Motley Fool Hidden Gems Investing - Will Netflix Go All-Cash for WBD?

Episode Date: January 16, 2026

Netflix may be forced to offer all cash for WBD if the cable assets being spun off doesn’t have the value Netflix thought they did. But is that something Netflix will do and what are the risks? We break it down. Travis Hoium, Lou Whiteman, and Jon Quast discuss: - Netflix offering all cash for WBD - FSD’s monthly subscription - Google’s new AI products - Bank earnings Companies discussed: Netflix (NFLX), Warner Bros Discovery (WBD), Tesla (TSLA), JPMorgan Chase (JPM), Alphabet (GOOG), Adobe (ADBE), The Trade Desk (TTD), Paypal (PYPL), Hims & Hers (HIMS), Six Flags (FUN), Toast (TOST), L3 Harris (LHX). Host: Travis Hoium Guests: Lou Whiteman, Jon Quast Engineer: Dan Boyd Disclosure: 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. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Earnings season has begun, but the drama at Netflix is where we're going to start. Motley Fool Money starts now. Everybody needs money. That's why they call it money. The best things in life are free, but you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoyum, joined by Jon Quast and Lou Whiteman. Guys, we've got to start with the drama at Warner Brothers Discovery this week.

Paramount is begging the EU for help. Netflix has reportedly considered changing its bid to all cash. Remember, there was a piece of that value that they're saying that shareholders are going to get through the spinoff of kind of the cable assets. The early trading at Versant has not gone very well. That's a spinoff from Comcast. Lou, what's going on here? Because it seems like there's a lot of moving pieces. The board at Warner Brothers is pretty resistant to Paramount.

And depending on how you look at it, they either make sense or you just want the most money and that's where they should go. So I'm going to make a bold prediction here because you're right. there's a lot going on, a lot of moving pieces, but really, it's very simple. One of two things is going to happen. Either Netflix is going to end up buying Warner Bros. Discovery, or there's not going to be a deal done. You don't think Paramount can actually get a deal done? Look, Warner Bros. Discovery's board has already decided what they think, and for the upstart acquirer to try to poison the well in Europe and try and just kind of salt the fields, that's not going to help. Going score search really only helps when you are the bully, when you are the

one that can dictate terms. If you're an underdog, you can't overwhelm this opposition. I don't see this going well. I think this is only going to get uglier. It's possible that what Paramount's trying to do will work and the deal will get blocked, but it is going to be a long time, I think, before the WBD board says, oh, you know what? Never mind. Paramount is the right choice. what is the thinking there because it seems like you should just take the higher bid and if paramount it actually has the higher bid that's what you do but there's execution risk here so what what is the argument for just sticking with netflix through thick and thin well for one thing higher bid is sort of you know up for the bait because as you said like the the um the paramount

bid is for the whole company. The Netflix bid is the whole company minus the cable assets. It comes down to what you might think those cable assets are worth, what is going to give a shareholder more value. The other side of it, you never know in the back, just behind the scenes. It could be relationships, it could be golden parachutes, or it could just be- You're saying there's egos involved in Hollywood. There are. It could simply be, and we've talked about this offline, Paramount is a much smaller company than either of these. They are doing everything they can to look big and to present themselves as a good option. But look, there's risk anywhere you go

here. I think there's real risk there. And Netflix, look, this is a big deal for them, but they can handle this. They are more, I think, of a known entity, a trusted partner. If all else is equal, I can see the board saying, let's go with this trusted partner. We, whatever the cable upside is, we're preserving it for our shareholders and get a deal done. The analogy that we were talking about was taking the higher offer on selling your house, but you're selling to somebody that doesn't, isn't yet approved for a mortgage. So, you know, you just increase the risk of that deal actually closing. I want to just bring some stats in here for Versant, which is the spinoff from Comcast that started trading about a little less than

a month ago, that is a $4.8 billion market cap. The shares have gone from about $45 per share down to $33 per share. Maybe these cable assets aren't worth anything. Paramount has actually argued that the equity will be worth zero. Wait, $4.5 billion isn't nothing, though. Yeah, it's something. John, what are your thoughts when you look at this deal? Because there's just so many not only egos involved, but weird financial implications as well. Now, I get it for Paramount. It's homecoming in the streaming service space, and Paramount's running out of dance partners. I mean, there's consolidation happening, and Paramount doesn't want to be the smallest player, so I get why it wants Warner Brothers. But it's very hard for it

to pull off because it is such a small player. Netflix is going to be a lot easier. It's going to have much easier access to the capital to get this deal done. I'm still not convinced, This is a great move for Netflix. I will give an example here of Disney acquiring Fox back in 2019. Disney stock has underperformed since it did that move. A big part of that is how much leverage it took on to make it happen. This would be a big move for Netflix. I don't know where it's going to come up with all the cash either, maybe some debt in that mix, maybe some equity. I'm not sure where that all comes from, but it's the one that can get the deal done for sure. And it's going to be able to do it a lot faster. I think that's what it's trying to do by potentially switching

that bid to all cash, get the deal done as quickly as possible before too many people ask questions or a dark horse comes in with a competing bid. Well, let's talk about some of those potential downsides if Netflix does get this deal done and they do it with cash. So let's say they have to take on a whole bunch of debt. Your analogy is that, yeah, Disney kind of hamstrung itself for a while there. They paid down some of that debt. The operations have gotten a little bit better coming out of COVID, but you know, there are downsides of having that interest payment in that leverage. Maybe you can't bid on the next big football deal coming up, by the way, that's going to be in the next few years. You know, Disney's big advantage in the media space right

now is they have all these theme parks. Netflix is trying to kind of move into this physical experience world, do you still have the cash to do that? Build out a $5, $10, $15 billion theme park if you've got $80 billion worth of debt. Is that the risk that you just reduce your flexibility? Or what should you be worried about if you're a Netflix shareholder taking on a bunch of debt, John? I think that that was the exact word I was going to use is flexible. You're just so much more flexible when you don't have a high debt burden and when you are generating a lot of cash. You have a lot of options on the table. You boost that debt up. You take the options off the table a little bit. And I'm not saying that it can't be a market-beating stock, but

your attention really becomes more divided on maintaining and running the business rather than how are we going to invest into growing the business for the next big thing? So I don't want to be too Pollyanna here, but let's look at this. For one, The original deal was about $60 billion in borrowings for Netflix. They've already signed deals to get rid of the bridge on about $25 billion of that, which is going to help their interest rates. They generate $7 billion to $8 billion in free cash flow a year. Disney, it was a third of that or a quarter of that back in 2017 when they announced the Fox deal. I'm not going to say this is easy for them. Obviously, I agree that no debt is better than

debt, but I think they can handle this. And look, yes, I think what Netflix is telling us is they need this. They, you know, I mean, look, they wouldn't be doing this if not, I mean, this isn't a luxury. They are looking at the world. Yeah, Travis, they may want to compete for sports. They've done a pretty good job transitioning from a world where everyone was desperate to sell them their content because it was added revenue to nobody wants to sell them content because everybody's got a streaming service. They've done a good job adjusting to that, going to Korea, going elsewhere to find content, but that's hard. I trust this management team. It's the smartest management team in the business. I don't think they would be doing this

for empire building, doing it willy-nilly. They know, yes, this is going to change our profile, but I think as a shareholder, or I'm not a shareholder, but if I was a shareholder, I would trust this management team to set the course. And they are saying, this is something we really need to make our lives easier, to make the company better, versus this would be fun to own. And that seems really shocking to me because even when this deal was announced, I think we talked about on Motley Fool Money that this seemed like a defensive move from Netflix. And they have not been playing defense for 20 years. And what they really need to think about and investors need to think about is that it's not really paramount that they're probably worried about.

It's YouTube. And the sort of random deal that came out yesterday that caught my eye was Sesame Street is going to now be on YouTube. And if YouTube is already very popular for kids, there's more people streaming YouTube than Netflix. There's more revenue at YouTube than Netflix. But if the default for Sesame street for sports, for, you know, uh, award shows now moving to YouTube, that seems like an issue for Netflix. What do you think, John? It's so crazy to even imagine that we're underestimating YouTube right now because of how big it is and how popular it is. But I think that that's the case. And I think that's the case with a lot of Google things. we'll probably talk about this later in the show, but it has such a massive scale and reach and

distribution that there are a lot of options at Alphabet's disposal. And I think that the Sesame Street with YouTube is just another example of that. Quick question for both of you. I'll start with you, Lou. At what point is Netflix stock a no-brainer? Because I'm starting to get interested. We're down about 33% from the highs, $400 billion market cap. Where do you start going, man, this is too cheap to pass up. I mean, there is risk here. I think if you're a long-term investor, though, I do think Netflix, like I said, they have the best management team. They have a huge, huge customer base. I think if you've got a long enough time horizon and you're willing to ride out the volatility, I don't know when it isn't a no-brainer. So I think if you're

interested in buying, then yeah, I do think whatever happens in the next six months, a year, I don't, I'd like the chances of them making it work in the long run. I'd say it's probably lower to be a no-brainer. I think it's probably a brainer here though. I mean, if you take some time to look at it, assess the risks that we are talking about, it could probably turn out to be a good investment today. When we come back, we're going to talk about the changes at Tesla and FSD. You're listening to Motley Fool Money. new from Nespresso blend wellness into your coffee routine with the coffee plus range

infused with functional benefits choose the coffee you love with added b vitamins like coffee plus b12 to help support immune function and coffee plus b6 to keep your day moving or go with the flow and choose ginseng delight our new double espresso with ginseng extract whatever lies ahead don't change your morning. Let your morning change you. Discover Coffee Plus on Nespresso.com. Welcome back to Motley Fool Money. FSD has had an up and down year for Tesla. Robotaxis began testing in Austin last summer. By now, we were supposed to see FSD driving fully autonomously all across at least the US. That clearly hasn't happened. But the big news this week, Lou, is that pricing is changing. They're getting rid of this $8,000 you own FSD

forever to go into a monthly or yearly subscription. So I think the most common would probably be paying $100 per month for FSD. What should we take away from this, not only for people who own a Tesla, but also Tesla shareholders? So I'm going to focus on the shareholders because if you're a customer, you either have it or don't. But think about it this way. You very rarely see company trade $8,000 upfront for $8,000 over what, six and a half years or so, which is $99 a month, is you don't do this because you want to. You do this right after NVIDIA at the Consumer Electronics Conference came out with basically what looks to me like Android for autonomy, where instead of this closed system and everybody has to develop their own iOS, you suddenly have

just a system that anyone can take on. That changes the costs of the economics for everybody in the industry. And I think it puts Tesla on the defensive. I mean, look, this price has always been just kind of a bogey that changes. It was as high as $15, as low as $5 at various points. This has always been aspirational, I think, to charge $8,000 for it. We have a long history in the automotive business of things that are perks or safety features that just become standard over time. They become commoditized. And I think that's what's happening here. And Tesla is on the defense of realizing, OK, it's going to be harder to get $8,000 for this in the future. Let's get what we can. And the $99 price point is an easier sell, I think. Yeah, John, the interesting thing

is that the $99 option was there. So they're just taking away the other option, which it just seems a little bit strange from an optics perspective. But is this a big deal or just kind of a nothing burger in the long run? Well, as Lou points out, who knows if this is the final offer either? I mean, there are many, many changes to Tesla's pricing over the years. So who knows if this is the final deal? But yeah, I think it is more of a nothing burger. I mean, Tesla is interested in the monthly subscriptions. And you do look at Elon Musk's new pay package. There is incentives tied in there to how many subscriptions that they have. And I don't know, maybe this is a way that it boosts monthly subscriptions and helps them reach that milestone. Maybe not. I guess that's

up for debate. But certainly, yeah, I get Lou's point and it's well taken. Let's move on to Google. We talked a lot about them on Wednesday. If you want to go back to the Wednesday The Motley Fool Money Show. But since then, and the announcements just keep coming so quickly from Google, they announced personalized AI. So Jim and I can now understand your personal context. So if you use Gmail, photos, your YouTube history, and more, some of the examples were things as simple as, what are the best tires for my car? Do you know what I mean? Put in what your car is. The AI has to figure out based on your history, what your car is. And then I love this one. What's my license plate number? Because I couldn't answer that question for either of our

vehicles. Meanwhile, Claude showed Cowork, which can clean up your desktop. That was the first example. John, does Google get AI better than anybody else? They seem much more incremental, but the products, when I look at these announcements, they just seem like, oh, I can actually see myself using that. Whereas Claude, I don't have a messy desktop. Give me a better example? Well, I think it's a little bit strong to put it that way, Travis, that Google gets AI better than the other players. What I do think that Google has that is extremely valid here is that it can execute at a higher level because of how many billions of people are already deeply embedded into the Alphabet slash Google ecosystem. Yeah, I believe it's nine products with over a

billion users right now. That's incredible distribution and scale. And so if you're looking to do personalized AI, and I think that a lot of these players do want to do this, but Google can execute better because it does have more personalized information about you. And so I think this is really Google's advantage here. I mean, John, I think I agree with you. I mean, look, let's be honest. Some of it's a parlor trick. Most people, Travis, you may not know what your license plate is. I don't either. I I take a picture of it when I need to pay something later. But I do know what kind of car I have. And I can Google and search right now, best tires for a Honda Insight or something like

that. So whoop-de-doo. But like John said, Google is playing to its strength. It has been spying on my email and my photos and everything to suggest products forever. This is just a natural extension. Hopefully, AI makes it better. I love the fact that I like one team in English soccer. They think I must want to buy stuff for every team in that league. It's like you buy a toilet seat once and Amazon thinks you want toilet seats forever. Yeah. But I mean, they're playing to their strengths. I thought the cloud co-work thing, I thought that was actually pretty ingenious, whether you need it or not. Bottom line here, what's really going on, everyone is experimenting. Everyone's trying new things. Everything's flexing. Google is this consumer-focused

companies so they can do all these things that seem really cool and relatable. I don't know if anyone is better at it, but I think what this does show, I keep coming back to this, is that as all of these companies try to get their AI out to the world, Google's real advantage is they have so many more just natural avenues for monetizing. They are in so many homes, so many phones, so many consumers already. It is just a much more natural thing to see them adding AI as a bolt-on versus a cloud or open AI or all these trying to basically have to win every customer from scratch. And I think that the proof of that, Lou, is just how quickly, for example, Gemini is gaining market share right now. I mean, this company launched Bard. Does anyone remember Bard? That

was a stumbling even the launch of Gemini was terrible they had the those those images that were just you know completely inaccurate that was a huge black eye and that was that was Gemini people forget that yeah for sure and but how quickly Google has been able to recover and take market share because it does have the advantages of distribution vertical integration Now, OpenAI is making deals to try to better compete, but Google just has such an amazing amount of muscle that it can flex here. So this isn't a prediction because I think that, yeah, I already talked about Google's natural advantages, but I think that the important thing there is how quickly this can change. I don't think anything is set in stone yet.

This is still the Wild West. And so I think Google looks great right now. Maybe it will two years from now, or maybe it'll be another even crazier shift. When we come back, we're going to talk about stocks that are either values or potentially value traps. You're listening to Motley Fool Money. When you're a mid-sized business, you need every competitive advantage you can get. Like an AI solution that works for you, not against you. SAP Grow is built with AI embedded at its core, working across every system, and it's ready to go from day one so you can hit the ground running.

Bring it with SAP Grow, AI cloud ERP for any size business. Welcome back to Motley Fool Money. One of the things we often talk about as investors is values versus value traps. So let's see what Lou and John think about some of the potentially down and out companies that might be great values that we look back on being obvious opportunities in hindsight. They also may be value traps. Let's start with a really popular one today. That's Adobe.

John, I want to start with you. $127 billion market cap. The price earnings multiple on a trailing basis is just 18. This is a company that has grown revenue over the last three years at a 10.5% clip. but shares are down 57% from their high. Is this a value or a value trap right now? I think it's a value. I'm so glad you brought this to the table, Travis. I don't normally look at Adobe, so I wasn't really familiar with the numbers at the moment. But as you point out, it's down a lot. Trading at 13 times its free cash flow. And you look at some of the things

going on with Adobe's business. Gross margin is at an all-time high. That's a strong signal. We also have double-digit revenue growth. Granted, it's just a hair north of 10%, but that's still double digits at this scale. The share count is down because, as I mentioned, the free cash flow, and it does have things to reward shareholders. So I think this is a value stock right here today. Yeah, the obvious concern is AI is going to eat their lunch. And to some extent, I think we've seen this. The bull case for Adobe a few years ago was all of us normals, we're going to use a cheaper version of their product. Yeah, the Canvas of the world or even like Gemini to make images.

And yeah, that business has been wiped out. If I am not a professional user, I'm just going with a banana or whatever. But I do think that the professional class that relies on Adobe, Adobe is applying AI to that. And I do think that they can stay ahead of the wolves, at least for now. I don't know if this is going to be a home run stock, but I do think the market has overreacted. And I do think it can be a long-term market beater just on the strength of their products and their ability to serve customers that are really, the free stuff is going to have to get really, really good before professional users abandon Adobe. I think that's the thing I struggle with the most with Adobe is, I think you're absolutely right.

I use Canva. I use some of these free tools. I do not use Adobe products, but Dan behind the glass does, because he is much more of a professional producer than I am when I make a video, my question would be, can they increase the number of people using their products, Lou? Is that a fundamental challenge? And if you can't increase that number, really the only lever you can pull is price increases. And if that's the case, then what do you want to pay for a stock like that? Are we at that territory? Because this isn't 10 times earnings, it's still almost 20 times earnings. But as John pulled out, they are a cash flow generating machine. I think you can win that

way over time, too. Again, I don't see this as being a slam dunk, but I do think that whatever that bogey is, 7% market average a year, I do think over time, they can outperform the market. All right, let's go to another one that has gotten a lot of attention. The Trade Desk, down 74%. And this is just in a little over a year, just crazy decline for the company. Priced earnings multiple on a forward basis is still over 20. Enterprise value to sales is 6. Lou, is this getting to be a value or is this a value trap where this can still fall? So I am a longtime holder who has not sold or added to the trade desk. I think it is a market beat it from here, but kind of similar to Adobe. I don't think we're getting back to where it was

before. I think I was wrong. I saw this huge opportunity and I saw them just capitalizing on it. And I didn't factor in the fact that yes, Amazon and a lot of other people were going to come into this market opportunity too. I think the trade desk has great products. I think the products are getting better every day. I think they can hold share and slowly grow share. I do think that it is value here, but I just think that it's always going to be, they're going to elbowing with other deep pocketed competition. So it's not going to be as gaga, as easy as just to the moon as we once thought it was. Yeah, I think that's a really good way to put it, Lou. I would agree. I would lean value here, but I'm not screaming value necessarily because of

the fact that its revenue growth has slowed down. Its gross margin trend is down a little bit too. Those are a couple of signals that I look at here from the competitive landscape point of view, that why isn't it growing as fast as it once was? Now, obviously, as it scales up, it's going to slow down some, but it seems a little extreme, especially considering that big players such as Amazon are ramping up. You look at that and you say, is this a long-term fundamental risk? I think that there's still a place for the trade desk, in which case, yeah, relatively speaking, it's a decent value. But is it necessarily a no-brainer? I wouldn't go that far. I wouldn't say that I'm convinced of the trade desk's long-term ability to compete

right here in a changing landscape. Let's go to PayPal, which has been on the value investor watch list, I'll say, since at least 2022. You might remember this was one of the hottest stocks in the market in 2021. 2022 shares fell about 75% by the middle of the year. But guess what? Since then, shares are down another 5%. This is a $53 billion company. They're kind of a household name. Not growing real strongly. Three-year growth rate, 6.7%. But they're profitable. Price earnings multiple is just 11. John, there's got to be value here somewhere. But are we there? Or is this still a trap like it's been for the last three years? I would also lean value here with PayPal. But as you point out, what is kind of interesting

right now with PayPal is there are so many players in this space. It is a pioneer, but it kind of feels a little bit stodgy at this point. And so it's like, is PayPal losing its relevance? I mean, it's single-digit revenue growth. That said, it still is a free cash flow machine, and it is reducing that outstanding share count by a material amount that can move the needle over the long term. So if it can just hold on to what it has and maybe even grow a little bit from here, I think it does work out okay for shareholders. Yeah, I think that's it exactly. Share count is down about 20% over the last five years. That's good. PayPal is a mature business in a really, really competitive industry. Everywhere they want to go, there's a ton of

other options. This is not one that I personally want to lean into because I do think it is what it is. But I don't think that it's a trap as in it's destined to fail. I think that this is a market performer at worst. And look, they have some good assets. They have good products. I just don't know if I can get a wow out of this one. I'm more open to the idea that Adobe and the Trade Desk can outperform from here than I am PayPal. Yeah, that growth rate is always what sticks me. It looks like a great value, but the new single-digit growth rate, I don't know. We'll see about that one. Let's get to one that's very high on the volatility list. Hims and Hers shares are down 54% from their high

that was in early 2025, $7 billion market cap, but enterprise value to sales is just 3.5. And the five-year growth rate, Lou, 76%. Is this a value or a value trap? How can we even have this conversation with a company that's valued at 65 times forward earnings? This is not a value, period. It may work out as an investment. It may not, but it is not value. You can give me enterprise value to sales all you want, but look, this is a company that is still in the point of its life where it's, let's try everything and see what sticks. It could work. I compared this company to Icarus before. They are trying to fly, but not too close to the sun. It could work out, it could not, but I don't even know how to look at this as a value or a value

trap when relative to what the business actually is, the stock just isn't there. The stock is pricing in them figuring out a lot of things from here. They may do it. I'm not saying they won't, but I just have to say neither. I reject your premise, Travis. That's so good. I think if you look at, yeah, hims and hers, the business, if you're looking at the stock and saying, oh, I want to buy shares because it's so cheap, I don't think that's the right thesis. I think that you have to say, do I understand what this business is attempting to do? Do I understand the risks and the hurdles that it's going to have to climb over to get there? I think that needs to be your fundamental approach to hims and hers. I would say that

if you're looking at the valuation, that's leaning more towards trap. You really do need to understand this business because it's not a no-brainer. It's not a for-sure thing to happen. Lou doesn't like unprofitable companies being values. So let's talk about an unprofitable company, Six Flags Entertainment. They were hot at least for a week in 2025 when Travis Kelsey announced he was taking a stake in the company. Only a $1.6 billion market cap. Enterprise value to sales is two. But like I said, not profitable even on a forward basis. The price earnings multiple is 67. John, is there some value here somewhere in shares that are down almost 75% from their peak? I wish there was. I really do. I like Six Flags as a customer, but I think this

is a trap all day long. Normally with these companies, at least you have a nice dividend that you have and it's low growth and it's total returns kind of a thing. You don't even have that with Six Flags right now. So I think that it has a lot of things that it needs to do in order to just kind of execute on the strategy. It combined with Cedar Fair, all the things that it's trying to do. I think it has a lot to figure out. So I'm saying trap here. It should work because real estate matters. They have all of these properties, what 40 something, 50 properties. It should work. I, I, again, I, I don't, I haven't necessarily felt compelled to buy in myself. I don't know when, but I do think that I probably believe they're not going under,

it's not a trap, and that they will figure out a way to make this work eventually. I just don't know how long that would take. I will guess I'll squint and say value, but yeah, it should work, darn it. And it so far has not. This is the hard thing with companies that seem like their values is you have to look at not only revenue growth, but also margins. And then what's the catalyst to go from a seemingly low valuation, whether it's price to sales multiple or price to earnings multiple to a higher valuation. And with some of these stocks, it's not always a clear picture forward. That's why they're potentially values or value traps. When we come back, we're going to talk a little bit about bank earnings and get to the stocks on our radar. You're listening to

Motley Fulman. New from Nespresso. Blend wellness into your coffee routine with the Coffee Plus range. Infused with functional benefits. Choose the coffee you love with added B vitamins. like coffee plus b12 to help support immune function and coffee plus b6 to keep your day moving or go with the flow and choose ginseng delight our new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you

discover coffee plus on espresso.com 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 stocks based solely on what you hear all personal finance content follows the motley fool's editorial standards and 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. Big banks were on deck for earnings this week. They always kind of start off the earnings season. Lou, what did we learn from the big banks that we heard from this week?

So, you know, very cautious, not terrible, but cautious, I think is what I would say. Yeah, we like the banks because the banks sort of are a barometer for the economy. Let's focus on loan growth, Travis. Bank of America, loans up 8%. JPMorgan Chase, 9%. Citi, 7%. Glass half full, that's a confident consumer. Glass half empty, that's a desperate consumer putting everything on their credit card because they can't afford to pay their bills. We don't really know the answer there. JPMorgan made headlines, a huge, huge boost in their provision for credit loss, up to $4.6 billion. Explain what that means. As a shareholder, you don't necessarily mind this because they are required to set aside funds just in case the loans go bad so they can

still pay their depositors. And it's a kind of based on what they're seeing. A big uptick would normally suggest, you know, something they're seeing things turning south. They're getting worried, but they are also buying the apple cart. So part of that and maybe much of it is just, trying to get ready for that. Everything looks okay, but not great, which is I think what we kind of knew anyway. The banks had a great year last year. The stocks all sold off after three announcements. I think that is almost expectations got ahead of themselves. They're fine, but there's a lot to at least, huh, let's keep watching this. Yeah. I don't think that banks necessarily are the best indicator for what the consumer is feeling and what they're about to do.

Going back to Lou's point, just a couple of years ago, we were watching bank balances drop and credit card balances skyrocket at the same time. That was screaming, hey, consumers are running out of cash. You would think, logically, that's going to translate into not as many vacations on cruise ships or not as many premium purchases for these discretionary brands such as Yeti coolers or something like that. And what we saw was the consumer was absolutely fine. The consumer continued to spend money. In fact, they spent more money than what we were expecting. So I think that banks paint a logical picture, but the consumer is not always logical. We are emotional people and that's just how it is. I keep coming back to this. We tend to

want to look at it as a binary thing. The consumer is healthy or the consumer is not. Really, each one of us make our financial decisions based on how we are doing. And all you need is a critical mass of people who feel okay enough to keep spending, to keep doing trips, and the consumer is fine. The thing is, you never really know if that critical mass is 65% of consumers or 50.1% of consumers. I think that's what needs to play out over this year is we're going to find out if that number or if the number of people who feel comfortable, if that total is eroding, if so, how fast and by how much? The other one that I'm keeping an eye on that I don't know if you guys have thoughts on is some of these buy now, pay later companies. And it just worries me

that a company like Sezzle is seeing nearly 100% revenue growth year over year. But maybe some of that spending is going from credit cards to buy now, pay later. And it's kind of just the same thing, just a different format. But Lou, are those canaries that you're looking at as well, or am I overthinking this? I think we'll only know that in hindsight. It can be a better deal, especially if you're putting it on a credit card paying 25% or so. It could be just a shift in preferences, or it could be a sign of trouble. And also remember, 100%, there's a denominator thing there too. These are small companies, so they are growing fast. But yeah, I think it's worth noting, but I can't draw a conclusion. Let's get to the stocks on our radar,

bringing in Dan Boyd for his thoughts. John, what's on your radar this week? Yeah, this week I'm looking at Toast. This is ticker symbol T-O-S-T. This is a restaurant technology stock and its products are used by over 156,000 restaurant locations. So think of ordering at the table, payment processing, they can schedule employees, the program's integrate with delivery partners such as Uber. And I was really doubtful about this business when it went public initially, because it was used by a lot of small restaurants. And that seemed like a very inefficient go-to-market strategy to me. I thought they were going to have to spend a lot on sales and marketing in order to get into one little tiny restaurant

here and there. But it's been surprisingly efficient. It gets a lot of word of mouth advertising from its customers. And so it's growing fast and not spending a ton. What's really cool is this gets better just like an aging wine. I mean, as it goes, the hardware is negative gross margin up front, but the recurring revenue is high margin over time, just past $2 billion in annual recurring revenue, growing at 30%. It hopes to get to $10 billion in annual recurring revenue within a decade. So stock down 30% from its all-time high, trading at 3.5 times sales.

I think that's reasonable. Dan, what do you think about Toast? I feel like this is a business that's going to go with restaurants. If restaurants are doing well, Toast is doing well, and vice versa. Well, not vice versa. If restaurants aren't doing well, then Toast is probably not doing well. What do you think, John? Well, I think that it is an enabler of restaurants to do better, and so it's going to ride the success of its customers. Lou, what's on your radar this week? So, Dan, there's been a lot of saber-rattling from the White House about the defense industry,

Earlier this week, there was finally action. L3Harris, ticker LHX, announced it's going to spin off its missile solutions business, which is basically the rockets that power missiles, as an independent company backed by a $1 billion investment from the Pentagon. The idea here is best of both worlds. L3 will continue to hold a majority of the business, but the government will fund basically an increase in R&D to spark more sales. There are a lot of details to be ironed out, but Dan, I really like this setup. It allows L3 to focus its resources on other potentially faster-growing parts of its business while using the government funding to turn an okay but not amazing part of the business into a new growth

engine. I see a lot of upside from here, and I'm kind of excited about this. Dan, thoughts on Rockets? Well, it seems like there's a lot of corporate governance problems with L3 Harris, Lou. Are we looking at any changes at the top there, or are they going to keep moving on with who they got? You know what? I really like their CEO. So maybe, I mean, I know he had a checkered past with Lockheed Martin, but he is, I like him there. I hope he stays on. Dan, what's going on your watch list, Rockets or restaurants? Well, I'm not much of a Rocket customer, Travis, so I'm going to go Toast. Toast is one of those companies that I'm always happy to pay with Toast because you don't have to

necessarily hand over your card. That's all the time we have for Motley Fool Money. Thanks for listening. We'll see you here tomorrow.