Motley Fool Money - “Alexa, Let’s Go to Outer Space”

Starting point is 00:00:00 The space industry is moving at light speed. This is Motley Fool Money. Welcome to Motley Full Money. I'm Tyler Crowe, and today I'm joined by longtime full contributors, Matt Frankel and John Klost. Got a pretty full schedule here. We're going to talk about RH, what used to be restoration hardware, and its struggles, kind of following up from yesterday's discussion about Nike. We're going to get some listener questions, but we wanted to get started first with space

Starting point is 00:00:41 and space investing in particular. It has been one heck of a week when we talk about space in general. Just yesterday, the Artemis 2 launch, which, look, it happened. I don't care how many times we see rocket launches. Those things are wicked cool to watch. Yeah, and not to brag, but as a Floridian, I got to see the Artemis launch from my front yard yesterday. Me and my nine-year-old ran outside right after we watched the countdown on YouTube. Man, I'm pumped about space. right now. And talk about seeing smoke. There is a lot of smoke happening in the industry of space as well. I mean, we've talked about the SpaceX IPO. We've mentioned it before in our IPO show. And this week, that chatter is getting louder and louder by the day. So it seems like the SpaceX IPO is

Starting point is 00:01:30 coming pretty soon. And also in Space News today, satellite company Global Star is up about 8% as we tape on rumors that Amazon is looking to acquire it. Now, one of the deals that we saw recently, I want to say in the past year or so, or maybe even further back, was SpaceX acquiring spectrum from Echo Star. It's basically the ability to use broadband spectrum for communications. In doing so, it established the ability for SpaceX to use cellular data transmission via satellite. Now, I'm not saying this is precisely why SpaceX made that happen, and I'm not saying that's precisely why Amazon is making this acquisition of Global Star, but Global Star does have a very large spectrum license for the next 15 years. So, Matt, I have to imagine that was part of the deal.

Starting point is 00:02:24 Simply put, Amazon needs to scale its satellite, you know, build out faster. They have grand plans. I think the latest number I saw was 3,200 satellites of its own. It wants to get to orbit to rival Starlink, but it's not there yet. Starlink, just to put it in perspective, has over 10,000 active satellites. Amazon has about 200. Acquiring Global Star and its Spectrum licenses would speed up the timeframe because that's something, no matter how much money you have, you just can't speed that up. John is going to dive into Global Star's business a little more and a bit, but it does own

Starting point is 00:02:56 valuable spectrum licenses that Tyler said, and it's almost certainly a big reason that Amazon's interested here. like I mentioned, these are highly regulated. They require years of navigating regulation, not only in the U.S., but all over the world. Global Star holds licenses for valuable spectrum in more than 120 countries around the world. So it does help accelerate the timeline of what Amazon's trying to do. Certainly seems like there's some sort of trail here as to spectrum and making this a much more prominent part of the business. Now, look, the deal isn't finished yet.

Starting point is 00:03:31 This is, like I said, this was a lot of rumors, and the stock is up on rumors, and we don't have a price tag on it. But at the same time, Global Star is about an $8 billion company, and it's not like for a company the size of Amazon, that there are huge valuation concerns here for acquiring this. It's not certainly not going to break Amazon's bank to make an $8 billion acquisition. So with that in mind, like, what opportunity do you see here for Amazon, the stock? Is this something that's a real needle mover? or is it more like a, hey, this is nice to have, but I'm not building my investment thesis around it.

Starting point is 00:04:05 Like, when I think of Amazon, I think of like prime video. You can agree or disagree anyone you like, but I don't think anyone's building a investment thesis on Amazon based on it has prime video. And something like Global Starts sort of feels like on that level. I think that's fair, Tyler. You're not building an investment thesis around this necessarily, but Amazon does have space aspirations. I think what this does that has value for Amazon is that it gets it a revenue stream from space that's reliable while it tries to build out that space business. And so breaking down Global Stars business is actually pretty fascinating here.

Starting point is 00:04:45 A single customer accounted for 63% of revenue in 2025. We don't know for sure, but that customer is likely Apple. Apple owns 20% of the business. It owns 85% of Global Stars. capacity, or at the very least, 85% of the capacity is dedicated to one customer. That customer is likely Apple. And so what is interesting here is when we think about the monetization of space. Everybody wants to do space, but the monetization aspect gets tricky on the edges. This is something that Global Star does provide Apple with the SOS emergency signal. That is actually

Starting point is 00:05:22 a pretty important thing. It's a valuable business. And so we have one of the most important valuable companies in the world and Apple locked in as this global star customer and locked in for the long term. And so if you're Amazon, I get this space business, a reliable income stream from space as I continue to push forward with my own aspiration. So I think that that's kind of the valuable thing here for Amazon. First, to Tyler's point, Prime Video should be a part of the thesis more so than a lot of people think. It's a big part of Amazon's advertising platform, which is one of the fastest growing and most profitable parts of the business. So we'll leave that for another conversation. But to me, Amazon space investments are nice to have. I'm an Amazon

Starting point is 00:06:08 shareholder, and 100% of my thesis is built around the e-commerce platform in AWS. There's a solid argument to be made that Amazon building out its satellite account would be a big competitive advantage for AWS. Microsoft and Alphabet, which are the two closest competitors, they don't have that. These satellite capabilities, they can remove geographical constraints at the edge. Right now, their reach is limited to where the internet goes, and it'll let Amazon's customers move data without using the public internet at all, something its competitors can't offer. So it can be a competitive advantage that helps AWS keep or even grow its already leading market share. So it could be a very nice thesis driver, but right for now, it's a nice to have.

Starting point is 00:06:56 I would say at the most generous, I think, this acquisition and Amazon's budding space business is extremely early. I wouldn't even say early innings. It's like watching the pitcher warm up before the game even starts in terms of early innings here. So it could be a fascinating thing to watch because clearly Amazon or Jeff Bezos as the chairman has had very ambitious plans for space with Blue Origin, which isn't necessarily tied to Amazon, but it's clearly something that Jeff Bezos has wanted to do, and I have to imagine that somewhere that is embedded in the DNA of Amazon. So coming up next, we're going to talk about another struggling retailer in the form of restoration hardware. When Johan Rawl received the letter on Christmas Day 1776,

Starting point is 00:07:46 he put it away to read later. Maybe he thought it was a season's greeting and wanted to save it for the fireside. But what it actually was was, was a warning, delivered to the Heshen Colonel, letting him know that General George Washington was crossing the Delaware and would soon attack his forces. The next day, when Rawl lost the Battle of Trenton and died from two colonial Boxing Day musket balls, the letter was found, unopened in his vest pockets. As someone with 15,000 unread emails in his inbox, I feel like there's a lesson there. Oh well, this is the constant, a history of getting things wrong. I'm Mark Chrysler.

Starting point is 00:08:23 we look at the bad ideas, mistakes, and accidents that misshaped our world. Find us at constantpodcast.com or wherever you get your podcasts. Shares of RH, which used to be called Restoration Hardware, I think I like the older name better. shares plunged about 19% yesterday after the company reported earnings and offered guidance. John, was it the guidance or the earnings that really had the market saying no thank you to whatever management had to say? Well, the earnings were not fantastic, but definitely the guidance is a big part of what's going on

Starting point is 00:09:05 with RH and investors' adverse reaction to the report. Basically, here, if you look ahead to the first quarter, it just reported fourth quarter results, but if you look ahead to the first quarter, it's looking at a sales decline, and this is after already a couple of years of just kind of mediocre lackluster results. But then guidance for the year is modestly positive. And so if you take that in combination, what management is saying is, hey, our business trends are actually about to get worse, but don't worry, they'll be better before the end of the year. And I think, just as an outsider perspective, I think management has cried Wolf one too many times here in recent years. And what I mean by that is it seems like that is routinely now the

Starting point is 00:09:57 guidance. Things are about to be bad, but don't worry, it'll pick up in a couple of quarters, and investors just aren't buying it right now. Everything that drives R.H.'s business, housing prices, interest rates, even the stock market, all of these things are trending in the wrong direction, and that's kind of the point here. It's doing okay under the circumstances, but it's not great being under the circumstances, and investors don't know when the circumstances will get better. I don't think that it was buying what management was selling, and that's why the stock is down after the report. Well, you can certainly say that the report is a continuing trend that we've seen with RH, because this is not anything new. Over the past five years, shares of RH are down 81%. And I don't

Starting point is 00:10:46 care how you slice it. That is not good. Now, there's clearly some internal problems, as you as you said, John, and there's some broader macro problems as well. And because this is furniture mostly and house home goods and things like that, people buy furniture when they buy a new home or move. That tends to be the most frequent time that these purchases happen. The challenges existing homes in the United States from 2022 to today are at about the same rate that we saw from 2008 to 2012 when, you know, we had that thing called the Great Recession going on and housing was not in a great place. Now, at the same time, retail struggling and businesses struggling with their turnarounds is not a new story. I mean, yesterday, Travis Liu and Raystrel were talking

Starting point is 00:11:32 about Nike and their seemingly multi-year turnaround strategy that, you know, hasn't quite gained traction yet. It seems to be like where R.H is in a similar position. So look, we know it's some sort of combination. And like if I were to just ask which one is it, we would all say it's a combination of both. So I'm going to make you guys be a little more specific here. I want you to put percentages to when you look at this situation, how much of a percentage is it's the company and its problems versus it's just a really bad market. And how would you break that kind of share into what to blame for RH's woes? So before I give my percentages, so as you mentioned, the housing market is pretty terrible right now, and that's weighing on the

Starting point is 00:12:14 business for sure. And it isn't just that people aren't moving into new homes and buying furniture for their new home, but people are largely not tapping into their home equity to complete big home purchases. That's generally talked about with projects like building a new deck and renovating a kitchen, but it also is a very common source of funding if people want to replace a few rooms worth of furniture. So because of interest rates, that's generally not happening right now. Plus, with the inflationary pressures over the past few years, economic concerns, consumers are generally feeling squeezed, especially when it comes to making nice-to-have purchases, like updating furniture. So although the company missed estimates,

Starting point is 00:12:57 there's an argument to be made that 4% year-over-year revenue growth in this environment isn't that terrible. But there are some things not to like about the company. I mean, its debt levels are high. I feel like management should be a little more conservative right now when it comes to investing for growth and really trying to innovate in this type of environment. So in all, I would say 70-30 market versus company. Yeah, maybe I'm being a little bit too harsh here, but I'd put it closer to 50-50, but I agree with everything that Matt just said. It is true.

Starting point is 00:13:27 The housing market is a huge reason that RH's business isn't booming like investors hoped. There's only so much that the company can do in that environment, and management does point out, as Matt alluded to, that it is growing or producing results that are better than many of its peers. So I guess give it a little bit of credit there. It's a hard market to be in. But what is interesting is the numbers do look particularly weak right now because of what Matt just said.

Starting point is 00:13:55 Management isn't very conservative when it's building out to the long-term vision of the company, and it's continuing to invest like business is booming. And so, look, we are long-term investors. We do like it when our companies take a long-term view. But I think that does contribute to the numbers perhaps looking worse than they need to be right now because it is investing still so much in what it wants to do. Now, what does it want to do? RH aims for $5.8 billion in revenue in 2030. That would be up 70% in five years from what it just turned in 2025. And in the past, it's had operating margins of around 20. That's what it's

Starting point is 00:14:32 aiming for. Definitely not there now. But look, if things go swimmingly, according to management's plan, there's a scenario where RH could be generating a billion in operating income within five years. It only has a market cap of $2 billion right now. But the thing is, as Matt pointed out, it is using debt. It is using a sale leaseback strategy, which kind of ups the ante a little bit. It's buying these opulent properties. These are financial moves that are anything but conservative. So if RH does succeed, it's making great moves right now.

Starting point is 00:15:06 But the outcome is becoming increasingly binary. If it fails to hit its goals, it's really put itself in a tough financial position. coming up after the break, we're getting into the mailbag to ask what our reading list is. So we had a little bit of technical difficulties in between takes here. John's having some technical difficulties, but we're going to soldier on, and we're going to talk about our last mailbag question here. Just before we do that, though, we want to make you part of the conversation. If you have a stock or an investing question for Matt, John, myself, or anyone else on the show,

Starting point is 00:15:36 you can now email us at Podcasts at Fool.com. We'd love to have your mailbag segments whenever possible, like this one we're about to do, So send in your questions. Just remember to keep them foolish. That email again is Podcasts at Fool.com. Podcasts at Fool.com. So our email question comes in today from Jack Quinn. And this is probably one of the favorite ones that we always get

Starting point is 00:15:58 because I think I've answered this one before in live events and things like that. And it's always a fun one to do. And Jack asks, newer listener here and newer investor as well, aside from listening to the Molly Fool, is there any books you recommend for beginner or amateur investors to get a better understanding of the markets, stocks, etc.? Thanks. So before we get into that, we do have to mention that the Motley Fool, us, our founders, Tom and David Gardner, have written several books. We have the Motley Fool Investing Guide, Rule Breakers, Rule Makers, and David Gardner also wrote a book recently,

Starting point is 00:16:34 Rule Breaker Investing. So there's lots of options in the Motley Fool universe already, but we're going to step away from that for a second and focus on some non-Motly Fool books. And I'll do mine first, and mine is one up on Wall Street by Peter Lynch. This, I think for beginner investors, this is kind of that one that gets you inspired to want to invest. I remember the sensation I had after reading that book was I wanted to run through a wall to invest in the market after reading about this book. it kind of explains how using your expertise in whatever field you have before you got into investing can be an extremely valuable tool and how you can use that as an example of making better decisions and how to invest in the market and how he did it for several years running a fund

Starting point is 00:17:22 called the Magellan Fund at Fidelity. I've always been a big fan too of the intelligent investor, but I would also say that is probably not the one that is a first-time reader. It's a little bit of a dry read. So keep that in mind. And not to discount what John's part, because he didn't, wasn't able to join us, but the book that he recommended was The Psychology of Money by Morgan Housel. Matt, what did you have? You already mentioned my favorite investing book one up on Wall Street. And the intelligent investor is absolutely a great one. It's by Warren Buffett's mentor, Benjamin Graham, but not great for first-timers, I agree. But since you already mentioned my favorite, I'll add that one of the best ways to learn as a newer investor,

Starting point is 00:18:03 is by reading all of Warren Buffett's annual letters to Berkshire Hathaway shareholders. He's been writing him for decades, or he was writing him for decades. He wrote his last one last year. There are certainly some company-specific business discussions, you know, specific to Berkshire, but he generally spent about half of each letter talking about important investing principles, lessons he's learned, like how index fund investing can be a great tool, how to avoid excessive fees when you're investing, how to have the right money, mentality and stock market crashes and corrections and recessions and a whole lot more.

Starting point is 00:18:39 Now, his letters have been compiled into books that you can buy, but they are all available for free at Berkshirehathaway.com right on their website. And because they're relatively sure, you can read one here, one there, and just pick up some lessons as you go. Great thing for first-time investors to read. Also, just a slight aside, I think Berkshire Hathaway's website is probably in a horse race with craigslist.org as the put me in a time capsule and send me back to the internet in 2005 in terms of web pages and graphics and stuff like that. It is not the most updated site and kind of

Starting point is 00:19:17 almost a nostalgia, which I think is a fun little side. So we've got the Berkshire letters, we've got the psychology of money and one up on Wall Street, three great options for somebody who's getting started in the investing world. As always, people on the program may have interest in 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 Motley Full 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. Thanks for producer Dan Boyd and the rest of the Motley Fool team.

Starting point is 00:19:54 For Matt, John, and myself, thanks for listening, and we'll chat again soon.

Motley Fool Money - “Alexa, Let’s Go to Outer Space”

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