Motley Fool Money - Big Banks & Big Deals

Episode Date: January 20, 2020

Goldman Sachs, JP Morgan, and Morgan Stanley hit 52-week highs but Wells Fargo slips. The National Retail Federation reports healthy holiday spending but Target tumbles on disappointing sales numbers. Gap decides not to spin off Old Navy. And Visa makes a big purchase. Motley Fool analysts Emily Flippen, Ron Gross, and Jason Moser discuss those stories and weigh in on Five Below, Tailored Brands, and Netflix’s new partnership with Ben & Jerry’s. Our analysts share three stocks on their radar: Freshpet, Teladoc Health, and SmileDirectClub. Plus, media and entertainment analyst Tim Beyers talks Amazon, Apple, Disney, Netflix, NBC streaming, cybersecurity stocks, and investing in the cloud. Thanks to Molekule for supporting our podcast. Get 10% off your first air purifier at http://www.molekule.com with code fool10. Get the first $50 off your first job post at www.LinkedIn.com/Fool. Terms and conditions apply.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hill, joining me in studio this week's senior analyst, Jason Moser, Emily Flippen and Ron Gross. Good to see you, as always. Hey, hey. We've got the latest headlines from Wall Street. We've got an update on the video streaming wars. And as always, we'll give you an inside look at the stocks on our radar. But we begin with the big banks. Morgan Stanley, Goldman Sachs, and J.P. Morgan Chase all hitting 52-week highs this week in the wake of their fourth quarter reports. Jason Moser, you host a financials episode of our industry-focused podcast every week. What stood out to you?

Well, I mean, banks have sort of started off 2020 the way they finished up 2019, right? I mean, it was a good year in 2019, and it seems like things are going in the right direction. I think the big theme for banks right now is how they're dealing with interest rates in relation to their guidance, particularly in regard to the debt interest income for the coming quarters. Because I think a year ago, we all probably around this table thought interest rates would be, you know, a good bit higher than they wore back then. That's fair. I'll take your criticism. We're dealing with the flip side of that coin, and that makes banks task a little bit more

difficult in maintaining and growing profitability. But I think for the most part, they are navigating this pretty well. The nice thing about lower rates is, in a lot of cases, bond trading is up for these businesses. And so you see a company like JP Morgan, for example, fixed income markets grew 86% from a year ago. So that's where they're able to make up a little bit of lost ground. With Wells Fargo, they're bigger fish to fry beyond. just the numbers, right? And we're talking about having to fix an entire culture. Bank of America,

reasonable quarter as well, given their exposure to the consumer. I think in times like these, I like to look to the efficiency ratio with a lot of these banks to just understand how they're managing the business. You look at Bank of America, J.P. Morgan, I mean, efficiency ratio staying within that 58-59 range. Wells Fargo, efficiency ratio of 78.6. And that was versus 63.6 a year ago. And a lot of that is due to litigation expenses. and the operating losses that stem from those. But, I mean, I feel like maybe at least Wells Fargo has the leadership question out of the way now, and we'll just have to see how they proceed the rest of the year.

Well, the low interest rate environment's bad for some of these Big Bangs business, but there are some that are diversified. And the low interest rate environment actually means that there's a lot more activity in the market that they can service. Morgan Stanley, I think was a good example of that this quarter. Despite the lower interest rates, I mean, we're seeing a lot more MNA activity, which supported their business, more IPOs, which supported their business. So they had a big boost from what I suspect was the Alibaba secondary listing in Hong Kong. That really helped their, it wasn't explicitly stated. That's what I suspect it was. But I think of something to this tune of

600 million in revenue associated with investment management from those IPOs. So because lower interest rates are abound right now, I mean, it does suppress some parts of the business, but it gives opportunities in other areas. Ron, Jason mentioned the leadership question at Wells Fargo, Charles Scharf, who's been CEO for about three months. He's going to have one more quarter under his belt as CEO at Wells Fargo before the Berkshire-Hathaway annual meeting. This is Buffett's bank. Is it safe to assume that there are going to be some questions for Mr. Buffett at the annual meeting about Wells Fargo? Mr. Buffett, for sure. And, oh, Chuck, I do not envy you over at Wells Fargo. I do appreciate

how transparent is being. He's using phrases like terrible mistakes, and I don't have all the answers yet. He came out and said in the latest call, he doesn't think any of the public issues will be closed this year, certainly not all of them. They've got 12 public enforcement actions out there right now. He's really spending all his time putting out these fires rather than being a CEO and getting this bank back on its footing from an operations perspective and a growth perspective. It is not an easy job. Obviously, as you say, Buffett's a big shareholder. For the most part, he has given them a pass, at least publicly, but I'm sure he will be on the hot seat. Yeah, Sharf is right now caught between Iraq and a hard place because he has to appease regulators

and bring in more employees in order to help get this bank's books back in order. But by the same token, I mean, he took dead aim at their cost structure in the call, calling it too high. So, I mean, he has to figure out a way to balance the efficiency of the bank, making it a more efficient operation, while at the same point appeasing to regulators, at least throughout the rest of the year to convince them that he's got this company back on the straight and narrow. Last fall, the National Retail Federation predicted that holiday sales would be 4% higher than a year ago. That flew in the face of some economists who predicted it would be just 2% higher. And Emily, this week, the NRF out with their report, up 4.1%. They kind of nailed it.

They did nail it. It's not surprising coming from the National Retail Federation. However, there are lots of, like you mentioned, economists and companies out there that are kind of You know, touting a different story. If you go back to the fall, people were especially concerned because the trade war was still kind of raging on the increased of cost of a lot of consumer goods products as a result of the trade war. Had some people believing that maybe consumer consumption would be down, right? Buying less toys because they're more expensive, for instance. There was also concerns about the fact that 2018 was a great retail season. So the year-of-year numbers may look less impressive simply because we're being compared to our

already really great previous year. But nonetheless, it was about 4.1% increase year- of year, which is outstanding. And like you said, right there along with the National Retail Federation predicted. But it really depends on where you look at these numbers. Because while that 4.1 is an average, it's not the same with all the different departments within that retail number. There are, for instance, department stores. They were down 5.4%. So universally, not looking great for kind of your legacy retailers that would typically do really well during the holiday season. General merchandise stores were up about 1.4%. So that's your discount retailers, your Costco's, those did pretty well.

Yeah, Ron, on last week's show, we talked about Costco's holiday sales. We don't have holiday numbers out of Walmart yet. But this week, we did get them from Target. And surprisingly, they were pretty weak. I will admittedly, yeah, I was shocked. Very surprising. I thought they were well set up for this holiday. They're November, December comp sales up just 1.4%. That's versus 5%. 5.7% a year ago. The digital sales up 19%, which in a vacuum sounds good, but that's versus 29% last year. I thought they were well positioned with some Disney locations in-house, bringing in their toys from Disney into many of their stores. They ran the website, the relaunched Toys

R Us brand website. I really thought that this was going to be a strong holiday season. I'm very surprised. I think what I speculate is that people aren't spending less. They're just changing what they're spending on. So, while typically people would spend a lot of money on toys and electronics, increasingly, I think people are spending money on experiences. And so maybe the money itself is being diverted into different areas. One of the bright sides for Target was actually their online sales, which are up nearly 20 percent year-over-year during the quarter. So I think people are really taking advantage of that target two-day free shipping. So if you don't have an online store presence

at this point, if you're not competing in that market, I think it could really hurt your business. What do we make of five below? Because that's a discount retailer that came out with pretty bad guidance for the fourth quarter. The stock hit a 52-week low this week. It sort of bounced back because even though they haven't done well over the last couple of months in terms of their own internal targets, they're sticking by their plan to open up another 180 locations in 2020. That boosts their store count by 20 percent, Ron. That's aggressive, and I would just say they should really make sure that they have their merchandising down pat before they move into continued aggressive growth. They're blaming six fewer shopping days between Thanksgiving and Christmas. Everybody had six fewer shopping days. That I was about to say, so that doesn't really do it for me. I don't love blaming the calendar in certain circumstances, I guess it's warranted. But they should make sure they have their ducks in a row before going out and building more stores.

Yeah, that feels like a cop out to me. And it's not just because everybody else also had the same six days less. less, but it's actually because they posted a same store of sales decrease of 2% versus a pretty substantial increase that they had previously guided. And that's not a surprise. We all knew the calendar when we made the guidance, right? So what that says to me is that management is, I want to say, overlooking some very basic calendar days at the best or just being downright, you know, poor in their planning, trying

to use the correct words here, not say anything too strong. But point is that I've lacked a little bit of faith in managing. at this point because they can't do some simple math. Don't give up on target, though. I still think they're well positioned. Only trading it 17 times. That's versus Walmart at 22. Costco at 34 times. I think this one may have some legs. So instead of the bull's eye, perhaps we could say the target hit the bear's eye this holiday season wrong? We could say that, but we won't. This week in apparel spinoffs, tailored brands, the

parent company of Joseph A. Bank and Men's Warehouse is selling its Joseph Abud line to a private equity firm for $115 million. And remember last February when Gap announced it's planning to spin off Old Navy as its own public company? I do. This week, Gap said, never mind about that. We're not spinning it off. Let's stick with Gap for a minute, because before we started the show, Ron, I was saying to you, boy, this, I understand that they probably have good financial reasons for backing off this plan, but it really makes the business of the Gap look weak.

The business of Gap is weak, and so it should look that way. Don't cupcake it, Ron. You know, I recall that over, I guess it was really the last two quarters when we saw Old Navy report and results had been weaker than in previous years and in previous quarters. We were scratching our heads a little bit, and we said, I wonder if this is going to happen. And for the most part, I think we thought it would continue. We were a little off the mark there. If it's the right thing to do to scrap it, then by all means, it should have been scrapped.

saying the cost and complexity, the separation, combined with that weak business performance, limited the value that would be created as a result of the spinoff, that could very well be the case. And in that case, you want to keep these things together. But these businesses are weak. And if you don't get the right merchandise managers in there, whether it's a banana, Republic gap, Old Navy, you're going to continue to see weak comm sales, you're going to continue to be promotional, and it's going to continue to cause problems. The only bright spot here in this report is that there were fewer discounts they're claiming

during the holiday season. They were less promotional. That will help full year earnings. But still, things are not strong. What about tailored brands? Because there were some people out there who thought, okay, Joseph A Bank, men's warehouse. They're not great stand-alone businesses. Maybe if these two merge, they get together, they get the store count down.

There's a plan for them to grow. Selling off the Joseph of Boothline, I mean, it gets them a check for $115 million, but at this point, I don't know the management well enough and therefore don't trust them enough to spend that money wisely. Yeah, they've got to do something. They've got $2 billion in debt, almost no cash. Business is weak, especially over the last 12 months. So they unlock some cash, $15 million, as you said, to WHP Global, which is an actual acquisition firm backed by Oak Tree and BlackRock, so it's an investment firm. They retain the license. They'll still be able to sell the merchandise from Joseph Aboud. They'll pay down some debt. They'll try to continue to right-size this business. They sold off their corporate business for around $60 million back in 2019. So they're making some move to divest some weak things to raise cash, but they're doing it out of being desperate, and the business is not strong enough really on its own. They're doing these manipulative things to try to turn the business, and it remains to be seen if they'll be successful. I don't want to blame millennials for this. But is this just a bad time in history to be selling men's suits?

Yeah, they're actually claiming that they've had a really tough time moving to the more casual attire that folks have moved to, whether it's in the workforce or in their personal lives. One would think they could have gotten that right by now. It's not a brand new thing. But, you know, let's just want to mention that they did just suspend the dividend, which investors typically don't like to see. But if it is the right thing to do to preserve cash, then. then you got to do what you got to do. Coming up, good news for anyone who likes movies, ice cream, or better yet, both at the same time. Stay right here. You're listening to Motley Full Money. All right, we'll get back to the news in just a second. But first, let's talk about you. If you're a business owner looking to grow your business,

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It looks great. It's easy to navigate. And it's no wonder that companies rated LinkedIn jobs. the number one hiring platform for delivering quality hires. So find the right person for your business today with LinkedIn jobs. You can get $50 off the first job post. Just visit LinkedIn.com slash fool. That's LinkedIn.com slash fool. Get $50 off your first job post. Terms and conditions apply. Welcome back to Motley Full Money. Chris Hill here in studio with Jason Moser, Emily Flippen, and Ron Gross. New year, new radio stations to add to the Motley Full

Money affiliate group. WPVC and Charlotte's Virginia and K-I-F-G in Iowa Falls, Iowa. Welcome to the family. We love our radio stations. If however you subscribe to the podcast version of this show, we have some news, we think you're going to like. Starting next Tuesday, we're going to be bringing you a brief, Motley Fool money extra. Motley Fool has done a lot of interviews over the past 20 years, and we're going to be bringing

you some of those highlights from business leaders, best-selling authors, and more every Tuesday. And when I say brief, Ron, I mean like three to four minutes. Nice. It's an amuse bouche. I love this idea. It's not a two-byte brownie. It's a one-byed brownie. And I'm going to stop with the food analogies because I'm starting to get hungry. All right, let's get back to the news. This week, Visa announced the acquisition of Plaid, a financial software company for $5.3 billion. And Jason shares a visa of nearly 5% this week, despite the fact that some people, including you, think they overpaid. Yeah, I mean, I think it's safe to say they did overpay, but I think that's in the face of a market where everything is overvalued, probably. particularly in the fintech market. But with that said, I do like this deal. I mean, I compare it. I liken this to PayPal buying Honey. And I think it was very easy to look at that and say, you know what? PayPal's paying a lot of money for just like 17 million monthly users from Honey's network. But you've got to flip that on its head and say, well, that gives PayPal the opportunity to plug that Honey offering into its 300 million plus users. And so here with Visa, I mean, they essentially have this opportunity now to plug Plaid technology into this

massive network that they have as the world's largest payments provider. And when you look at all of the different problems that Plaid is solving from markets like personal finance, lending, business finance, consumer banking, lending and brokerage, then becomes very apparent the opportunities that exist here. So $5.3 billion, that's 6.5% of Visa's total assets on their balance sheet. They can afford this acquisition, whether they overpaid or not. And I think ultimately this is what makes these companies like Visa and MasterCard so attractive as investments to begin with. They are so big.

They have this scale. They have the ability to make acquisitions and bring competitors into the fray to make these more complementary business models. Then it just boils down to making good acquisitions. I think in this case, based on what we know about Plat, it's a good acquisition. Two quick questions. First, do you think Visa overpaid because they wanted to avoid a bidding war? They just wanted to get this done and they didn't want to drag it out. to drag it out.

I think that's a distinct possibility. When you look at the other parties who had investments in Plaid from the beginning, I think MasterCard and American Express are on that list, they probably realized it could go one of two ways, either get in a bidding war or just offer a really sweetheart deal and try to knock this thing out. I think it shows the latter. Visa is a $425 billion company. The stock hit an all-time high this week. Do you think it's an expensive stock? Because it's a really big company. Yeah, I mean, it's a big company. But I think when you look at the market opportunity there, It truly is global.

Money changes hands every day, and the move towards electronic payments is only growing. So I think you have to look at it from the business owner's perspective and the longer-term perspective. It makes any valuation concerns today easier to cope with. I think the icing on the cake for all the budding entrepreneurs out there is it really gives hope for people who give their company a bizarre or weird name. I mean, plaid? You have to believe there were detractors inside the room when the founders came up with that.

name. And you know what? They got 5.3 billion reasons to smile. I mean, I'd love to see at least a show of hands company-wide when they named it plaid. How many people, first thing you thought of was Spaceballs? Because I know my hands going up every time. Netflix has teamed up with Ben and Jerry's to create a new flavor, Netflix and chilled. It's a pint of peanut butter ice cream with salty pretzel swirls and fudge brownies. And for the lactose intolerant, there is a non-dairy version with almond milk. Kudos to Netflix. This sounds like a tasty pint that I'm absolutely going to be looking for, Ron. Normally, I hate these kinds of ideas, whether it's like the Taco Bell Hotel or something. But you know what? This kind of makes good sense here. I like the idea

of combining a snack and watching television and the flavors with the pretzels and the chocolate and the peanut butter. That's pretty spot on. Netflix and Chilled is great. However, if you go to Ben and Jerry's website, they actually have a little quiz. You can take, fill out a couple of questions. It will tell you what you should watch on Netflix and what you should eat with it. Yeah, they told me that I should have a pint of half-baked ice cream and watch a rest of development. So I may do that tonight. I didn't know that Netflix was employing their algorithm in that way, Jason. Well, they've got to do something. I tell you, every time I go on that platform, I can't figure out

what to watch and so I end up exiting. And you know what, Ron, you make those jokes about the Taco Bell Hotel Resort. Yes. But that thing sold out in two minutes. I know. They're absolutely going to bring it back to this. I'm too much of a crumagine, I guess. All right. Ryan Gross, Emily Flipp and Jason Moser. We'll see a little bit later in the show.

This week, Comcast unveiled details on its new streaming service, Peacock. So other than the unfortunate name, what do investors need to know? Up next, we will dig into that and more with analysts, Tim Byers. Stay right here. You're listening to Motley Full Money. I'm Chris Hill. Tim Byers covers media and entertainment for the Motley Full Money. This week, producer Matt Greer caught up with Tim to talk about the video streaming wars, the launch of Comcast's news service.

And Matt kicked things off by getting Tim's thoughts on the latest news about Amazon. Big news from Amazon, the Wall Street Journal reporting this week, that Amazon has lifted its ban on FedEx ground for third-party prime shipments. Okay, so what does this move mean for Amazon? And what does it mean for FedEx? because Amazon seems to pack a real punch here. Yeah, they really do pack a big punch. And don't you think it's fascinating that Amazon actually gets to say, okay, the ban on FedEx is lifted?

How amazing is that that you get to see Amazon exerting this kind of power? I really think this is the story here, Mac. When you think about where Amazon has come and now they're building this logistics business as a kind of a third leg in the stool, you know, it's classically been, e-commerce, right? Then it's been Amazon Web Services. I wouldn't yet consider entertainment a classic leg in the Amazon stool because it hasn't really been a big business yet. But logistics really is going to be that third big leg in the stool. And they're building a massive logistics business. I'm just looking at some numbers here. So according to some data that I found

here, Amazon already delivers 2.5 billion packages per year just for itself. Fed has. Fed has. X delivers $3 billion, and UPS delivers $4.7 billion. So this is with Amazon lifting the ban on FedEx, and really all this was about, is if you wanted to get a package, you wanted to order on Amazon from another store and have it delivered to you, you could choose, at least you used to be able to choose to have FedEx deliver it for you. Or you could have Amazon deliver it for you. But then because of FedEx's own issues, Amazon said, no, we're taking that option away.

If you buy on Amazon, whether it's our store or a third-party store, you don't get to use FedEx until they fix their issues. And so now that ban has been lifted. But talk about the market power of already challenging FedEx in deliveries to begin with. They're competing in this business, and they're already right on, you know, nipping at their heels in terms of the total volume. I think this is a statement about the weakness of FedEx as a company. Okay. Let's turn our attention to cybersecurity.

Tim, news this past week that Microsoft Windows had a serious flaw that would allow an attacker to assume control of a tool that verifies software prior to downloading it. Now, that's not really the story here. The story is the NSA found the flaw, but instead of keeping the info to themselves and exploiting that flaw for their own purposes, the NSA instead releases the details publicly. What does that mean for investors? What does that mean for cybersecurity stocks? You know, what's really interesting about this is that the NSA would typically keep this and use it as a weapon, you know, for their own purposes, because cyber warfare is a real thing. The fact that the NSA released it, that tells you two things. The first thing it tells you is that the severity of this bug is massive. It was a really big security flaw, and it could affect, you know, billions of people. There are lots of Windows users around the world. So it's a serious vulnerability. The second thing,

is that the threat profile has changed. Instead of there being just hackers in, you know, an attic or a basement or a coffee shop, you know, and those being the ones that are, you know, most likely to cause the most damage, it's really states now. It's state sponsored. It's Iran. It's China. It's, you know, other countries that are not necessarily our friends that are using these exploits to, you know, find their way to government data through maybe just innocent third-party citizens. you really have to lock this down. Now, what this means is that, you know, from an investor's standpoint, the cybersecurity market is incredibly important. And how about a name? Is there a name or a couple of names in that space that we should

watch? Yeah, I think I'll give you three because I think they play in slightly different places. The first one I'll give you is Palo Alto Networks, ticker P-A-N-W. And Palo Alto is famous for its next-generation firewall. So this is the kind of thing. It's like on the front lines, as the attacker is coming at you, you're like building the wall, you make the wall bigger. And in the case of a next generation firewall, it's a little smart. It might have some weaponry in it. So as the charge is coming at you, it's already actively firing back. So a firewall is sort of a front line of defense.

Palo Alto Networks is very good at this. It has some other products besides this, but they're pretty well known for that firewall. CrowdStrike is a newer company, a relatively new IP. that builds software and little agents on endpoint devices. So what that means is Mac, like your iPhone, my iPhone, those things are both areas where you can be vulnerable. So you put a crowd strike piece of software on there, and it tells you whether or not you know,

that you are, it tells you whether or not you're vulnerable, maybe you're being attacked. It sort of secures the devices that make the edge of the Internet. And then finally, I'll give you Elastic, which is also a relatively new IPO. Elastic is an interesting company that does a lot of things with data. It's really good at searching corporate data. In terms of security, it's really good at searching for threats and signals that your network may be compromised.

This is called a security information and event management system, a SIM. And Elastic is doing some interesting things. I think those three companies are really worth watching. Tim, let's turn our attention to the battle for the living room. Now, we are taping this midday Thursday. Later today, NBC is going to unveil their new streaming service, Peacock. Now, we don't have the details. We know it's going to launch in April.

We know it will include some old content like The Office and some new content. Yes, a reboot of Punky Brewster. Tim, are you excited as an investor about NBC's streaming service Peacock? You know, I think about this in terms of how Warren Buffett talks about this, where you always have the innovator. and the imitator, and then you have the idiot. And I feel like NBC is walking around with a big idiot sign around its neck with this thing. I mean, we don't know the whole thing. Let's be fair. You know, it could be amazing. Certainly putting the office on there, great. But I don't see how this makes space in a market that's already saturated. I mean, let's just take Disney Plus for a second.

I know we're going to talk about Disney Plus, and I was spectacularly wrong about the rollout of Disney Plus. Here's what's interesting. And I wonder how many times you can repeat this. Disney Plus has gotten so much from just one new original. So here's, I guess, here's my question for the dozens of listeners is, is the Punky Booster reboot anywhere in the League of the Mandalorian? My answer is no. And if it's not in the League of the Mandalorian, then what can we expect from Peacock? I think very little. Now, I think it's worth noting, as you mentioned earlier, you were on the show in September. Yes, I was. And you were also a little skeptical about Disney Plus. Oh, you can say, well, you could go harder than that. I think you could say I had a little bit of a hot take on

Disney Plus. I really skewered them for their pricing because it put Disney Plus at the most premium level a little bit above Netflix, and I thought that was going to hurt them. And not only did it not hurt them, the actual, the opposite was true. Disney Plus has just destroyed. I mean, they've destroyed on every level. And what surprises me the most here, Mac, is that when you look at the Mandalorian, there was a bit of data taken by this company called Parat Analytics. So when you look at a streaming service, we don't have typical ratings data. So what you can look at is online expressions of demand. That's what Parat Analytics specializes in. So this is like a search where you're looking for, say, like, The Mandalorian, or you're saying, like, on Facebook, man, I cannot wait to see tonight's episode of The Mandalorian. That's an online expression of demand.

And at its peak, the Mandalorian was hitting 140 million expressions of demand, which is massive. Now, by contrast, Apple TV Plus, their biggest winner in this area would see. you know, the original starring Jason Momoa of Aquaman fame or Game of Thrones fame, depending upon, you know, your, you know, pick your favorite character that he plays. In any event, Disney Plus is so far ahead of everybody else, even including arguably over the past couple of months Netflix. I think they have essentially cemented themselves as the number two. I mean, sorry Amazon, you are no longer number two. This is Disney Plus's game. It is Disney Plus and Netflix and everybody else is a pretender.

And you mentioned Netflix. What do you think about Netflix going forward? I really like Netflix. I mean, one of the things I said, and I think you asked me about this, was that their advantages were that they had these really great relationships with actors and talent and scale. Is there other big advantage? it's possible. I think it's too early to say this for sure, but it's certainly possible that some of the relationships with the talent, the directors, the writers, the actors, may be fading a little bit, not because Netflix is bad, but because these other options are so good and there's so much money flowing into this. But having said that, I mean, look, you know, Netflix has built on the cloud, it has built on AWS a massive, a scaled-up global TV network. No one has matched that. No one is getting close to it. It's over 190 countries. Look, I mean, over the past five quarters, Netflix has had more revenue

from its international streaming operation than its U.S. streaming operation. I think that is incredibly impressive. I think it's only going to get bigger. This is a, you know, Jim Mueller has said this many times. I mean, he's the best when it comes to talking about about Netflix, and he's right. This is an international growth story, and it is the best, by far, the best growth story in streaming internationally. And 24 Oscar nominations, not too shabby. Not too shabby. We also have to talk Apple TV Plus. They launched in November. You're on the show in September. Yep. So what do you think of how things are going so far for Apple TV? Because in September, you really made the point that you felt like they needed to compete on price because they couldn't

really compete on content. And they've done that. I mean, so by virtue of going out and offering a year of free subscription, if you buy the Apple TV hardware, I mean, they have really ceded the market by doing that. They also lowered the price. So if you already had an Apple TV, it was easy to get in. It does look like they have a fair number of subscriptions. It's not Disney. Disney Plus uptake, but it looks like it's decent. And what's interesting is that the content is maybe starting to turn, and I find this very interesting. So there's a new series that is actually premiering this week as we tape called Little America. It's a series of real-life immigrant stories, and so far on Rotten Tomatoes, it is getting 100% in terms of critical reviews.

I think Apple needs that. I don't think necessarily that drives return directly, but when you are in the position of being the company that's like, okay, we have to compete on price, our content is, nah, you know, it's not great, but it's okay, you'll be able to tolerate it. Once you start changing that dynamic and coming out with really very well-received programming, I think you change the dynamic a little bit, and that's a big game changer. the other thing that's relatively new is they signed a five-year deal with Richard Plepler. And for those who don't know, Richard Plepler was for years, the CEO of HBO. So this is the guy that brought in Game of Thrones. This is the guy that brought in Veep. So Apple has thrown a lot of money at this guy, a five-year deal to create content that he envisions, that can really bring people into the Apple TV platform. I think that's a genius move.

I mean, you really do need to up your content game if you want to compete, and Apple is playing to win. Okay, Tim, well, you have given us a lot of food for thought. And I'm going to ask one more question. I'm going to push my luck here because you are one of our resident cloud experts, and I've heard you do this great breakout session on investing in the cloud, and you make the point that we're still in the early innings when it comes to spending on cloud-based software and cloud-based infrastructure. So as we wrap up here, how about a couple of cloud-based? companies they're on your radar. If I'm just getting to know this space, maybe a few companies

that I can look at. Yeah, and let's be clear about what we're talking about. When we're talking about the cloud, we're talking about using the internet as essentially the place where you go to get all of the software that you need to start and run a business. So we're talking about Shopify. We're talking about Amazon. When you log into a browser, then you're getting the software that you need. That is the cloud. The internet is the cloud. But what's changed about it is that there are businesses that used to buy their own equipment, they used to make their own software. But instead of just doing that, now, to start a business, really, what you're doing is swiping your credit card and logging into Amazon Web Services and getting the things that you

need to say get computing power, get some storage, things like that. Now, that's been true for a little while. But the reason I think it's early innings is Netflix. And let me explain what I mean by this. So in 2008, Netflix owned a lot of its own equipment. But as it was amping up its streaming operations, the thing that it did was start to move to Amazon Web Services. It took eight years, but they finally moved 100% to AWS in 2016. And I think that was a moment. So that's, you know, little less than four years ago, the majority of businesses said, okay, in order to get started, in order to start doing things like e-commerce or logistics, we're going to start by building up a cloud presence. And because of that, there are a whole crop of new businesses that are

serving that need. So two companies, you asked me for two companies here, two that I really like, I already talked about Elastic. Elastic is a very interesting company, and just to super simplify it. So when you go to Google, you or I go to Google, we're searching for stuff online. When people use Elastic, you're searching for stuff inside your company. And so they've built a Google for company data. It's really fascinating. It's very flexible. It's built on open source, which means largely free software.

But it's incredibly flexible and really popular with developers. Another one I like, you may actually have, if you're listening, it's called Dropbox. And I talked about this at the Capital Discovery Summit. It's a company that basically makes a personal close. cloud for you on your computer and you just, you know, store your files, store your systems in the cloud. But they've gotten very creative about how they link up with services like Slack and other cloud services. So Dropbox is a way for you to store everything you need, access it very quickly. They generate a ton of cash. I really like that company. But just to be clear here, Tim,

you don't like the prospects for a punky Brewster reboot. I really don't. I mean, if you're, look, I mean, you know, when I was, what, 11 years old, let's say? Sure, I would have been all in on Punky Brewster. Not anymore, Mac. Sorry. Selling your Punky Brewster shares. Yes, selling my Punky Brewster shares. Tim Byers from the Motley Fool's Colorado office in studio.

Thank you for joining us. Thanks, Mac. Really appreciate it. Good to be back. Up next, if you're building a watch list, we've got a few stocks for your consideration. Stay right here. This is Motley Fool Money. All right.

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Motley Fool may have formal recommendations for or against. So don't buy yourself stocks based solely on what you hear. Welcome back to Motley Full Money. Chris Hill here in studio once again with Jason Moser, Emily Flippin and Ron Gross. Time for the stocks on our radar. Our man behind glass, Steve Brodo is going to hit you with a question. Ron Gross, you're up first. What are you looking at? Just a radar stock for me. Not a recommendation yet, but it is a recommendation in our Rule Breaker Service. And it is Fresh Pet, F-R-PT, leading provider of refrigerated pet food and treats, sold in branded refrigerators, more than 20,000 retail locations. First

mover advantage, strong network of branded fridges. Revenue growth is accelerating. Companies calling for 26 percent growth for the full year, and they've turned a profit in the two of the past four quarters and could be fully profitable this year. Steve, question about fresh pet? Do you think we're moving to a world where pets will seek more diversity in their diet? Is my cats eat the same thing every day? And I wonder if we're going to move to a world where they're just going to be requesting different items. You know, that's a world I want to live in, Steve. Jason Moser, what are you looking at? Yeah, the beginning of the week, Teledoc Health, ticker TDOC.

They announced a big acquisition of In-Touch Health, which is a telehealth service focused on enterprise offerings. It was impressive week for the stock. It was up around 14 percent, which is pretty fascinating when normally acquirers get dinged. They kind of have to prove their case over time. But I think the market's enthusiasm is reasonable. It bumps up revenue guidance for the company, of course. But they're paying around six-time sales for a company with 75% of the deal being funded with shares at all-time highs. So, relatively cheap currency in building out this virtual health care network where there's no real challenger there. So I think the market's looking at this as really a big opportunity in a market leader. Steve, question about Teledoc?

Are we moving to a world where my primary care doc is virtual? I think that's absolutely a distinct possibility. I mean, anything to make that front door a little bit more accessible for patients, and that's how these telehealth companies frame themselves is really the most logical first step in visiting your doctor. Emily Flippin, what are you looking at? I'm looking at Smile Direct Club, ticker SDC. This is a stock that analyst, T.J. Pickett turned me on to. They make liners that help straighten out your teeth. Their recent non-compete with Align Technologies just went up, and that means that they can start selling wholesale now. The stock is up 50% on the news. Steve, question about Smile Direct? Does it work as well as just regular braces? It probably does.

I can't say I have any personal experience using it, but I know it's a heck of a lot cheaper and a heck of a lot easier on your mouth. Three stocks, Steve, you've got one you want to add to your watch list? Going Fresh Bat, all the way. Nice. All right, Ron Gross, Jason Mozer, Emily Flipping. Thanks for being here.

Thanks, Chris. That's going to do it for this week's edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.