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Episode Date: April 22, 2024

Matterport, a former SPAC, finds a new home. (00:21) Jason Moser and Deidre Woollard discuss: - Why this week may be crucial for the market. - If cable companies need to worry about Verizon. - What CoStar really sees in Matterport. (13:05) Sanmeet Deo and Ricky Mulvey break down On Holdings appeal for shoe lovers and stockholders. Companies discussed: ONON, CSGP, MTTR, VZ, TMUS, CMCSA Claim your Epic discount: www.fool.com/epic Host: Deidre Woollard Guests: Sanmeet Deo, Ricky Mulvey, Jason Moser Producer: Ricky Mulvey Engineers: Rick Engdahl, Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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This M&A Monday comes with a big premium. Motley Full Money starts now. Welcome to Motley Full Money. I'm Deidra Willard here with Motley Full analyst, Jason Moser. Jason, good to see you. We missed you last week. Hey, Dieter. Good to see you again.

I was out of town last week, but glad to be back. Glad to have you back and glad to have you back for what should be a very interesting week. So around 30% of the market reports this week, a lot of big. tech reporting. It's, you know, if we're getting it to earning season a little bit up and down, so what are you looking for? Yeah, it seems like just earnings projections and guidance going forward. I mean, it's just such a funny time in the market right now. And it's reasonable to expect some of these companies to have some trepidation. But then it also feels like some of these companies really have

they're very encouraged by the economic picture. They see. I mean, the economy seems to be hanging in there, employment's still in a good place. But the consumer is still just so clearly stretched, right? I mean, credit card debt, student loan debt. I mean, inflation obviously is still an issue. So there are just clearly some issues there in regard to the consumer that leave us, I think, with some questions. And we had talked about this a couple weeks ago when Jamie Diamond came out with his letter for J.P. Morgan. And there were just, there were a lot of things he said in that letter that just sort of make you feel like, okay, maybe things are okay, but we should at least be on guard. I mean, he said, and I quote, we may be entering, this, this is really, I mean, I think

a very profound statement. He said, we may be entering one of the most treacherous geopolitical eras since World War II. I mean, that, that's, that's a bold statement, right? That's something to at least keep in mind, especially coming from someone like that. remains wary of economic prognosticating, and they have ongoing concerns in regard to inflation, and they're considering a wider range of outcomes as far as how companies are going to perform in regard to interest rate exposure or whatnot. So it seems a very volatile stretch right now, in this earning season, I think, is going to, it's going to be very enlightening. Yeah, absolutely. And I think one of the things that makes this week,

particularly interesting is, you know, there's been so much talk of sort of the shrinking of the formerly magnificent seven into following which companies are still members of that. The Fabulous Five or something like that now. It's so funny how that changes quarter to quarter, right? Yeah, we will probably know something entirely different at the end of the week, which is one of the reasons for me I really want to hear what happens on the Tesla call. Yeah. I just, I need to hear it from him.

and I need to hear that reaction. I mean, earnings calls are important for that reason. But I want to get into one earning that we had today. I've got Verizon. You know, this is kind of a steady, Eddie. It's a good, you know, good dividend player. People like having this one in their portfolios. You know, you got decent solid results, a nice increase in cash flow.

But there's a little something happening with smartphones that I've been watching and thought about last week with Taiwan semis earnings talking about smartphone revenue. You know, there's a slowdown in usage happening, in cell phone usage and getting new phones. They talked about wearables and tablets being down. This seems to have implications for Verizon, but really for tech in general. Yeah, I think you're right. I mean, in regard to smartphones, I mean, it's no surprise. These things get better every iteration, right?

And so then that begs the question, why should you upgrade so frequently? And for most of us, the answer is we don't, right? We don't upgrade as often, maybe, as we used to. But then, I mean, you look at, I mean, I think the most obvious company that stands out here in regard these things like phones and wearables and tablets, whatnot. I mean, let's look at Apple. Yeah. I mean, you look at last quarter for Apple, the wearables' home and accessories segment of the business,

that revenue came in down 11% from the previous year. iPad revenue. It was down 25% from the previous year. So, I mean, Verizon calling this out, I don't think that's a cop out. I mean, that's not something they're just, they're not looking for an excuse. I mean, I think it's something very real. And it's absolutely something to keep in mind. Well, the other thing I'm watching with Verizon and really with all the telecoms is this,

what they call cord cutting 2.0, which is the rise of fixed home internet, taking some of the juice away from cable. not a massive trend at this point, but it's interesting. Verizon's up to about 3.4 million subscribers. Team Mobile's got around 5 million. It seems like something is starting to happen here. I mean, you've probably seen all of those commercials kind of pushing back against, you know, oh, it's not reliable or it gets jammed up, which whenever I see a commercial that's telling me something is bad, I'm like, okay, that means something's happening here. I should pay attention to. I think you should pay attention to it. It's we've kind of gone, from where it wasn't reliable to where it was reliable some of the time.

And now, it's certainly becoming more and more reliable as time goes on. So I think companies should absolutely keep an eye on this. I mean, again, looking to other companies in the space that are good indicators, I mean, I look at Comcast, for example, in regard to something like this. You go back to Comcast, most recent quarter on the call, and they talked about maintaining what they say, a strong trajectory in Xfinity mobile. They increase their subscriber lines by 24%. They increase total domestic wireless revenue by nearly 20%.

So while I don't know that Verizon is necessarily a full-on threat to a company like Comcast, it definitely feels like there is a shift going on here. In companies like Verizon, I mean, they're very well-send. set up to succeed here. And as we move more and more to this wireless sort of environment, I mean, it seems reasonable to think that a company like Verizon could absolutely disrupt the business of some of those cable providers like Comcast. And by the same token, it's good to see that Comcast is finding solutions, right? I mean, they've got the Xfinity mobile. I mean, they've got the domestic wireless revenue. I mean, that's something that you pay

attention to. So, yeah, it does feel like Verizon and its wireless brethren are taking a lead here, but I don't know that they're necessarily being fully disrupted yet. Well, it's a Monday, so we get to talk to some mergers and acquisitions. One today, right up my alley, co-star, a company I follow. You've probably seen their commercials for Homes.com and Apartments.com recently. They're buying Matterport. Now, if you haven't heard of Matterport. They do those cool 3D tours. You've probably seen them if you look at real estate listings. The premium here is crazy. So they're buying for $1.6 billion, and that works out to $5.50 per share. The shareholders are going to get half of that in cash, half that in stock. Over 200% premium on the last

closing price. Last time I looked, the stock was up about 188% or something crazy like that this morning. Everybody is asking why. Why is CoStar, which has commercial data and real estate data? Why are they buying a 3D tour company? Everybody has an opinion. I've been talking to people all morning. What do you think? Yeah, I mean, I'm not actually very surprised by this.

I mean, I will go back to something I tweeted way back on January 4th of 2022. As you know, I mean, one of the services I run here at The Fool, it's a service based on augmented reality and immersive technology. And I tweeted then on January 4th, 2022, the value in digitizing, indexing the built world is going to be huge. It wouldn't shock me at all to see Alphabet acquire Matterport this year, search and ad revenue and expertise. Those Metaverse tail ones. It was a reckless prediction, but it seemed like at least at the time that Matterport fit very much into that sort of Alphabet Google universe. so to speak. So I'm not terribly surprised to see Matterport ultimately be acquired, but by the same token, if you go back to, you know, when I said that, I mean, I think the stock price was, I think

it closed that date around $18 and $22. And so clearly from then until now, a lot has happened. I mean, Matterport was a SPAC, and that I think probably at the end of the day, most people, we look at SPACs and think, well, that's not been a very good thing for most companies. For Matterport, I mean, I give them credit. At least they've stayed in business, right? They've kept things going. It doesn't surprise me, at least to see Matterport be acquired because of that specialty, what they do.

I mean, it's a digital capture and spatial data company, right? They digitize and they index information based on this built world, and they have a lot of information already gathered. To see them acquired, it doesn't really surprise me. What I said back then when I first tweeted that in 2022, I mean, obviously, the share price was a lot higher. It's good to see at least shareholders get some value from this. We'll see.

I mean, I don't know if it's something where ultimately CoStar just takes this business, kind of rolls it in. We never hear anything again from Matterport. But clearly they're acquiring Matterport for the data and for the information that it had already gathered. And there was absolutely some value in that. There's a lot of value in that. And I think that's interesting because if Alphabet had bought it, that would have been more of a tech play to get more of the cameras and the tools that they have.

the apps that they've built and things like that. Postar Buy is it, you know it's a data play. So there's a part of this that I, it makes me a little sad about it as as someone who's seen what Matterport has done because I think it, it may be it curbs everything that they've been building. I think it'll stay the way it is and I think they'll keep building the, you know, digital twins and things like that. But I don't know if the level of innovation is going to continue.

I mean, Costar has been pretty good at keeping companies independent, but I'm not sure that's what they want with this. I think they want it for Homes.com. I think they want it for Zillow, but to, you know, as competition. But I don't know. It's so hard to know how they're going to use it because they've got these two businesses going in different directions. And I don't know which side it ends up on. Well, I think what you're saying makes sense and it really does make you wonder. And I guess we will never really know the answer to this.

But it does make you wonder if Matterport was able to just keep on doing what they were doing, I mean, would they have been able to kind of get around that corner and start to take this business in a direction that could have produced a lot more value? Thanks for your time today, Jason. Thank you. We talk about a lot of stocks on the show, but it's just a peek at the Motley Fool's investing universe. This year, we're rolling out a new offering. It's called Epic Bundle.

The service includes seven stock recommendations every month, model portfolios, and stock rankings, all based on your investor type. We're offering Epic Bundle to Motley Fool Money listeners at a reduced rate, as a thanks for listening to the show. So for more information, head to Fool.com slash Epic. We'll also include a link in the show notes for you. If you want some on running shoes, you're not getting a discount. Same goes for the stock. San Mateo joins Ricky Mulvey to give a breakdown of the fast-growing athletic

company. If you want a fast-growing company, you might have to pay up. Let's see what's going on with On Holdings, which listeners might recognize is expensive running shoes with cushioned hollow pods in the midsul or some holes for those not into that vocabulary. The OnCloud's, very popular running shoes. Sandme, let's start with the product. Why are these shoes so special or catching on so quickly among the consumer attention base? Yeah, Ricky. So, At the core of what makes them so special is that they have this cloud tech technology, which kind of blends comfort and performance. It kind of arose out of the founder's Olivia Bernhardt, who's a Swiss triathlete, experimentation with garden hoses to create a safer and more comfortable

shoe. In addition to that, they're just fresh, they're unique looking. They have the cloud in the souls. They sport kind of like that famous Swiss design element. And they've caught on with a tech scene, influencers, and just casual wearers, while it's kind of becoming a lifestyle brand. Are you aware? An on-wearer? I'm not, actually. I'm curious to try them out.

I have always been a Nike guy. I'm wondering who the closest competitor would be for this product. It's like a high-end kind of running shoe. I would think, what, Hoka? Is Hoka their closest competitor? Yeah, Hoka's definitely a close competitor. If I've found numerous reviews and discussions online, just comparing hokas with on clouds, and they're both primarily running shoes with different

features. And the search trends, actually, if you look on Google, are kind of neck and neck for both of them over the past few years. Yeah, and Lulu Lemon would like to be a competitor, especially in this space. We were talking before that. You think the shoes are a little boring? I don't know. My opinion on this matter matters very, very little. Yeah, you know, while Lulu is like a powerhouse in the athleisure market with premium apparel. I feel like their footwear line is kind of like a side bet to kind of capture some growth. They've rolled out men's and women's footwear. In my opinion, they're kind of bland looking, but we'll see how it goes with them. So the highest profile association for On is Roger Federer.

He's also an investor in the company. You want to look at that high profile athlete, the high profile figure. How important is that Federer relationship to On Holdings? Is this guy selling on a lot of shoes. You know, I think it's pretty important. On Holdings, if you don't know, is a Swiss company. It's based out of Switzerland. So as a brand ambassador, he has massive appeal in Europe. They know him very well.

He's very well loved. He is an investor. He actually assists in designing shoes with On, specifically now for their growing tennis shoe category. So he's important, although I wouldn't put him in the category of Jordan Nike, where you know, if Jordan was going to, on, then Nike would just have completely collapsed. I don't think that on's necessarily there with Federer, but he is important. One flag for the company, there's a few flags, one of which I

think is the valuation, one of which is a co-CEO situation, which sort of perks my interest a little bit, Sam Mead, but not in a great way. You have Mark Maurer and Martine Hoffman, both of whom have been with the company since 2013. Is this a flag for you? Is this a Salesforce thing going on? you know, co-CEo situations rarely seem to go well. Yeah, I mean, it definitely makes me wonder. But with the way on, it's structured, I'm actually a little less concerned because Martin is actually more of the CFO. Mark is the chief operating officer.

So while they're both co-CEOs, they're still kind of dedicated to their specific roles within their company. So, you know, I'm not so concerned. And also, being a Swiss company, I don't really know how the co-CEO dynamic works in in international companies versus how it works in the United States. It could be different. Fair enough. Let's talk about that valuation.

On, which has the ticker symbol, On On On, On, trades at a much higher multiple than many of its peers. Almost six-time sales and 42-time forward earnings. For context, Lululemon and Deckers, which makes Hoka, they're both in the mid-20s for forward earnings. You know, what has to be true about On's future goals? growth for this valuation to make sense. Yeah, you know, On is definitely pricing when you look at just from the valuation multiple.

One thing I also like to look at in comparison is, you know, On has leading gross margins that are approaching 60%, whereas Decker's is around 55, Lulu is around 58. The mix of business is a little different. On is pure-place shoes right now, little apparel. Decker's is shoes primarily. Lulu is mostly apparel. And I also like to look at their growth estimates. sales and earnings estimates for on are much, much higher than Decker's and Lulu. So, you know, in order to kind of get that valuation to make it look sense, they do need to grow sales and earnings at a fast clip that's heavily embedded into their business.

They need to maintain those industry-leading margins. And, you know, they need to kind of take advantage of all those white space opportunities within the different shoe categories and also ramping up that apparel portion of their of their business from what's around 5% to about 10% is what they're looking at for the future. They're also opening some retail locations, which might help with that growth opportunity. And one thing we were talking about before the show that I think is worth bringing up and seen in those margins. On does not really discount its shoes, it seems. No. They're kind of taking the Lul Lemon approach where they're not a discounter. They're

premium priced. They're playing in that high price. category, which separates them a little bit from the Hokas and from the other shoes out there. So, who knows what will happen in the future, but they're playing in that category, which I think, you know, with high demand, they can take, they can take advantage of that. So of the Athlizure group I mentioned, there sure are some bears out for the on-on shares has a pretty high percent of shares outstanding shorted at about 9 percent versus for Lulu Lemon and Deckers, that kind of hovers around 3%. So what are the bears saying about this company? Yeah, I mean, you know, with the high growth opportunities that it has, it's definitely

much more riskier than the other companies. I'm sure the bears are concerned about just the high embedded growth assumptions embedded in its valuation. If it doesn't meet some of those targets, the stocks can get dinged hard. They're probably worried also about the potential for it to be a fat along the lines of Allbirds. Allbirds was hot for a while and then kind of flage lameed out, you know, these things, you know, these shoe brand, footwear brands and, you know, consumer products come and go. Their apparel business, it may not stick. There's a lot of competition there as well.

And then also maybe not growing internationally. So those are some of the things that bears are probably concerned about. However, I know you're a big fan of the Athleisure space. This is a little different than Allbirds. You can't really go running in the wool shoes that they were selling and then some of those shoes were falling apart. But you have a lot of focus on the Athleisure space. even if you're not looking at on holdings as an investor, why is this macro opportunity worth

a stock investor's attention? Yeah, you know, I like the Athleisure space. It's become a much, it's a huge market opportunity. It's growing. It's, you know, from the pandemic, more and more people are wearing Athleisure as a lifestyle brand as a casual, they're wearing casual clothes to more outings. It's kind of become your lifestyle. But it's also a place where there's a lot of, a lot of, like, innovation.

A lot of freshness, a lot of new names and exciting opportunities. And it's also something that's in demand and use regularly by consumers. You know, you're always buying new shoes, apparel. And so it's an industry where consumers are always going to spend money. All right. Anything else the investing audience should know about the leadership of this company? Yeah, you know, one important point is that On has heavy insider ownership, you know, with the directors and executives owning about 32% of the total economic

ownership and 67% of the total voting power. Now, while the voting power can be somewhat of a concern because they control a lot of the business, I do like how well vested the management team is in the business. So they want to see it succeed. Let's finish off with a little bit of a game. There's a few companies in the athletic, a leisure space that you can buy. So I'm going to call this, let's call it, wear, invest in trash. We have a brand to wear, a brand. A brand, that is earning our investment dollars and one that we will recycle. Trashing is not kind to the environment, and this is coming out on Earth Day Sandmeat. So where invest, recycle?

How about that? No one can get upset at us now. So the three brands, we have on holdings, we have Lulu Lemon. This might be an easier one. Under Armour, which one are you wearing? Which one are you investing in? and which one is going to be recycled in an environmentally friendly way. Happy Earth Day.

All right. So in honor of birthday, I'll take the recycling first. So I'm going to recycle Under Armour. The business has just not been managed very well. They have some pretty good products, but a lot of their products when they are sold discounted. And we were talking about it earlier, you know, when you see it on lots of kids and you see people wearing under armor, the stuff that I bought from Under Armour, typically tends to be from outlets and from discounting. So I would definitely recycle Under Armour where I would actually wear Lulu,

because they have great products that are stylish and look great. And, you know, I have not always been able to afford them, but I definitely love to wear them. And invest, I would invest in on holdings. I'm actually a investor in On Holdings because I think the growth opportunity is going to be going to be great for that company. Good place to end it. Sam Miteo. Thank you for your time. your insight. All right. Thanks for you. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. I'm Deidra Willard. Thanks for listening. We'll see you tomorrow.