiverse of Madness took in $185 million in its opening weekend here in the U.S., $450 million worldwide on a day when pretty much everything across the

board in the market is getting whacked. If it was not that type of day, I wouldn't be surprised to to see shares of Disney ticking up a little bit on this. But this is, I don't know, I thought this would do well at the box office. I didn't think it would do this well. Yeah. I mean, the Marvel universe is really strong, right? I mean, that is content that gets a lot of people out there. And part of that, I'm sure, is just some pent-up demand. I mean, if you look at the actual numbers, you go back three years ago, domestic box office receipts totaled $11.4 billion. If you then go to 2020 and 2021 combined, the combined ticket sales of those two years were just a little bit more than half of that, to put all of this into context. We can argue whether

this is a market that is in a slow secular decline. I would argue it's probably not in a slow secular decline. I just don't think it's the most robustly growing market in the world. Theaters still are going to serve a purpose and they will have a place. Maybe it'll be a smaller place, who knows? I think there's going to be a lot of interesting negotiations here going forward regarding the theatrical window and exclusivity and how that all plays into the streaming environment. But I think there's a lot of interesting data out there in regard to how consumers are feeling these days, not only in regard to just the economy and getting back out, traveling, things like that, but movies in general. I found some neat data from Morning

Consult earlier this morning. You look at this, more than three in five Americans, about 62% of Americans right now are comfortable heading to a movie theater. That certainly is significantly higher than it was just a couple of years ago. It's up 18% since the beginning of this year. Now, the majority of that, millennials 70%, Gen Zers 80%, they're the generation's most comfortable heading back to the theaters, and baby boomers at 52% remain the least comfortable. And that all makes sense, I think, for the most part. I mean, kind of the way we've seen these last couple of years play out. And so, I think that we're certainly seeing consumers are more than ready to get back out there and start doing stuff. I think what it really boils down to, and we say

it a lot, content is king. I don't think this is something that just spans far and wide. You could just put any movie out there and it's going to do well. I think it depends on the movie, but that really should play well into Disney's hand because Disney owning Marvel, of course, along with with Lucasfilm and Pixar, they possess a lot of IP and they have a really strong pipeline of films that are set to come out here over the next several years. If it really does boil down to that combination of consumers being ready to go back out, but only for the right movie, well, I feel like that probably bodes pretty well for a company like Disney. It does. Certainly later this year, they've got another Thor movie, Pixar's

Lightyear is coming out. But you've also got Paramount with the Top Gun sequel. You've got Comcast Universal with another Minions movie, Sony with Bullet Train. It does seem like there are opportunities that, again, I think all of these studios are going to be taking their shot and spending accordingly. Yeah, it feels that way. It wouldn't surprise me to potentially see a little bit more consolidation in companies trying to get stronger catalogs of intellectual property. The points you made there were all very good, but it also lends itself to that lumpy nature that we see oftentimes with these entertainment companies. Disney, over time, has been able to smooth that lumpiness out a little bit,

not just because of the diversity of their business model, they make money beyond just the movie theater, but it's also just bringing all of that intellectual property under their umbrella. Those three acquisitions alone, Pixar, Lucasfilm, and Marvel were just phenomenal. That helps them keep a little bit more of a reliable pipeline. To that point, it's interesting to note that what's preventing a lot of people, what keeps a lot of people from going back to theaters these days, it's not really COVID. It's not the conditions on the ground. It's actually the costs involved with going to the movies, the tickets and the concessions, and the interest in the film itself. It really does boil down to making sure you have the right films in

the right places. Then certainly, I think the theaters are really going to be champing at the bit to do all they can on the concession side. If you're going to the movie theater, I don't go all that often, but I do enjoy it when I go. There is no way I'm sitting down for that movie without a big old bucket of popcorn and a massive Diet Coke. Chris, they could probably charge me $100, and I would probably still pay it because I go so infrequently. But it is worth remembering, those theaters make a ton of profit off those concessions. Jason Moser, great talking to you. Thanks for being here! Yes, sir!

Like a lot of entrepreneurs, Jonathan Webb saw a problem in the world and wanted to see if he could help solve it. The problem, increasing the supply of food that we grow. The company he started to tackle that challenge is AppHarvest. Motley Fool contributor Rachel Warren recently caught up with Webb to talk about how he started AppHarvest, the trends investors should be watching and a lot more. First off, for members of our audience who are brand new to this space, what do you define as ag tech? And next, could you dive a bit into your company's business model, what it does and its overarching mission? Yeah. So ag tech, as you see it today, is just how do we use modern technology to advance agriculture? But really,

agriculture in and of itself is a human construct for humans, right? So we've over many centuries used technology in different forms in order to grow food. And the last great technological revolution in American farming is really when the tractor was introduced. And we've seen a lot of iterations since then, but we haven't seen anything as drastic as the tractor. And today, it's using big data, AI, vision sensing software, and controlling the climate. And we've tried to say that controlled environment agriculture, CEA, is really the third wave of sustainable infrastructure. And if you look 20 years ago, it was renewable energy. 10 years ago, it was electric vehicles. And today, it's really the third wave is controlled environment

agriculture. And we have to figure out how to grow a lot more food with a lot less resources and do it in the middle of climate disruption. So using innovative business models, using the tools that are available today around the world and building those into a system is really at the heart of what ag tech and CEA is. We at App Harvest are one model out there that's attacking it in one unique way, but there's many different models that'll have to emerge as we build a more resilient and robust food system that's going to feed our world, not just today, but 30 years from now. Yeah, absolutely. Well, I wonder if you could also walk me a bit through the journey to founding AppHarvest? What's the story there? Your choice to locate the business in Appalachia,

as mentioned, that is home to you. And why the ag tech space in particular? Yeah. So, for me, and I think any innovative company, it should always be about starting with the problem and then trying to build a business model or solution around that problem. And you had mentioned previously in the intro, my background before this was building large-scale renewable energy projects. I was a part of building some of the largest solar projects on military installations and have transitioned from that, which is large-scale energy development and renewable energy, over to controlled environment agriculture.

But it really started with the problem. And, you know, zooming out and looking at, OK, the U.N. says we need to grow 50 to 70 percent more food by 2050. In order to grow that 50 to 70 percent more food, some have said we would need two planet Earths to have enough land and water. We already use 70 percent of fresh water today is used for agriculture purposes. So how do you make that leap when we've already expanded so much around the world and the sheer land footprint and the water needed to grow that food? The numbers don't add up. And our climate discussions are very myopic, and we talk about carbon all day, every day. And the world thinks, well, if we solve for carbon, okay, we will prevent a rising temperature and all will be good.

That's simply not the case. And we have to expand these environment discussions to embody everything needed in order to really support future human civilizations. And we're not talking about 100 years away. There's a great documentary that just came out, Eating Our Way to Extinction. you're looking at 20, 30, 40 years out with climate disruption hitting and with the need for food rising, how are we going to grow this stuff? And the good thing is there's technologies that are available that we can use today. And marrying that together with new technologies like robotics, AI, vision sensing, you can grow food with 90% less water, get 30 times yield per

acre and do it year round in a climate resilient structure. So our business model at App Harvest is really to build some of the world's largest controlled environment agriculture facilities. We're located in the heart of central Appalachia. And if you zoom out of Moorhead, Kentucky, you'll see that we can get to about 70% of the U.S. in a one day drive. So we can get up to New York, down to Miami, over to St. Louis, to Washington, D.C. And we're shipping to the to the top 25 grocers right now. Walmart, Kroger, Publix, Costco, our tomatoes are on Wendy's burgers. And by the end of the year, we'll be growing strawberries, leafy greens, all different types of tomatoes. And we're doing it in a place that's water rich. So if you look at California

and you look at the Southwest of the US, they're drying up. And we import two thirds of our fruits and vegetables today into the U.S. And then the fruits and vegetables we do grow are being grown in drought-stricken regions that are running out of water. So, you know, Weed App Harvest, it's about trying to build a company, build a solution around the problem. And we want to be a helpful player on the international stage. But right now, we're very focused on building out that food system here in the U.S. Yeah, absolutely. And it's very exciting to hear about One of the things I think as well I want to dive into a little bit, talking a bit about AgTech, what that looks like. As consumers, it's clear to see the benefit there. But as investors,

why should this matter to investors? Why is this something, a thematic trend to be focusing on at this point in time? And what's the potential environmental impact here to consider as well? Yeah, this is a long-term play for us that we elected to take the company public because we thought building this company allows us to have a voice with regulators, with consumers, with grocers, and allows us to build that transparency that's needed in order to be a global food company. But it's hard. I mean, we are trying to manage a business where we are thinking in decades, 10, 20, 30 years out, while also being head down, knowing that we have to deliver every quarter for our public investors. But for us, this is a super long-term play where the trends, and no matter which way you look, the tailwinds are all in our back. And you've got climate disruption, which is making it incredibly difficult for a farmer to predict yield and grow outdoors, whether it's flooding one year or drought several years after. You've got increasing regulatory focus on our food system, which you look at the USDA earlier this year. They blocked imports of avocados from Mexico into the U.S.

I mean, we're importing food into the U.S. from farms that we have no visibility into that are paying people $5 a day, in some cases forced labor, in some cases, illegal chemicals being used throughout the year, that if you've used those chemicals in the U.S., you would go to jail. Our food system is broken. It has to transform. And if you look at many of the large food companies today, they're like the fossil fuel companies in the 90s, and they're like the cigarette companies in the 80s. It eventually will evolve. And food has got to be a part of the health discussion. When we talk about sustainability and when we talk about building a sustainable food company, it should be good for people, so healthy for you. It should be good for planet. I mean, we have the technologies that

are available to grow food and produce food that's good for you as a consumer, but it's also good for our planet and allows us to have a much lighter footprint on planet Earth as we grow humanity in the years to come. So why would an investor look at controlled environment agriculture? Again, our viewpoint is we are in the first inning of controlled environment agriculture, but it's really like the third wave of sustainable infrastructure. And getting in CEA to day would be like getting in renewable energy 20 years ago or electric vehicles 10 years ago. It is absolutely going to happen. The question is how big, how fast, but eventually on planet earth, there'll be a time when you eat a fruit and vegetable grown outdoors and that's a luxury.

You know, whether it's, again, drought, acid rain, a variety of climate disruption, you know, eating food grown outdoors eventually, whether it's 50 years from now, 30 years from now, or 100 years from now, that will be a luxury. And we believe growing fruits and vegetables indoors at scale in a controlled environment is simply going to be the predominant way in which we grow fruits and vegetables in the decades to come. One last question for you. As investors, what are a couple of key trends we can be focusing on to track the growth and overall health of the ag tech space? What should we be looking for? I think big picture, it's going to be market share. It's replacing what I would consider dirty open field products that are imported from other countries. And look at tomatoes. Last year, 4 billion pounds of tomatoes were imported from Mexico into the US. That's just one product. I mean, you have a whole suite of fruit and vegetables. So it's about market share at scale.

So getting CEA products on shelves for consumers at scale. And then a trend to watch just outside of just specific to ag tech is water. I mean, it's terrifying. Water is life. Water is the reason me and you are on planet Earth. You know, it's the one thing, our planet has the one thing in the known universe that no other large-scale planet has, which is water. And without water, me and you have a week to live, and plants have a couple days to live. So the way we use that water is critically important. And if you look at what's going on in the U.S. and around the world right now, it is terrifying. You look at the drought problems in the Southwest with, again, Lake Mead in the Colorado River, you look at the drought problems in California, we have to do something

different. And so I would say, you know, the two most important things are market share for CEA products and displacing current imports. But it's also tracking, you know, the water issues that are continuing to increase around the world and in the U.S. And those two things, as water issues rise, you're going to see a bigger demand for products like WeGrow, where we use tremendously less water. And ultimately, it's going to be about consumers, grocers, and regulators that want to work with us to redefine what American agriculture looks like. To learn more about what Jonathan Webb and his team are trying to do, just go to appharvest.com. 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 Chris Hill. Thanks for listening. We'll see you tomorrow.