Motley Fool Hidden Gems Investing - U.S. & China Strike a Trade Deal?

Episode Date: May 12, 2025

After mounting escalations, businesses and investors get a 90-day reprieve on tariffs between the world’s most important trade partners. (00:21) Jason Moser and Dylan Lewis discuss: - The U.S. and China’s short-term trade truce, and why there’s some hope that a more permanent deal will be struck. - Fox’s next step into streaming with Fox ONE, its existing Tubi footprint, and success in video advertising. (16:07) GoDaddy is known for its commercials, less known for its capital allocation strategy. GoDaddy CFO Mark McCaffrey walks Ricky Mulvey through the company’s philosophy on share buybacks. Companies discussed: FOX Host: Dylan Lewis Guests: Jason Moser, Ricky Mulvey, Mark McCaffrey Producer: Ricky Mulvey Engineers: Dan Boyd Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, "TMF") do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit megaphone.fm/adchoices

Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst Jason Moser. Jason, thanks for joining me. Happy to be here, Dylan. Thanks for having me. on this bright and sunny day for the market, right? S&P 500 up a little over 2%, NASDAQ up, the Dow Jones up, everybody up on reports of the U.S.-China trade deal. I've seen this called tariff cuts, Jason. I've also seen it called temporary trade truce. The market's excited about it. What are you calling it? I definitely understand the excitement. And yes,

bright and sunny day in the market. A fairly, sort of bright and sunny day here in Northern Virginia. And hey, happy belated Mother's Day to all of the mothers out there. What a tremendous Sunday. We had a great time here, and I hope everyone else did, too. Yeah, we woke up to a great headline, of course. The market responding, obviously, very positively to it. And I think that goes back to what we have been talking about for the last couple of months. It's just day by day, you just don't know really what is going to happen. This is a very headline-driven market. And for as bad as things may seem one day, you just don't know the next day they could turn on a dime. And it seems like today we sort of hit that turn on a dime status.

And I think it's worth remembering this is a temporary solution, right? This is not something that is locked in in a full-on deal. but it does seem at least like there is some progress in diplomacy and talks. Perhaps the U.K. deal that was announced late last week is a bit of a catalyst here. Maybe that's a sign of good things to come. We will have to wait and see. But I think a lot of what we've been discussing in regard to tariffs and trade talks, most of this is really centered around ultimately China, China is the pot of gold at the end of the rainbow, as they would say. This is where we really need to figure this deal out. When you talk about trade deficits, there are positives

and negatives that come with all of that. But in regard to China specifically, we've become very dependent on China through the years. When you think about the relationship we've had with China through the years. Going all the way back to the 1970s, when we really started diplomatically working together, over time, we've seen this trade deficit. We're importing more than we're exporting. This trade deficit has just continued to grow. You look at the 2000s, around 2000, that trade deficit had reached around $85 billion. From there, it just continued to grow. I mean, it hit a peak of close to $420 billion in 2018. Today, it's closer to around $300 billion. But the goal, I think, here is to try to balance that relationship out. And so,

hopefully, this is a sign of good things to come. Again, it's one headline. We don't know a lot. There are not a lot of specifics, but it does seem like progress is at least being made. If you're like me, you've probably had a hard time following where we are relative to where we've started with a lot of these escalations. And from the reading and from some of the reporting out there, it seems like this essentially resets to where we were with the U.S. and China relations in late March. Initial tariffs announced by the Trump administration, retaliations on both sides. You were on the show last week with our colleague Ricky Mulvey talking about how the S&P 500 had essentially retraced the Liberation Day losses. In terms

of macro mentality. Are we basically looking at 90-day amnesia here, where we lost some time, but we wound up back in the same place? When we look at the numbers, it's just been such a boring year. The market is essentially flat. I mean, ho-hum, who cares? Yeah, this has just been a really bumpy ride. You remember how this all started? This was late February, very early March, where the conversation really centered around Canada and China and certain trade negotiations there, but also fentanyl stuff and border stuff. And then it expanded very quickly to, it seemed like, virtually every country on the face of the planet, which is, something like 180, 190 countries. Yeah, it does feel like we are kind of back to where we started.

it's nice to see at least some progress being made. Go back to that U.K. trade deal. Hopefully, that is a sign of things to come. We know that countries are coming to the table and want to negotiate. But again, given our relationship with China, and to an extent, our reliance on China, I think China is really seen as the most important of all of these deals. And again, time will tell there. I mean, again, this is not a permanent solution. This is just something that it's extending the timeline. It's indicating that, hey, conversations are being had. Because, I mean, if you think about it, this tit-for-tat just doesn't work. Hey, I say 175% tariffs. Well, hey, I'll say 185%. Well, I'm going to go 195%. And it can just go up and up and up,

and nobody ends up benefiting. And we certainly know that China's economy is suffering from this. but we also know that our economy will suffer from this as well, particularly as we get closer to the holiday season. If you start seeing supply dwindle and consumers aren't able to get what they want, there are going to be real problems. There will be political ramifications that come from that as well. So, it's good to see progress being made. I certainly would not look at this as a solution, but it seems like at least a step in the right direction. Your dogs seem to agree there, Jason. They do. They're big fans of diplomacy, Dylan. As we noted, good day for the market. Even better

day for companies that are in the business of buying and selling, and really, anybody in retail, anybody with international supply chains. As you noted, this is kind of a reset, but a reprieve as well. Not a full solution. Any wise words for investors seeing some major moves with their stocks today? I think it's great. We always love to see our portfolios in the green or the black, however you want to put it. But it's always nice to see positive as opposed to negative. I think it's really interesting to see the companies that are reacting most strongly to these results. I mean, I look at some of these companies that stand out Wayfair, for example, up better than 20%. Totally understandable. I mean, they really depend on the supply chain

centered around China. Shopify, again, we've talked about that before. Plenty of small and medium-sized businesses that do not fare well during these heavy tariff times. All the way down the line there, Amazon doing well, Nike doing well. I think it's nice to see those companies at least starting to recover a little bit from these lows. Again, I think this reiterates why we invest the way we do here. If you tried to time your way in and out of this stuff, I mean, I can't imagine that many people would have been very successful. So, continuing to invest regularly, staying invested, that is something we just need to reiterate to people, because that is really, truly, that's the solution to long-term wealth

creation. We may get some more commentary on the big picture here when we see Walmart and some of the Chinese companies like Alibaba report later in the week. Fairly big earnings week, and Fox got us started. They were out with earnings this week, and they also had an announcement that their upcoming streaming service, Fox One, will be launching before the upcoming football season, which I can't imagine is an accident. I imagine that's quite intentional. Very much so, yeah. This is something we've been looking forward to for a while, Jason.

There's a history of legacy media companies getting streaming services right. There's a history of legacy media companies getting streaming services wrong. I think CNN Plus lasted for about a month. What are you thinking about as you see Fox stepping up to the competition here? I think it's noteworthy to acknowledge that Fox is looking at this streaming service as something where they want to attract the cord cutter. There are two sides of the coin here, in that we've got folks who are still very happy cable subscribers, and we're looking at it countrywide. There's still plenty of cable subscribers out there. Now, we know

the trend is towards cord cutting, but Fox wants to make sure to offer something for everyone. And so, if, for example, you are a cable subscriber and you get your Fox channels, well, then it sounds like you're going to get access to this Fox One streaming service as well. And if you're not, if you're a cord cutter and you don't really want to participate in a cable network, well, then you have the opportunity to go ahead and subscribe to this Fox streaming service. And it's important to note, I think this Fox streaming service is going to be all of the properties, right? It's not just Fox News. I mean, it's the standalone Fox channel. It's all of the Fox Sports channels. It's everything that comes within that Fox portfolio. And I mean,

let's be clear, it's a very popular portfolio. It garners a lot of viewers. And I think that really matters. And you referred back to that NFL relationship there. And that is obviously a very big driver come August when we start talking about preseason and getting into September with the regular season games. NFL is just big business. We know that, and Fox benefits greatly from that. I think we don't really know exactly what pricing is going to look like for the service yet, but it does sound like at least they are not looking for some type of discount or low-cost price point. Something like, you think about when Disney initiated, when they introduced Disney+, for example. And I think they started that out of, what, $5.99 or $6.99 per month. I don't think

that's what this is going to be. It's going to be something that's a little bit more reflective of the value that they feel like they're returning to all of their viewers. But all things considered, I think this makes sense. It's going to be something that I think helps expand their viewership and gives everybody a chance to participate in that Fox portfolio, how they want, whether they're cable subscribers or whether they are cord cutters that really just want to find access to the best content. One thing that might bolster some market confidence here in what Fox is able to do, this is not their first horse in the streaming race. They already own Tubi, which is a free ad-supported streaming service. Kind of a sleeper

in the streaming space in a lot of ways, but at a critical mass. I think with what they saw for Super Bowl additions, they are probably over 100 million monthly active users at this point. It's not a profitable operation for them yet, but they've done over $1 billion in trailing 12-month revenue. There is some track record of success here. I think, crucially, Jason, there's success in connecting with advertisers and working that ad-supported model. That really seems to be the future of where a lot of this industry is going. Yeah. We've talked about this a lot in regard to ad-supported video on demand. This is a massive market opportunity worldwide. When you get outside of the U.S. and you get to economies that are a little bit more cost-sensitive, it makes even

more sense. But when you look at revenue in the advertising video-on-demand supported market right there worldwide, it's projected to reach around $55 billion in 2025, and that's only going to continue to grow. And so, for me, it makes a lot of sense that they continue to pursue this. It's just interesting that, I don't know about you, Dylan, but Tubi is just not something that because it's not top of mind for me. I'm not the biggest Tubi user. I mean, I know we have the app on our TV, and I guess we use it every once in a while if we're searching for content. But again, I mean, you mentioned this massive base of users, 100 million, closing in on 100 million monthly active users. They saw in the quarter, their total revenue is up 27%. Fox's total revenue is up 27%

for the quarter. Advertising revenue increased 65%. That primarily was due to the impact of Tubi. They saw a tremendous benefit there from the Super Bowl. I think that's something that is slated to continue. For me, it makes sense that they continue to invest in this business because not only do they benefit from this portfolio of central Fox offerings that they have, But then they've got these other little ancillary properties that they just continue to invest in. They fly under the radar, but it obviously is working out very well for the company. I think it's worth noting, if you look at Amazon, for example, Amazon making a lot of investments in their freebie offering,

which is something essentially you're going to get Amazon freebie if you just have Amazon at all. If you're a Prime member, however your relationship is with Amazon, you're going to have access to freebie. And so Amazon clearly sees an opportunity there as well. Again, I think going back to those growth numbers in the AVOD market there, it's nice to see that Fox continues to invest in this business, because it's obviously working out for them. Fox is not a name that we talk about all that often, to our detriment. Shares up almost 60% over the last 12 months. I was glad that we had the opportunity to check in on it, because it's one that not

a lot of folks have been paying attention to. Stock basically set new all-time highs earlier this year, not too far off of those levels now. It seems like advertising is a big part of the recent run. If this is getting on people's radar at all, anything else you'd pay attention to? Yeah, I think just continue to pay attention to the overall advertising revenue. The ratings that Fox brings in, I think we all know, Fox does pretty well with all of its properties. I think they really benefited tremendously from this most recent election cycle. They noted in the call from last quarter that on election night they saw over 13.5 million viewers tuning in, and then I think they said, what, Fox

News Channel had become the most watched cable network in total day and primetime in that space, growing total day audience by nearly 40% and then their primetime audience by 45% over year. It's not just Fox News. We go back to the NFL relationship and all of the different ways they can really win. It's not just Fox News, it's Fox Sports, Fox News. It's the standalone Fox offering there. They do have a lot of different ways they can win with their media properties. At the end of the day, it does boil down to ratings and as it stands right now, Fox continues to bring in strong ratings across all of its properties. would be a very encouraging thing for investors looking to maybe get some exposure to the

entertainment space. Jason Moser, thanks for joining me today. Thank you. Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad. I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today, I'm still figuring it out. Somehow, things usually get worse before they get better. Apparently, that's how I roll. So bundle up and come along for the bumpy ride.

Stream a new episode of North of North Tuesdays on CBC Gem. Listeners, coming up on the show, you may know GoDaddy for its commercials, but you probably don't know its capital allocation story, one that's made the stock a market beater. My colleague, Ricky Mulvey, caught up with GoDaddy CFO, Mark McCaffrey, for an interview about the company's growth engine and philosophy on share buybacks. So, a lot of our listeners may know GoDaddy as a domain registration business. They may not know GoDaddy as a sort of long-term market outperformer, which I want to get into.

We'll focus on the quarterly results, though, because right now, the growth engine in about a third of your revenue is coming from this applications and commerce business. This is not just registering websites. That's where you're getting 17% sales growth. For our listeners who just know GoDaddy as a spot where you're buying websites, what should they understand about the applications and commerce business? Yeah, absolutely. It's a great question.

We've become so much more than just being a domain company over the years. We just hit our 10-year anniversary of being a public company, we've been around 28 years. We've become a one-stop shop for micro-businesses that provide them the IT services for them to be effective, them to be efficient, them to compete on a much broader scale. We're talking the mom-and-pop shops, right? I always refer to them as the underdogs. They're doing what they love, they are passionate about what they do, they want to do it broader, They want to connect to more customers.

They may not be IT savvy. We provide them, I sometimes refer to it as the operating systems for the micro-businesses. And that's what our application and commerce segment represents. Our core platform was the traditional domain part of our business. But this is the software that gets attached. It's more often than not a website or an email or commerce capabilities. but it represents that second and third and fourth product attached that makes our customers successful. Because it's proprietary software and some third-party software, but proprietary

software, it comes at a much higher profit margin for us and therefore has been our growth engine and has become a bigger and bigger part of the business. We've been talking on the show about how very large companies are using artificial intelligence. Microsoft's building up with open AI, Palantir getting inserted into every government and any company they can find, you're at a micro level with very small businesses and helping them use AI to build and grow their businesses at a very broad level. How do you see AI impacting small business creation in the U.S. right now? When you think about it, and again, when we say micro businesses, we're probably smaller than the small businesses others refer to.

And they don't think about AI as to, oh, my God, I want to use AI, but they want to have help. They don't want to hire necessarily more employees. But yet, for example, they have to respond across multiple different social media platforms to inbounds. And our tools do that automatically. They write in their voice. They allow them to be in multiple places at multiple times. I was just meeting with a—well, I call them the pizza guys, but they're two guys who run a mobile pizza oven. And between putting a pizza in for 90 seconds, they're on our conversations tool, just clicking

send to make sure that they're setting up their next gig. That's the type of customer we want. They don't sit there and think about, oh my God, I'm using AI. They're sitting there going, oh my God, this just works better. And that is the customer we want. And that's what our product does, Arrow, A-I-R-O, just for the record. It allows our customers using AI to respond more effectively and more efficiently within their customer base to grow. And it works because we have so much data around it.

This is a zone where Shopify also plays. We talk about Shopify a lot on the show. What's the differentiation of Arrow? If I'm a micro-business, if I am starting my own pizza business with my brother, why would I do it on GoDaddy's platform instead of Shopify? No. 1, it's a seamless experience for us. You come to one place and you're able to get all the functionality number two the cost effectiveness of it we do it at such a good price point for the value our customers are getting it allows them to start up be more successful and quite frankly manage across one application when you think about it we're the only company in the world that has the technology stack all the way from the domain to the transaction and because we can

combine that into one seamless experience with them they don't have to manage eight apps they manage one app and when they need help they go to our care organization and our care organization is designed to to work with this customer base work with the micro business this is what they do best and why they're so effective so between the technology itself and our ability to guide them through all of this you know i always say you can be up and running with the business in 15 minutes i get corrected by my my internal people to say no actually we can do it in three minutes Can you stop staying? It takes so long. But you can get everything you need almost instantaneously bundled together as a great price, be up and running with website transactions, professional

email, and a domain. And you can be getting all your traffic across multiple social media platforms. And that's what we offer. It's simple. It's easy. It's easy to use, and it's easy to maintain. One of the reasons I'm happy to have you on the show is that GoDaddy has a very interesting capital allocation story. And there's a long-term outperformance for your stock since GoDaddy IPO'd. But 2023 is when a lot of that performance came. And that's sort of in line with when you started a stock repurchase authorization program. Since 2022, GoDaddy bought back $4 billion worth of stock. And I don't want to dismiss the growth in the actual business, but there's a capital allocation story here that's important for shareholders. And as CFO, you've really focused

on share buybacks. You've got another $3 billion authorization plan moving forward for the next few years. But just conceptually, you've got a lot of options at your disposal. You can buy back stock. You can pay a regular dividend. You can pay a special dividend. Why stick with the buyback so much? I'll start with the underlying premise that we think investing in our own stock is one of the most attractive returns we have out there. And we've shown that we've been able to execute on this buyback strategy very effectively. Thank you for pointing out we've done it over four years, $4 billion. Not many companies have reduced their fully diluted share count by 25% over a period of time such as this.

And we're very proud of that, and we're very proud to not only share the success we've had, obviously we generate a lot of free cash flow that allows us to have these options, but also return that value back to our shareholders and do it in a manner that we continue to, I would say, create this great model. I'll even take it a step further. How many companies out there today are growing 6% to 8%, have expanded their normalized EBITDA margins by 900 basis points in five years, and then bought back 25% of their fully diluted shares over a similar period of time, and still are able to compound to free cash flow per share on a CAGR of 20%. That whole model works together for us fantastically. It's durable, it's resilient,

and we continue to put it forward because it works. Our investors keep giving us the feedback. They really like the program. They really like how we do this, and they want us to continue doing this. Since GoDaddy's IPO 10 years ago, I mentioned this at the top, it's been a quiet market beater. A lot of that performance has come within the past few years, so I don't want to dismiss that. But when you look at the overall results, the S&P 500 compound annual growth rate of about 12%, the NASDAQ about 16%, and GoDaddy at 25%, smashing the return of the S&P 500. When you look back on 10 years as a public company, any reflections on the outperformance, or maybe what's been the recipe for that at GoDaddy? The recipe is focusing on what we call

our North Star and making sure that everything we do is in honor of that North Star. We call our North Star a free cash flow per share. We generate free cash flow, whether it's growth, whether it's profitability. We're always looking to do that in a way to maximize that equation. Understanding that our model is durable, it's predictable, and we can use the levers to to make sure we continue to compound into that equation and drive that value. And as we've done that, as we've grown as a company, as we've hit this milestone, because we are a very large tech company, we know that, hey, 90% of our revenue starts with our existing customer base.

We know we have great products and innovation that bring people into our funnel. We know this model compounds on itself year after year as our customer retention rates get stronger. And that compounding free cash flow, it was what creates the value within the business itself. And that's the same value we can use to return to our shareholders. So, I would say, you know, the model works. Our execution of our strategy works. Our model works behind it. And it's about the compounding, you know, effect of layering on every year just to be a little bit better and to grow based on these metrics that just continue to generate cash flow. And I would also say, three years ago, we took an effort to really simplify our infrastructure

so that our operating leverage just supported this going forward. So, we're growing revenue at over two times we're growing our operating expenses right now. And that allows us to be so efficient in how we do things. And when we're efficient, we can do what we do best, which is focus on our customers. So, again, it all holds together, but it all compounds on each other. The balance sheet gets stronger. We're able to generate free cash flow. We're able to look at the options for capital allocation, and it puts us in a great spot

going forward. Good place to end it. Mark McCaffrey, that is the Chief Financial Officer of GoDaddy. Appreciate your time and your insight. Thanks for joining us on Motley Fool Money. All right. Thanks, Ricky. Thanks for having me. 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 on what you hear. All personal finance content follows Motley Fool editorial standards is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes.

For The Motley Fool Money Team, I'm Dylan Lewis. We'll be back tomorrow.