Motley Fool Money - Alphabet, Amazon, and Facebook, Oh My!

Episode Date: July 28, 2017

Facebook surprises. Alphabet and Amazon slip. Baidu rises. And McDonald's delivers. Our analysts talk about those stories and weigh in on earnings from Chipotle, Electronic Arts, McDonald's, and Starbucks.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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I'm Chris Hilton. Joining me in studio this week from Million Dollar Portfolio, Jason Moser, and Matt Argus. singer and from Supernova, David Kretzman. Good to see you, as always, gentlemen. Hey, hey, hey. Such a big week for earnings news, we have decided to forego having a guest. We're going to zip into the full mailbag, and as always, we'll give an inside look at the stocks on our radar. But we begin with the social network. Shares of Facebook hitting a new all-time high this week after second quarter profits came in higher than expected. Maddie, they're just

printing money over there at Facebook. They absolutely are, Chris. Advertising revenue of 47% to 9. 2 billion. I mean, 47% growth rate at this stage is just incredible. And remember, 87% of that now is mobile. And as we talked about earlier this week, years ago, we just said, there's no way Facebook's going to make money on mobile. They can't do it. And they are, and they're making most of their money on mobile these days. Operating profits were up 47% as well. The number to me, daily active users up 17% to 1.3 billion. I know on the monthly active basis, they've crossed that 2 billion mark. But the daily active users to 1.3 billion is just incredible. I think that's where advertisers are probably going to see.

That's what they're excited about. That's where they're getting the ROI from. So just outstanding numbers for Facebook all around. Yeah, David, you think about mobile advertising, and it's basically a duopoly between Google and Facebook. Yeah, they're the two giants in the space, and that probably will continue for quite some time. I think the biggest question mark with Facebook going forward

is what will they do about decelerating revenue with their core platform, which they've been warning for over a year now. And obviously, this quarter's results, as Matt pointed out, still stellar, but at some point, they're going to need to find other areas to grow that top line, whether it's Instagram, which seems to be going well so far, but then Messenger and WhatsApp are both, I think, have bigger question marks on as far as monetization. Well, think about Facebook's position. I mean, if you're an advertiser, you're literally an idiot if you're not spending money on that platform. I mean, that's such a great competitive

advantage right there. And I mean, that really is Google and Facebook in a nutshell, right? I mean, those are the two places where the eyeballs are going. And I think, furthermore, when When you look at what Facebook did with Instagram, and we talk about this every quarter, that Instagram acquisition was obviously sheer genius in hindsight. Now, sort of the flip side of that coin, though, is I don't know that necessarily, I'm not necessarily convinced that WhatsApp or Messenger are going to bear the same kind of fruit. We're seeing at least this, they're getting the ball rolling and putting some ads in Messenger. WhatsApp doesn't sound like it's terribly unique.

are other imitators out there. And that was a very, very big chunk of change they dropped on WhatsApp too. So at the end of the day, it's probably not going to matter anyway. And that's really just the beauty of this position where size and financial resources are a competitive advantage indeed. I'm just going to be very interested to see over the course the next five and 10 years if Messenger and WhatsApp sort of bear the same fruit that Facebook and now Instagram are currently bearing. Yeah, I mean, I think in the near term, it's really all about video right now. They're going to try to have a lot of the same success that YouTube's been having over in Alphabet. That's

where the big investment dollars go. But to Dave's point, the messenger and WhatsApp, it's going to be key for them to try to monetize those. And the idea of putting ads in front of people's texts on their phone, I mean, it just seems like a very, very hard place to work. But we've seen it work in China in other places. And so that's probably Facebook's next move. Amazon's second quarter report featured a lot more investing than Wall Street was probably hoping for. Profits came in much lower than expected. Jason, that's the second quarter report featured. When the stock dipped after the report on Friday, previously in the week, it had hit a new

all-time high, though. Sure. It's been a wonderful run for a wonderful business. Every once in a while, Amazon reminds us that they have that ability to just spend, spend, spend. And that's what they're doing in fulfillment, in content, really, and it's all about building out that prime value offering. It's growing prime members and giving us, as consumers, more value with that relationship. And so every few quarters, you see the market kind of take a step back and sort of rethink this for a second, and then quickly come back to their senses and saying, listen, if anybody's going to get in there and compete with Amazon on any meaningful level, I mean, it's not just capital you need.

I mean, there is just a lot of time has gone by. I don't know that there's any way that any sort of other retail presence out there can catch up. And I think proof of that is that we're seeing more and more retail partners deciding to partner up with Amazon versus trying to compete with them. Maybe Nike, for example. It's like the old saying goes. If you can't beat them, join them. And I think a lot of retail presence is out there are sort of becoming that realization

today. Amazon Web Services is still incredible business. Margins came down a little bit in that side of the business. They build that out. And certainly competition on that front is growing with Microsoft and Google. But all in all, I mean, another successful quarter, 25% top line growth. This is a beast of a company. We own a million dollar portfolio.

and we're going to keep on holding it for many years to come. Yeah, to go back to Facebook for a second, and this didn't get a lot of headlines in terms of their latest quarter, but one of the things when you dig into that conference call for Facebook is they're starting to tighten up their expenses a little bit, sort of tightening the range of how much they're going to spend. And on the flip side, you look at Amazon. This quarter, they spent more on CapEx than Microsoft and Google combined. It's incredible, but it's that 25% top line growth.

I mean, how many companies that are 22 years old now are growing, can grow at that rate? It's phenomenal. And I think there's a real line, there's a straight line to $30 billion in free cash flow for this business in five years, really. And the quickest way to get there is by keep growing the top line. And I think, I hope investors get that. I know we get that at the full. It's also the nature of these two businesses. I mean, they're very, very polar opposites in the sense that Amazon is spending all of this money

trying to make our experience as customers better and better every day. Facebook is kind of stuck in this vortex of trying to figure out how to make your experience less miserable while still making some money. I mean, I'm not saying this all. I say all in quotes. It's an ad company, right? It's not like people go to Facebook saying, hey, I wonder what great ads are playing today. So, I mean, it's a delicate balance for them.

Amazon doesn't have to worry about that balance. And the beauty of all of the money that they invest is it continues to make consumers' lives better. And on the flip side of that coin, it makes those third-party customers of Amazon's retail network, the people that are selling us stuff, it makes their lives better. So they win on both sides of the coin. They're a tremendous advantage to their model. Yeah, and I think it's actually telling that the stock is only down two or three percent on this news. I think a couple years ago, if Amazon had reported a quarter like this where they're heavily reinvesting in the business, Wall Street wasn't so forgiving with that. But Jeff Bezos, unfortunately, I hope he enjoyed his few hours in the sun as the richest man on the planet.

Maybe he'll still make it there. He'll get there real soon, real soon. Shares of Alphabet down a bit this week. Second quarter revenue rose 21%. But, David, this is a search company and the cost per click is going in the wrong direction. Yeah, they're essentially making less revenue per click, but the number of total clicks are still going up. So that's why their top line is going up. But they are seeing pressure on margins, especially this quarter. Partly that's due to the biggest growth contributors right now being YouTube and mobile, where the cost per click is lower. But here's why I don't think that's something investors should worry too much about. YouTube has one-to-half billion monthly active viewers right now, and people watch an average of 60 minutes a day on their phones and tablets.

So that's an incredibly valuable and engaged audience. I think they'll be able to crack that code at some point down the road. They continue to test out different formats. They're no longer running 30-second ads on YouTube. They're doing a lot of six-second bumper ads, which seem to be more successful for a lot of brand advertisers on YouTube. So, when you have such a vast and engaged audience, I'm not too worried about quarter to quarter numbers like this.

If I send YouTube a check for $100, do you think they'll stop running those Groupon ads? I know you're not a fan of those, Chris. Maybe you can beat them out there. They make me pine for the Travago guy. Another big day for Baidu. Second quarter profits for the Google of China came in big and shares of Baidu up more than 11 percent on Friday. Here's what stuns me, Matt.

This is a company that is only, in terms of market cap, it's a $77 billion company. That seems small, given how dominant they are. It does seem very, very small. That's, I think, one of the most compelling things about Bidu, because it's operating in a market that's conceivably bigger than alphabets, and does virtually the same thing. This was a great quarter for Bidu. This is the first time, really, that their businesses sort of lapped the problems last year when the Chinese government was cracking down on some of their advertising customers because of the

kind of dodgy medical ads that they were displaying in search. They've gotten past that issue now. They've tightened up their advertising ranks. And really what stood out to me was revenue was up 14 percent, but the number of advertisers was down 21 percent. And so the average revenue per advertiser was up 32 percent. So they've shrunk the advertising base, but it's obviously a high, a much more quality, more aligned advertiser base. Two-year high for the stock, I would just say that they're really doubling down on AI and the search business, which is great, and video content, which I think is right ways to go. They've been kind of investing a lot in food and travel and other things that just haven't gained a lot of traction. But doubling down on video, especially, I think, with ICHE, which is their Netflix-type service, that's going to be big for them.

They recently signed a licensing deal with Netflix for some of their content. And I think that's a big area of growth for buying. So when you look at Alphabet, which has a market cap of somewhere eight times, eight or nine times, the size of Baidu. Is Baidu a more attractive proposition for anyone who's thinking about investing in search? I want to say so, but you got to factor in the risks there. And this past year and a half, you've seen what operating in China can be like for a company like Baidu. And so you take that into account. I do think Baidu's growth rate should be higher than Google

Alphabet over time. But it comes with a lot more risk. Coming up, earnings from some of the biggest names in food and beverage. Stay right here. You're listening to Motley Full Money. I like beer. It makes me a jolly good power. Welcome back to Motley Full Money, Chris Hill here in studio with Jason Moser, Matt Argusinger, and David Kretzman. Second quarter profits for Boston Beer Company came in much higher than expected, sending shares of Boston beer up more than 15% on Friday. Jason, have you been doing your part to help boost sales this summer?

Always, always doing my part, Chris. Yes, and you mentioned, I mean, the numbers they turned in were higher than expected. This is a big pop for this stock today. I tell investors to be very careful not to make the big leap to thinking everything is just back to just fine with these guys. I mean, they grew the top line 1%. It wasn't like it was double-digit growth. They didn't guide down, and I think that was a big deal. This past year has been really a series of misses and revisions guiding down.

downward as they just continue to be assaulted on all fronts in this competitive craft beer market. That's not going to stop. A lot of the success for Boston beer actually came from robust sales in the twisted tea and the truly spiked and sparkling hard-cells celtzer categories. And those are relatively new, and so that's neat to see the performance there, but I have a feeling this may take a turn kind of like with what we saw with the Angry Orchard Cider category. At some point, the novelty wears off, and that sort of comes back down to Earth. So, I mean, I'm not trying to make it sound like it's all doom and gloom for these guys.

There's still plenty of competition out there and reasons to be concerned. By the same token, it is a good business with a very strong brand. Jim Cook was very clear on the call. They are going to continue investing in that brand. They saw a decent performance from Sam Summer at the beginning of the summer here, and it seems like it's carrying on over through the remainder of the season here, which is good. that's a big seller for them. And they narrowed their earnings range a little bit for the year, which raised the low end of that guidance. So it was a good quarter. It was a respectable quarter.

Still plenty of work to do. One of the things I thought was interesting was that Jim Cook also on the call actually called out for the first time a slowdown in the overall crappier market. I think we've been hinting at that and seeing signs of it, but seeing him call that out now. And I think one of our thesis in MDP for a while was once the actual overall market slows down, that's when you'll see Boston Beer's strength kind of shine through. It'll be interesting to see if that actually happens. Yeah, that really makes it difficult for those small operators to prosper at all because they just don't have the same cost structure advantage that Boston Beer does. So there really

is an advantage there in that, you know, the production facility that they have. Starbucks down big on Friday after the company's third quarter report. Revenue was light, guidance was lowered, and Starbucks announced it is closing all of its Tevana stores. Maddie, I'm not selling my shares, but I totally understand. why other people are selling their shares. Right. I mean, guidance was the killer for one thing. They said for the full year now the revenue was going to come on the lower end of their 8 to 10 percent range. They also lowered their EPS estimates.

And yeah, it's closing in Tivana stores. They're still having some bottlenecks with mobile ordering. So there was just a lot of kind of news out there saying, you know, things are okay at Starbucks, but not great. And certainly not really getting better. But I'll point to the comps. I mean, there are 5 percent comps in the U.S. I mean, investors were complaining. forever about not sort of being below that number. The 7% higher comps in China, I thought, was pretty strong. And the Devana story is interesting. I mean, they're shuddering all the

stores. This is a business they bought for $620 million, about five years ago. They're going to do about $1.6 billion in branded Tevana sales in Starbucks stores. So you could argue that, well, it's kind of disappointing that this retail concept didn't really work out for Devana, but certainly the brand. It's creating value for Starbucks. Yeah, I think a lot of people will point to that acquisition and say, oh, yeah, Yeah, see, we told you back when they did it. It wasn't a good one. I mean, let's be very clear. That was not about that retail presence. That was free if it worked out for them. But it was about getting that brand and sort of expanding that menu of offerings. And you just look to the success of the Tazote brand to this point. They're just doing the same thing with Tivana. I mean, now they don't have to maintain this network of stores and malls where traffic is basically doing nothing but declining anyway. Yeah. And speaking to Tivana, they also announced a partnership pretty recently with Anaheiser-Bush. Well, there will be

rolling out, prepared Tevana beverages. So that's another lever they can pull with that brand. One yellow flag that stuck out to me is that the number of rewards members that they have in that loyalty program has actually plateaued at 13.3 million. It's the same number they had in the last quarter. Still up 8% year over year. But that's a number I would hope they can keep ticking up steadily each quarter. Shares of McDonald's hitting a new high this week after global same store sales in the second quarter grew more than six and a half percent. David, They've got 37,000 locations.

How are they getting that kind of growth? Steve Easterbrook, that's the short answer. He's breathed new life into the company since he became CEO in 2015. And he's really done a lot to push the technological side of the business. They're rolling out mobile order and pay to the majority of locations worldwide by the end of this year. Delivery is promising. They did a pilot test with Uber Eats in January, and they found that people who order McDonald's delivery, they end up paying close to two times the average order size.

So they're expanding that pilot to 4,000 stores in the U.S. and Australia and other markets. And then within the stores themselves, they're working with the franchisees to renovate the restaurants to the experience of the future, which includes adding some touchgreen kiosks in there and just adding different options as far as ordering goes. So all these different initiatives seem to be driving more people to the stores. It's working out well. You know, it's interesting because we've seen this over the last couple of years and probably first and foremost with Panera Bread and Ron Schick's comment about the Mosh Pit and the move to mobile ordering.

And it's one of those things, Jason, that you want to see if you own any kind of a restaurant stock or a coffee stock, that sort of thing. But they got to execute on the back end. And so this is good for McDonald's that they're making this move. But I also hope they realize that they have a challenge in turn. of throughput. Well, there's no question. It adds another dynamic of labor, essentially, to that store that they may not be fully prepared

for. So yeah, you're right not to make that leap to automatic success. I mean, I think about this experience of the future, and this stuff's getting bandied about like it's losing all meaning. Let's be very clear here. I mean, if we're talking about experience of the future, I mean, we were talking about this back when Bojangles was coming public, Chris. And I mean, you remember the experience of the future with a jangler, right?

You go in there and there's a biscuit theater. We're watching to make the biscuits, Chris. Now, that is the experience of the future. Are you just bitter because we're not talking about Bojangles' quarter? Oh, we'll talk about it. Let's hit Chipotle real quick. We've got about a minute left. They came out with their second quarter results. The stock was actually up slightly this week. But it kind of seems, Maddie, like investors are holding their breath with this stock because it came down recently with the incident in Virginia. And as a shareholder, I have to say, I'm still not wild about the

way Steve Ells, the CEO, talks about their food safety protocol. Yeah, I mean, with a lot of things he's said, he's really, he's always touting what Chipotle is doing. He's putting the company on a very high pedestal, but then you just see instances like this. And I know I think there's a bit of a media bias, which gets Chipotle kind of, you know, top of mind with everyone. But again, this is a big setback. I mean, it's, yeah, it's one store. It's not related to their food. But we were just sort of seeing a pickup in the same store sales. I can't imagine things are going to get better the rest of the year. Don't underestimate Koso.

possibly a national rollout coming mid-September. I'm still bullish. I think Chipotle can turn this around. Up next, we're not going to Las Vegas, but we will be talking about gaming stocks. Just not that kind of gaming. Don't worry. We'll explain. You're listening to Motley Fool Money. All right, before we get to the gaming stocks, I want to say thanks to our friends at Rocket Mortgage by Quicken Loans. chances are you're confident when it comes to your work, your hobbies, and your life. Rocket Mortgage gives you that same level of confidence when it comes to buying a home or refinancing your existing home loan. Rocket Mortgage is simple, allowing you to fully understand all the details

so that you can be confident that you're getting the right mortgage for you. To get started, go to RocketMortgage.com slash fool. Equal housing lender licensed in all 50 states and MLS Consumer Access.org, number 3030. We're this payday in America. Welcome back to Motley Cool Money, Chris Hill here in studio with Jason Moser, Matt Argusinger, and David Kretzman. If you needed more evidence that the war on cash is real, all you had to do was look at PayPal's latest results. Second quarter revenue was up, payment volume was up, new accounts were up. Everything was up, Maddie.

It's all up. It's all been up for PayPal. It's stock price too this year. It's incredible. I mean, revenue was up 18%. To me, the number that really stood out was just the number of payment transactions growing 1.8 billion, 23% year over year. Total payment volume hit 106 billion. That's the first time they've exceeded 100 billion for PayPal. It's amazing. They also added, by the way, 6.5 million new customer accounts. That's the largest quarterly gain in two years. So everything points that this network that PayPal has. And it's a two-side network, which you have the customers, the users, and you have merchants. They're all interacting and transacting more than ever before. PayPal has now has partnerships with virtually all.

all the major credit card companies. It also has deals with Apple, Samsung, and recently signed a deal with ByDoo to get into their digital wallet. So it's just PayPal is now pretty much more available than it's ever been, and it's more popular than it's ever been. I don't see that changing. Well, and you mentioned the new accounts. I was surprised to learn they've got over 200 million people using their PayPal. Right. And by the way, Venmo, which of course is their social payments platform, their transactions there were up 100% year over year.

Electronic Arts with another monster quarter, the video game maker's first quarter profit and revenue, up big, thanks to high demand from some of their most popular titles. David, where do you want to start? Well, they've produced a record $1.5 billion free cash flow over the past year, and this is really due to digital and moving online. Digital knot makes up over 63% of their total sales, and that's largely due to live services on their major titles, whether you're talking about FIFA, Battlefield, the Sims, NBA Live, Madden. So those live services are things like expansion packs to expand the different maps and formats you can play in the game. You can compete against other players live online.

And just to demonstrate the power of this shift to digital, the last 12 months have been the best in Sims history, and that's a franchise that launched in 2000. So 17 years in, the Sims is doing better than ever due to digital. So a lot of things like here, players are more engaged when they compete against other players live. And I think that lends itself well to the sports titles in EA's franchise, NBA Live, FIFA, Madden. So I think there's still a lot of room for them to expand going forward. How are they doing in terms of managing their costs? Because I think one thing that never fails to get headlines every now and then is video game maker X is spending, you know, insert triple

digit, you know, hundreds, millions of dollars on a single game. And I think for some investors, they look at that and they just immediately question, is that worth it? Electronic Arts actually has higher margins than Activision Blizzard, which for a long time was the king as far as that goes. But Electronic Arts over the past several years has really turned it around. They're targeting a 75% gross margin next year, which, you know, it's part of the reason their cash flow is just, you know, they're pumping it out, so they're in a strong position.

Yeah, it's interesting to see if you look at all Activision Blizzard, Electronic Arts, take two. now, it's really shifted now to not rolling out 20 new games a year, which used to be how it was in the past. It's really now about investing a ton of money in proven franchises, spending years to develop them and knowing that you're going to knock it out of the park and get probably a billion dollars in revenue. And the interesting thing that the digital sort of revolution is done, by cutting out the middleman game stop and all that, they're making more money than ever on these games. And so they can actually afford to spend more on the quality of the games rather than just focusing on rolling out as many games as possible.

Sticking with the games and toys, Mattel's second quarter loss was bigger than Wall Street was expecting, while Hasbro's second quarter profit came in higher than expected. Jason, Hasbro's quarter was better by pretty much every measure, which makes me wonder, why are both of these stocks down around 10% this week? Yeah, a very similar reaction from the market on both companies, but this really is a tale of two toy makers, right? I mean, we've talked about this for a while. It Mattel's shortcomings have really sort of converted into Hasbro's market share gains, more or less. And so on the Hasbro side, there's selloffs where you have to kind of look at the business and say,

all right, is there a problem here that we need to know about? In Hasbro's case, there really isn't. I mean, it was a very good quarter by pretty much every measure. I mean, you could see in the call, management's a little bit reserved when it came to a couple of markets in particular. The UK and Brazil recognizing some macro headwinds there that are beyond their control. International is important for Hasbro. It's almost half of their revenue, somewhere around a third of their operating profit. Brazil is a very big part of that international segment, so it matters. But there are plenty of catalysts on the horizon for them. You've got this,

what, Forrest Friday coming up. You've got more frozen stuff coming in the winters. I mean, there's more catalyst than concerns where it comes to Hasbro. Now, with Mattel, the concerns that we had last quarter are still there. I mean, it's very hard to get worked up for this business, because they just aren't doing the same job at levering themselves up to really successful IP. And so what that is resulting is, and is the top line that's challenged, margins are getting killed, and the dividend is even getting cut on top. I mean, investors, I think, are realizing more and more that if you're going to get exposure to the space, go ahead and get it with a company that is winning and winning for a reason

and shows a lot of reasons to keep on winning, and that's clearly as well. Coming up, we'll dip into the full mailbag and share a few stocks on our radar. Stay right here. You're listening to Motley Full Money. All right, before we dip into the full mailbag, I want to say thanks to ERO for supporting this episode of Motley Fool Money. ERO, ERO, EO, never think about home Wi-Fi again. They just introduced the second-generation ERO and ERO beacon. They started in early 2016, and since then they've learned from hundreds of thousands of systems, making them smarter, faster, and more reliable.

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So don't buy ourselves stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill here in studio with Jason Moser, At Argusinger and David Kretzman. You can check out past episodes of Motley Fool Money and all of the Motley Fool's podcast. Just go to Podcast.com. You can also subscribe on iTunes, Stitcher, Spotify, Google Play. Anywhere you find podcasts, you can find the Motley Fool. So just click the subscribe button and take us with you wherever you want, whenever you want. Our email address is Radio at Fool.com. Sam Waterbury, long-time listener with a question about the war on cash. He writes, one question I have is about Alphabet and Apple, whose Google Wallet and Apple Pay services seem to be competing with the likes of PayPal and Square. Does the size of these tech giants give them an advantage over smaller players, or are the more payments-focused companies better positioned because they aren't concerning themselves with creating phones, computers, cars, etc.

It's a great question. It is a great question, Sam, because there's sort of two sides of the argument. One, I'd say, Apple, of course, a company like Apple and Alphabet, Apple in particular, has a tremendous advantage because it is the platform that's in your hand. Oh, I thought you were going to say they have a tremendous advantage. It's called Mountains of Cash. That too. That too. But I mean, I think in terms of just the phone itself and being the ease of going into anywhere now, or most places now, and using your phone to pay for things, is a tremendous advantage.

I mean, it's an easy hurdle for a lot of customers to do. At the same time, though, Apple has the hardware, but it doesn't. necessarily have the network size that the credit card companies have or PayPal has. And so, you know, I feel like there's, in a world with a war on cash, those two sides can certainly exist and win battles here and there. I do think Apple does have an advantage and if Apple Pay becomes more significant, they could have a major leg up. Yeah, I think one of the things we try to do in investing is identify either sort of a short-term catalyst or a long-term trend where value is going to be created. Clearly,

the payments market is just, it is the, One of the biggest long-term trend opportunities out there, I think. And so that's great for identifying it. And I think to take it one step further, there are going to be multiple winners. I think we've harped on that before on market foolery. So looking at it from the perspective of finding sort of a basket, a collection of some of the companies that you think are going to benefit the most. And it can range all the way from the big dogs down even to too small or riskier plays

to help sort of mitigate that risk a little bit. just a great opportunity to always keep it on on. The more I look at this, the harder it is for me to see Visa or MasterCard getting disrupted anytime soon, because I feel like they went out no matter whether you're using Apple Pay, PayPal, whatever platform it is. And they have a global network. So I just think, man, they are in a dominant position to win out, regardless of which of those platforms actually gains an edge.

Yeah, and I agree. And I would say, just don't discount the idea that there could be consolidation in this market further. Talk about technology companies like PayPal Square, could be nice fits for companies like Apple, Alphabet, even a company like MasterCard, but it has lots of cash to put to work. There could be some acquisitions that can really shake up this war on cash market, for sure. One of the things I like about this question is we see this dynamic play out in other industries where there are opportunities for investors that are essentially pure play, and it's a company

or a business that is entirely focused on one thing. And then you have sort of the usual suspects of behemists out there that have a footprint in it as well, whether it's alphabet or Microsoft or, you know, insert name of tech giant. Question from Zach Poulin at St. Anselm College. I've been going through each sector of the market and adding all the stocks that I see every day to an Excel spreadsheet. That sounds exhausting. It's very time-consuming, and I'm sure that I'm missing many.

stocks that play a crucial role in our future economy. Is there a better way to learn about stocks in each sector? Obviously, Apple, Amazon, Facebook, and Microsoft are known to many investors, but where do I find the hidden gems that aren't talked about a lot or publicized in the world? Great question. And kudos to Zach for being in college and getting started in investing in individual stocks. Yeah, he's a bit of a stock jock. I kind of was myself in college. Nice. I admire that. I think, I think, you know, I think, you know, I think, you I often did that too. I'd make lists of companies and ones that I've heard of, other ones I'd find just by searching around.

And I think the great thing is you can find companies that are sort of related to companies you might fall on a regular basis. One hack that I like to use, Zach, is I simply go to Google Finance now and then, and I'll enter a company, say, Nike, and you'll enter that ticker, and you scroll down, right below it, it'll have a long list of related companies. companies that you might have something that you've heard of, like Adidas, maybe Deckers, but other ones that you haven't heard of, maybe Skechers, VF Corp, Li Ning, which is a Chinese shoe company. And so you can find sort of hidden companies doing a very simple trick like that. And then that's sort of your beginning point for more research on those names.

One of the things I like about that is that there's no discerning amongst competitors on Google Finance with regard to size, which is great. Because if you are looking for smaller companies, as Zach says, the hidden gems, then you want to know, well, what are other companies that are in this space that are in one-tenth the size of whatever is the market leader? Yeah, and another option, similar to what Matt mentioned, is there are a lot of free stock screeners online. We have one at caps.com. A lot of other sites will have them. You can search by market cap, by industry, by revenue growth, all sorts of different.

factors and that can be a way to narrow down your search and look through companies and figure out which ones you're interested in following. And you can get ongoing coverage. I'm not being paid to say this, but at fool.com, we have a lot of writers who will cover these different sectors and companies each quarter and on a regular basis. And that can be a way to get a better understanding of an industry and the companies within that industry over time. One other thing I'll add to sort of dovetail off of what David just said is I find it really helpful that there are all of these niche media outlets for different parts of the investing universe. So earlier in the week when I was doing some research on Chipotle in their latest quarter,

I find a very helpful article on that mainstream publication we're all familiar with food safety news. So it's just one more benefit to all the options that are out there. Well, I think you really hit the nail on the head there. I mean, along with all of these great ideas, that David Matt have. I think it's just keeping that curiosity level always up there and reading. I mean, that's it. You just keep on reading, keep on learning, keep on keeping plugged in. And, boy, that stuff comes at you when you're not even looking for it sometimes.

Let's go to our man behind the glass, Steve, bro. It's not quite time for radar stocks, but Steve is an experienced investor. Two questions for you, Steve. First, do you have a piece of advice for Zach Poulin, an investing hack, if you will, when it comes to research? My second question is, what's your favorite obscure publication? Okay. Favorite obscure publication, I'll start there, is I think it's called broadcast, and I get it sent to me from time to time. Broadcasting cable? I think it is. I think it's that, or, no, it's streaming media.

It's streaming media. That is my favorite. The advice I would give is find things you're interested in, specifically. If you're a computer gamer, if you're interested in cards, if you're interested in something else, and dig around. Find out who's making the rims for the car that you're buying. Find out who's making the parts that go in the computer you've just built. The skateboard wheels. Whatever it is, dig in.

There's someone, there's a hugely public company related. It's a great point. And particularly as we are a couple of months away from the new iPhone unveiling. A nice reminder from Steve that for all the big name companies out there that are producing whatever a certain thing is, chances are there, So there are a lot of companies, in some case public companies, that are the suppliers to that network. And that can be, I mean, we've seen that with the iPhone just to pick one device where there are some companies that just come in and they're just not going to cover off the ball in terms

of their stock performance. Great question from Zach. And keep it up. All right, we got a little time to get to the stocks on our radar this week. Steve will hit you with a question. And you know what? We've got the time. You can hit him back with a question about the stock or just life in general if you want.

David Kretzman, you're up first. What are you looking at this week? I'm looking at a brand new IPO, Redfin, ticker, RDFN. They just went public today. This is a web-based real estate database and brokerage operating in 84 cities in the U.S. Over the past year, they've generated $285 million in sales. They have a slightly disruptive model to the traditional real estate brokerage model. Redfin pays their agents a base salary, so they're not just on commission like traditional

real estate agents. So they're able to charge lower commissions to buyers. sellers. They're going after that massive $75 billion real estate commissions market in the U.S. So there's a big market opportunity. They're going after a bigger market than someone like Zillow, and I think in a more disruptive way. The stock is up 40% today. It's for state public, but the market cap is still $1.6 billion. And I could see this being a lot bigger company down the road. Steve, question about Redfin? First off, I love Redfin. I think they have the best real estate search engine out there. If you go to Redfin.com and search around in your area, it's just amazing.

job with finding homes, looking at them. It's just terrific. But the problem I have with Redfin is, what if Redfin doesn't serve your area? You can go and search and it's like, they're not in Michigan. What's up? Yeah, that's a bummer for them. They're in the major metro markets, and they are starting to expand into those smaller towns and cities. But yeah, that is still an issue for them as they expand. Have you used Redfin actually buy or sell a home? Or would you? Would I, yes, I would. I've not used them, but I use them to research homes all the time. Jason Moser, what are you looking at? Yeah, I'll stick with DK's theme on housing here.

Ellie Mae, ticker E LLI. Oh, man, the stock got pummeled on earnings this week, Chris. And actually, this could work out pretty well for investors, but it's a big whiff, a big guy down on lower mortgage volumes. And as we know, L.E. May is the mortgage software provider. It looks like the, so Fannie and Freddie typically forecast mortgage volume. And as we move from refinancing to a purchase-dominated market, Fannie and Freddie forecasts are for those volumes to decline, about 17 percent from 2016.

We've been really paying close attention to this one in NDP. We own a small position in it right now, a winning position. We've been waiting for a pullback on the stock. We had identified it about a $90 price target. This may actually open up a window of opportunity, because really it looks like the business is performing very well. It's just at a tough part in the cycle. So, Ellie may.

Steve, question about Ellie Mae? Housing appears to be very expensive where we live in the Metro D.C. area, but I'm hearing that home ownership is still at record lows. How can that be? How does that get resolved? Well, it is at this point in time of very low inventory levels, which is keeping a lot of prospective buyers on the sidelines. And the ones who are going in there are typically offering cash up front really to make the best offer, which is one way those price. to get a little bit artificially pushed up. Steve, I just got a text message from my daughter. Apparently our dog ate the pink highlighter in our house, and of course it was in a room with carpet. So my question is, yeah, I got any tips on how I can get pink highlighter

out of a carpet before my wife gets home? No. Thanks. Matt Argusinger. What are you looking at? Arcos Dorados. The ticker is A-R-C-O. If you know Spanish, that translates to Golden Arches, which might give you a little bit of a hint as to what this company does. But look, we talked about McDonald's early in the show. It's amazing the Renaissance the company is having under Easterbrook. If you like McDonald's, then consider investing

in Arcos Dorados, which is the company which has the exclusive right to own, operate, and franchise McDonald's stores in most of Latin America, including Brazil, Mexico, Colombia, Argentina, and most of the Caribbean. They operate or franchise nearly 2,200 restaurants. Been a tough couple of years for Arcosterodos with same-stores sales with the economic situation in Brazil and elsewhere, but the same-sort sales have just started to turn. turn around. I think this could be the company on the stock at the beginning of an inflection point. Steve? So I think of McDonald's as being the quintessential American fast food. Is there a quintessential

fast food in Latin America? Is there an analog here? Outside of tacos, which McDonald's doesn't do, I don't think so. But they have some very specific things within the Arco Storados restaurants that are native to the region so that you can get there, which you can't get in the United States. So they are appealing to the region. Three stocks, Steve. You got one you want to add to your watch list? I'm looking at Redfin. You're going public. I'm learning something every day.

Hey, that's what we're here for. All right, guys, thanks for being here. Thanks, Chris. Our engineer is Steve Reuter. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.