Motley Fool Hidden Gems Investing - When More is Not Better

Episode Date: October 9, 2020

Roku and Netflix rise on upgrades. AT&T prepares to sell DirecTV at a steep loss. Movie theater stocks AMC, Cinemark, and Cineworld tumble on news that Cineworld is closing all cinemas in the U.S. and U.K. IBM spins off its legacy business. AMD gets serious about acquiring chip maker Xilinx. Domino’s dips due to rising cheese costs. Software company Alteryx surges on a boost in guidance. Costco reports big sales numbers for September. And Apple and Amazon get primed for big events. Motley Fool analysts Ron Gross and Jason Moser discuss those stories and share two stocks on their radar: Equinix and EXP World Holdings. Plus, management consultant Roger Martin shares insights from his book, When More Is Not Better: Overcoming America’s Obsession with Economic Efficiency. Learn more about your ad choices. Visit megaphone.fm/adchoices

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It's the Motley Fool Money Radio Show. I'm Chris Hill. Joining me this week, Jason Moser and Ron Gross. Good to see you as always, gentlemen. hey we've got the latest headlines from wall street we will preview next week's events from apple and amazon and as always we've got a couple of stocks on our radar but we begin with the week in entertainment where the overall business landscape had a rough week movie theater stocks down across the board after cineworld group the second largest chain in the world announced

It is closing all of its theaters in the U.S. and the U.K. Broadway extended its shutdown through the end of May 2021. And AT&T is on the verge of selling DirecTV for 70% less than it paid for it just five years ago. Jason Moser, I'll start with you. I guess the silver lining in traditional entertainment continues to be the streaming services. We saw Netflix and Roku both up this week after getting upgrades from Wall Street Analysts. But that's really just the silver lining. Yeah, I mean, there's definitely not a lot to smile about here.

I mean, you're talking about 97,000 workers who rely on Broadway for their livelihood. You're talking about 45,000 people impacted by the Cineworld closures. I mean, that's a lot of employment. that is a lot of money, that is a lot of economic output, that is just going to essentially disappear. And we don't know really when it's going to come back. The weird thing about the entertainment industry right now, and we talked about this earlier in the week, they've got a supply problem and a demand problem. I mean, you don't have consumers frequenting the theaters or Broadway for obvious reasons. Most everything is shut down. But even for areas that are not

closed, for theaters that are still open, it's just the demand isn't there, right? Consumers aren't just clamoring to get out there and sit in crowded spaces. And by the same token, you've also got Hollywood and all of the producers and actors, they're faced with not being able to really supply the entertainment to begin with. And so in most cases, you're seeing sort of this one-two punch in the entertainment industry. And there are a couple of outliers there, they're able to deal with this a little bit better than others. I mean, we've seen Disney, obviously, able to utilize Disney Plus as a platform to get that content out there. And typically, when you have highly produced or animated content, it's not necessarily the same supply

problem that you might witness with real-life production. But regardless, this is an industry that has been thrown into chaos, and it touches so many lives. There's so many participants in the value chain. It's going to be a while. I mean, Broadway now is going to be closed through May of 2021. That's $15 billion of annual economic impact to the city of New York. I mean, that's a tremendous amount of money. And then top it all off with politicians in D.C. who just cannot come together to provide some level of assistance for the folks that need it most. it's just a very frustrating time for a lot of folks, I'm sure. Yeah, you know, most of us don't get to a Broadway show very often, but the movie business,

right, it's a part of our, you know, some of our weekly or if not weekly, monthly kind of social activities. And it's not just consumers apprehension to get back into a crowded space. As you mentioned, Jason, there's not a lot of blockbuster movies out there. And those that have been produced have been postponed, like a Wonder Woman, for example. When the vaccine comes, I think production gets back in gear. And then it's a question of, do consumers then feel comfortable getting back into a crowded space sitting next to their neighbor and going back to the movies? But with all the wonderful streaming services we have and all the first release movies coming on streaming, it's not as important as it once was.

Shares of IBM up this week after the company announced it is spinning off its IT infrastructure division into a new publicly traded company. The deal is expected to close by the end of 2021. Ron, Arvind Krishna has only been CEO for a few months. You think this is a good move? I do think it's a smart move to unlock the value of the cloud business. It's a quintessential move when you have a slow growth, low margin business combined with a faster growth, large opportunity business. From a stock market perspective, if you separate those two, the faster growth, larger opportunity business should receive a valuation that is more appropriate. And if you don't separate them, what happens is the valuation gets dragged down as a result of the slower

business. So that managed infrastructure service, which is the services business, which is the less exciting one, will be the new company. You'll have about $19 billion in revenue, so not a small company, 25,000 employees, 90,000 employees, I should say. That's about 25% of the total of IBM right now. So, the larger piece will be focused on cloud. They'll be able to focus now on the hybrid cloud business, the artificial intelligence business, which was all acquired in that $33 billion Red Hat acquisition in 2019 last year. So, that opportunity is going to be really exciting. And then the question is, instead of trading at nine or 10 times earnings, which is where IBM was before this announcement, does that cloud business get something more like a Microsoft valuation 30 times, you know, 32 times? Likely, certainly higher than 10.

Will it approach something like a Microsoft? Remains to be seen. But I do believe it will unlock significant value. Advanced Micro Devices in the spotlight on Friday on reports that AMD is in final talks to buy specialty chip maker Xilinx. Jason, AMD could be paying up to $30 billion for Xilinx. You think this is a good deal? I definitely think it could make sense. I mean, AMD is certainly in a heated competition with other big companies in the space like Intel, you've got Nvidia buying Arm Holdings. I mean, this would be a big acquisition for sure,

but they can finance it easily via debt or shares or a combination of both. Shares are a pretty cheap currency today, so I suspect that from a financial perspective, it would be an easy pill for them to swallow. AMD and all of these ship companies are really seeing some push-up in demand as this digital pandemic economy continues to take front and center. I think in regard to Xilinx. Xilinx, their forte, they make these programmable logic devices, right? These things called PLDs are essentially programmable chips as opposed to specialized chips. So, they're typically, you can make these more quickly, they're more flexible, they're faster to market than custom silicon chips that a lot of these companies make. And it's important, I think,

to remember, too, who their customers are. It's not just data centers. Now, with that said, management for Xilinx made it very clear, it is pursuing a data center-first strategy to growth. And that's why their data center segment is the fastest growing. It is a big opportunity that we're seeing a lot of companies, including NVIDIA, for example, pursuing. But all in all, they have a nice diverse customer base from industrial to wired and wireless, automotive, broadcast, data centers, of course. We're seeing consolidation in the space, no doubt about it. Scale is a big competitive advantage when it comes to making and designing and implementing these chips. So, I could see a world where

Xilinx and AMD together make sense. Well, if this deal goes through, from a market cap standpoint, AMD is probably going to be roughly half the size of Intel, which, if you go back a decade, Intel was 10X the size, 20X the size of AMD. It's really remarkable the run that company has had, particularly over the last five years. Yeah. And I mean, when you consider Intel not really capitalizing, so to speak, on the mobile front, that market cap could have been really a lot greater even than it is today. Amazon and Apple both have big events next week. So which one is under more pressure to make sure it goes well? We're going to talk about that and more after the break. So stay right here.

you're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Jason Moser and Ron Gross. Third quarter revenue for Domino's Pizza came in higher than expected. Same store sales were strong, but shares of Domino's down nearly 10% this week. This is a good quarter, Ron, but their costs are rising. Costs are rising, but it's largely pandemic-related, employee bonus-related. Now, Commodity costs also are up 3.8% because, for some reason, the price of cheese hit an all-time high during the quarter. And that is actually a very, very large input cost for Domino's. So they did not meet profit expectations despite incredible demand for their products and really great top-line numbers.

As you said, same-star sales growth in the U.S. up 17.5%. I mean, that alone beat estimates. That's an incredible number. obviously juiced by the pandemic and everyone ordering to their homes. International up 6.2%. These are incredible numbers, 107 consecutive quarters of international same-store sales growth and 38 consecutive quarters of U.S. same-store sales growth. I remember back in the day when we were talking about these guys revamping their menu and wondering where they were going to go, they've done a wonderful job. They continue to focus on tech innovations. They added wings,

chicken tacos and cheeseburgers to their menu i'm not getting a cheeseburger from domino's but listen if that's your thing go for it wait wait wait wait wait let me let me let me clear this up isn't that a cheeseburger or a chicken taco it's a cheeseburger pizza right okay so it's not the actual burger i don't that's a big thing in massachusetts where i went to school cheeseburger pizzas i'd never never it's not my thing yeah um but again strong 17.9 increase in total revenue 83 net store growth, so they're continuing to open up stores. As we said, the higher costs, the pandemic-related, employee bonus-related, commodity-related did hurt margins. But listen, earnings per share were still up 21%. That's a great number. The problem with the stock is that

when you're trading at 32 times, if you miss profit expectations and you don't get growth anywhere near 25%, 30%, you're going to get a bit of a sell-off in the stock, but still a wonderful job by these guys. Jason, you look at the numbers out of Domino's, McDonald's came out this week with really impressive same-store sales numbers for September. At the other end of the spectrum, you get these sit-down restaurants that just continue to struggle, Ruby Tuesday declaring bankruptcy this week. It seems like the longer this pandemic goes on, the more we're going going to see this fork in the road where fast food and fast casual restaurants like Chipotle have a greater opportunity and the Applebee's and TGI Fridays of the world just become more

and more challenged. Yeah. And I mean, I don't mean to draw quite the comparison here, but I'm going to go ahead and do it. I mean, it's like these businesses that were built on cloud native infrastructure, right? I mean, that is a much different ball of wax. I mean, something like a Zoom versus a Skype, right? We say Zoom's big advantage, one of its big advantages was that it's cloud-native versus something like a Skype, which wasn't necessarily that case. These restaurants, I mean, the easier the pivot they have to make during times like these, the more successful they're going to be. So, whether it's a McDonald's or a Chick-fil-A or a Domino's or a Chipotle, I mean, these were businesses that made investments in mobile and delivery and in good

experience long ago, and you could certainly question long ago whether those investments were really worth it. Clearly now, we're seeing that they were worth it, and you couple that along with their scale. I mean, it's just a much more efficient way to spread costs, to keep things consistent. It just really is a matter of when we get the economy back open and people want to actually go sit in a restaurant, much like the entertainment industry is today. Yeah. And I would like to add that it is National Pizza Month. Go out there, support your local pizzeria. Domino's and Papa John's will be okay for a few weeks. Go out there and support your local guy in the corner.

Hey, and support your local chef at your house. You got somebody at your house that likes to cook? Buy them a pizza stone and a peel. I got that, and it's a wonderful gift. Shares of Alterix up 35% this week. The data analytics software company increased revenue guidance for the third quarter. 35%, Jason, how much did they boost that guidance? Enough. I think this is a great example of where sometimes when it looks like the chips are down, investing ultimately it's about patience, it's not about perfection, we're not trying to hit home runs every time. Sometimes the market just doesn't operate on our timeline. But back to your point there

in regard to guidance, it was just a few months ago where they offered up guidance that really didn't meet expectations. Fast forward a couple of months, they're able to boost that guidance a little bit. It was modest, but it was enough. Like I said, that range from $111 million to $115 million, now they boosted it to a range of $126 million to $128 million. You couple that along with a leadership change, the co-founder of the business, the CEO, Dean Stecker is going to step down as CEO, he's going to move over to Executive Chairman. exceeding him is Mark Anderson. He's a seasoned vet of the industry, formerly at Palo Alto Networks. So, clearly very familiar with this line of work. And I think perhaps the bigger

question is folks think, how could that change so quickly in such a short period of time? I think that's a very valid question, but you have to remember with a business like Alteryx, it's similar to a business like DocuSign. When they're reporting billings as a metric of success, a metric that matters, billings can be very squishy and very timing related, and you add that to the fact that right now, I mean, things are just all up in the air regarding COVID-19, it makes projecting these numbers far more difficult than it would be in normal times. It's not uncommon, but it was nice to see that they were able to get out there, boost those numbers up a little bit. The succession is now out of the way, they don't have

to worry about that question anymore. So, it does sound like Alteryx is setting themselves up for success and like the direction that they're headed. This week, Costco said same-store sales in the month of September rose 15.5%. Costco's next earnings report isn't due for another two months, but Ron, comps like that, that's got to give investors something to look forward to. Strong numbers. Costco being one of the retail winners during the pandemic alongside at Amazon and Walmart and Target, 14.5% increase in comps in the U.S., 17.5% in Canada, e-commerce up a whopping 90%. These are big numbers. That won't be sustainable, but for now, they're doing a really wonderful job. They did get a boost, two holidays were shifted into the

month of September, Labor Day in the U.S., Moon Festival in Asia, interestingly, so that gave them a little bit of a boost, but still incredible numbers. Shares are up 25% this year. Stock is not cheap, hasn't been cheap for quite a while. You're paying a premium for this great company. You're paying like 38 times earnings. That's versus like a Walmart where you can get for 26 times or a Target you can get for 22 times or even a BJ's 17 times. I would argue that Costco is a really well-run company and it deserves a premium, but you got to be careful because it's getting kind of pricey. Tuesday, October 13th, is going to be a busy day. Apple is holding an event to unveil the iPhone 12, along with updated versions of other devices. The 13th is also the

start of Amazon's Prime Day event, which is usually held in July. Jason, obviously, both companies want the day to go well. Which one needs it more? Well, I mean, I think Amazon needs it more. I think Apple has already kind of set the table for us, right, with the event they had a few weeks back with the tablets and Macs and watch. Not quite ready to release that phone yet, but we knew that it was coming. And so, I think they're very excited to get this 5G-enabled phone out there. I think consumers are just champing at the bit for an upgrade. I think it's perfect timing as far as the holiday season upcoming. And we know that supply likely shouldn't be an issue because Apple has been planning for this and are gearing up for

around 75 million iPhones to initially get this thing rolling. Amazon, I think that ever since the pandemic really started, the big question with Amazon, and we've seen some weakness, some cracks there in the foundation regarding fulfillment, shipping and logistics, it's just not necessarily been as seamless as it has been before. Part of that is due to conditions on the ground, but I think also part of that is due to competition entering the fray, and we're seeing a lot of success from companies like Wayfair and Chewy, Etsy, for example. They're certainly following that Amazon blueprint to a degree. What do you think, Ron? Yeah, I think Amazon, it's their business, the fulfillment, right? So, if they mess that up,

their business is in serious jeopardy. It will be interesting to see, is this actually the launch of the holiday season, the early launch of the holiday season, and it will be a test run to see how they do. Apple, on the other hand, needs to continue to be innovative forever, not just stick to their knitting and do what they do. It's always important every year to see what Apple has out next, whether it's the iPhone 12 or the over-the-head AirPods. I think Amazon's got something to prove here in terms of fulfillment. Make it go smoothly and people will continue to do their shopping right on that site. All right, guys, we'll see you later in the show. Up next, a conversation with Roger Martin about why businesses shouldn't focus too much on any

single metric. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. What is the highest purpose of a business? That's just one of the questions Motley Fool senior analyst Bill Mann posed last week to author Roger Martin. They talked about Costco, why it's bad for businesses to focus on any single metric, as well as Roger Martin's newest book. Your newest book, which is called When More Is Not Better, Overcoming America's Obsession with Economic Efficiency, came out just this last month, correct? It's been very recent. Two days ago. Two days ago, which was last month. Good point. Good point. I'm going to say on a technicality that i'm on it did you so we have been talking in the motley fool live con uh um

construct we've been talking since march and then even before that about the danger that has in the fragility that has been that has been introduced into american businesses by being so focused on shareholder capitalism yeah and what we've seen in 2020 look at the airline industry look the oil and gas industry is the fact that they didn't have the capital resources because they were so focused on this that they were fragile at a very bad time. I'm wondering, was this the impetus for beginning the book or is this a process that you have been thinking about for a much longer period of time? No, it's actually something I've been thinking about for a long period of time.

I started the work in 2013 and actually put it to bed, sent it off, sent it off for the final editing and publishing uh in january before before uh covet so this was not a response to covet but in some sense it it i i guess i think i i had it more right than wrong on on the notion that that uh our pursuit of efficiency and and and i think i think this whole your the theme you've just talked about the shareholder value maximization pursuit of that is a subset of a broader broader phenomenon it's kind of in some sense even worse than you just you describe uh or more because i feel pessimistic about this so so yeah yeah but that that we that we have uh a privileged uh efficiency over resilience to such an extent that we have we have created some problems

that that we didn't anticipate and i did not realize that you know within a month after i put the book to bed, that would be visited on us, which it certainly was in COVID. But there's one thing to pursue, whether it's shareholder value maximization or actually almost anything else. If you just say it's one thing, that will make you kind of extreme and fragile. And it turns out that shareholder value maximization and pursuit of that most certainly has. We are here at The Motley Fool, and we are investors who write for other investors. So we are tautologically shareholders.

What is it that your research tells you about this single-mindedness is bad? It's bad because attempting to produce that does not lead to it. right this goes all the way back to the maybe one of the wisest men uh in history uh aristotle who pointed out 2400 years ago uh that if a man sets out to seek to be happy he's unlikely to end up happy if instead he seeks to live a good life by which he meant live a life of like servitude to his, to society's fellow man, et cetera, et cetera, he's likely to end up happy. I say the same thing about, about shareholder value maximization. The idea that you're attempting to do that and saying to everybody involved, that's what I'm attempting to do is not correlated

in any way with doing it. And in fact, it makes the job harder. I like the J&J approach. You know, When Robert Wood Johnson took J&J public in 1948, he created a credo that's engraved in granite, and I'll paraphrase it, but it said, patients, which were their customers, patients come first, employees come second, the communities in which we work come third, and last, not next, last, come shareholders. However, if we do a good job in the first three, shareholders will earn a fair return. Well, with Johnson & Johnson worth several hundred billion dollars now, they've done just fine, even though he says they're last. So the idea of saying something is first

will not necessarily happen unless there's a system that produces that. And Robert Wood Johnson had a system. He said, take care of these three people and the shareholder value thing will take care of itself. So there is no evidence to suggest that since shareholder value became the thing of primacy, sort of arising out of Mike Jensen's kind of famous article in 1976, shareholders haven't done better. No, managers have done well. Absolutely, absolutely. And you think, no, no, no, that's not the way, that's not the way, we align their interest with shareholders with stock-based compensation. This is all supposed to work well, but no, it turns out, it turns out that that doesn't improve kind of shareholder value. In fact, as I've written in

several other articles and a book, stock-based compensation actually puts shareholders and managers in opposition to one another. So it's these simplistic things in a very complicated world. And I don't want to overstate it, but in a complicated world, you just can't have those singular objective functions. That's why Robert Wood Johnson is smart. Southwest Airlines is smart. They say, here's what we want. We want to be the lowest cost, highest customer satisfaction, highest employee satisfaction, and most profitable airline. And you'd say, you got to be kidding me. Those are like internally inconsistent, contradictory. How the heck do you get to be low cost and having high employee satisfaction? The answer is in one word, cleverness. You've got

to find a clever way to balance those things out. So they say, well, here's what we're going to do. We're going to simplify the system so that we can actually have fewer employees per passenger seat mile, not because we work them harder. Yes, they work on a variety of things, but we simplify the things so that we can pay them more than anybody else. So they're deliriously happy to work for us, which will make customers happier. It'll make each other happy because they all come to work kind of happier than at the other airlines. So that it's a complex world, right? That requires you to have some more complexity in the way you think about how to, how to manage it and not the simplistic, you know, well, all we have to do is say, kind of, we want to maximize shareholder

value. It doesn't work. You have hit upon two of the three companies that I specifically wanted to bring up during this half hour that we spend with you yes i wanted to talk about johnson and johnson and specifically their reaction to the tylenol uh the the tylenol it's not a scandal i'm not pulling the the the right word the you know the disaster yeah disaster in 1981 in which they they they pulled no punches they had a plan in place and it was it was expensive for them I think wasn't it 300 million dollars in immediate costs of taking all the Tylenol off off the shelves I think in 1981 dollars 300 million dollars just that's in cost that's not even opportunity cost that's cost yep yep and that happened to you know and and you know and

Going through your book, you seem to claim that about the breakpoint from when we went – where we really started pushing to a primacy of shareholder capitalism, about 1976, not to put too fine of a point on it. Would, if you were to re-extrapolate, was J&J's response in the early 1980s the same type of response that you would have expected to see from a company in 2018 where that singular focus was much more in place? Yeah, no, with the singular focus in place, I would have expected them to say, well, we got to be careful here. We got to not take any steps that would cost us, you know, kind of too much money in this quarter, right? That's what would have been the case. And they'd have taken whatever the hit was to the reputation of the product, right?

In this case, the, you know, as history has shown the extremeness of their response, we're going to take it all off the shelves and we're going to go to all these lengths we're going to we're going to create three layers of of protective seals and everything everybody sort of said wow is tylenol ever safe whereas they would have left it on the shelves and said well just be a little careful if it tastes a little funny maybe you shouldn't swallow you know that's right if you swallow it and it was bad don't swallow it yeah yeah exactly exactly some really helpful helpful advice you know it we probably wouldn't we would probably hardly recognize the tylenol brand because it would be gone right it would be one of those those crippled uh brands maybe maybe uh

limping along so so yeah i think i mean that's that's that's just the problem and and you know as i i always when i'm talking about this to challenge people i say well do you do you operate with a single objective function in in in your life it's all about my work no no it's oh i have to i have to balance these things i want to do what i need to do to you know get ahead and have a good career but also you know take care of my family and and and my home life and and you know you know my whatever aging parents and what you you have to balance these things so why is it notionally that companies can't, right? That was the argument that Milton Friedman in 1970

and Mike Jensen later on 76 and some other articles said, you have to have one objective function or everything will go to pot. Cats and dogs sleeping together, you know, it's gonna be a chaos. And I'm sort of thinking like, But, gee, so every individual in the world has to do that, balance a bunch of things to live a decent life.

Why is it that individuals can and this entity called a corporation for sure can? It would be impossible. And it's just, but it ruled the day. It absolutely ruled the day. The notion that that is what, if you're a good, strong manager, you will have a single objective function and you will focus everything on that. And then, like when people do extreme things in service of that, people are like, oh, why did that happen? Well, it's because the message was clear. Do extreme amounts of that thing.

More is always better. No, it's not. More is sometimes kind of not better. Roger, what do you think is the highest purpose of business? I think it's to make a buck while making the world a better place. So it's to earn a return for shareholders that make shareholders say, I'm glad I gave the company the money. And the bondholders, by the way, all capital providers, I'm glad I gave them the money. uh and and uh the people in the company can say let's say 10 years later you know the world is

better in the following uh way they have a product or service that makes their lives better that they didn't have 10 years ago and we didn't wreck the economy to do it uh we created jobs uh that that are above the living wage uh so that uh whoever was the the worker whether it's the husband the wife they could help you know pay for their children's education to better them so it's that again it's two things it's you have to make a buck and make the world uh a better place now as i you know as i've going as i've gone through your writings and as as i've gone through this book the the company that i kept coming back to and it's a and it's a it's a stock that i've held since the 90s and very happily so is costco oh good for you you made a lot of money right but

I've done very well in every single quarter with Jim Senegal, you know, would get on for the quarterly call and the Wall Street analysts would say, you know, if you just raised your prices a little bit more and you know, if you just were to adopt the median wage and you know, if you were just to do these things, you would make so much more money. and yet to me in some ways costco i mean you know i've benefited quite happily from it but to me that model is an enlightened model for capitalism absolutely and right and and and so for the people who are like worried about oh you're too socially conscious you're not going to make money it's made a a ton of money for you if you say oh no but maybe in less competitive businesses discount retailing is not competitive last time i checked it's fiercely fiercely competitive so in in one of the most fiercely competitive industries in all of america this company is minting money by by being more sophisticated about the system and the system they you know jim senegal would

would say you know i need to have my employees feel rested healthy not worrying about making ends meet at home when they deal with the customer, because then they'll give the customer their attention. They'll be upbeat with the customer. The customer will love it. The customer will love that experience. And that's why I'm going to pay him 20 plus dollars an hour when the laws and the labor market for jobs in retail says 12, 13, 14 would be plenty. I mean, that's just an irrelevance to him. They couldn't care less what the minimum wage is because it's not relevant to their business. That kind of broad-based thinking about how to create value is, I think, a thing of rare beauty. And he's magnificent. The book is When More Is Not Better,

Overcoming America's Obsession with Economic Efficiency. Don't touch that dial. Ron Gross and Jason Moser are coming back with a couple of stock ideas for your watch list. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here once again with Jason Moser and Ron Gross. Guys, with the holidays coming up, it is never too early to think about what to get that special investor in your life. Go to shop.fool.com for best-selling items like

Motley Fool hats, shirts, fleece, full zip sweaters, and more. That's shop.fool.com. It is the only place in the world you can buy the official Motley Fool money mug. Let's get to the stocks on our radar. Our man behind the glass, Steve Broido, is back. He's going to hit you with a question. Ron Gross, you are up first. What are you looking at? How about we go to Equinix, E-Q-I-X, largest global operator of data centers, over 200 centers around the world.

Interestingly, it's organized as a real estate investment trust. It's a recent David Gardner recommendation, a two-time rack in our total income service. They continue to capitalize on growing data consumption, increased cloud outsourcing, growing device counts that we all have. Data centers are very difficult to replicate, giving them a very strong competitive advantage. Revenue model, real strong. 95% of revenue is recurring, about 80% of bookings from existing customers, 70 consecutive quarters of revenue growth.

1.3% yield, the REIT structure will probably keep that growing over time. Steve, question about Equinix? How would I know a good data center from a bad one? And I ask that because I'm assuming all data centers probably, they don't lose data, right? That's the thing. They can't lose the data. So they're all keeping the data. Isn't it just who's the cheapest provider? It's just like real estate, location, location, location. You want them spread out. You want them in key centers. It costs money to build these things. So, location is key. Jason Moser, what are you looking at this week? Speaking of location, location, location, I'm diving into EXP World Holdings. Ticker is EXPI. And my man, Matt Frankel, and I

dug into this company on Monday's Industry Focus this past week. And the main part of the business is EXP Realty. It's essentially cloud-based real estate brokerage services for residential homeowners and homebuyers. So, we certainly know that real estate is moving online. It does feel like it has been slow to disrupt, but it is happening nonetheless. And the numbers that eXp continues to lob up, they're pretty impressive. If you look at the number of agents and brokers on the platform, that grew from 20,162 a year ago to 31,091 at the end of the second quarter in 2020. And the residential transaction volume closed for the second quarter of 2020 increased 26% to $13 billion. So, we're seeing companies like Redfin and Zillow moving in all of this direction.

eXp is a smaller company playing in the same sandbox. Glenn Sanford, CEO, founder of the business, owns 30% of the company. His ex-wife actually owns the other 20%. So, some interesting dynamics at play there. But yeah, there's even an interesting immersive technology angle here, too. So one I've got on my radar. Steve? Do traditional realtors want to embrace tools like this? No. And I think that's why it's been so slow to develop. It is taking money out of their pockets. What do you want to add to your watch list, Steve? I think eXp. I think it sounds interesting. All right. Jason Moser, Ron Gross, guys, thanks for being here. That's going to do it for this week's edition of Motley Fool Money. The show is mixed by Steve Broido. Our producer

is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week. We'll be right back.