Motley Fool Money - Did Disney Win or Lose the OpenAI Deal?

Episode Date: December 12, 2025

Disney agreed to let its characters be used in OpenAI’s Sora videos, so is this a visionary move, or is Disney giving away its IP to AI? We discuss media in AI, Oracle’s recent earnings report, and ask what executive would be the dream free agent pickup for some beaten-up stocks. Travis Hoium, Dan Caplinger, and Jon Quast discuss: - Disney’s licensing deal with OpenAI - Oracle’s earnings and AI buildout - Lululemon earnings recap - CEO free agent picks Companies discussed: Nike (NKE), The Trade Desk (TTD), Disney (DIS), Block (XYZ), Oracle (ORCL), Alphabet (GOOG). Host: Travis Hoium Guests: Dan Caplinger, Jon Quast Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

We have a new player in artificial intelligence, and it's Disney. Motley Fool Money starts now. That's why they call it money. The best thing. Cool global headquarters. This is Motley Fool Money. I am Travis Hoyam, joined today by Dan Kaplaner and John Kwasht. Guys, we have to start with maybe the most fun artificial intelligence story of the year.

We don't have to debate, you know, how many billions of dollars are being spent on chips and stuff like that. Open AI and Disney announced that you can now use SORA, their video creation app, and make short videos with 200 Disney characters. This seems like the kind of AI use case that at least our family could have a lot of fun with. So is this the kind of thing that is going to be a big deal in AI? And are you more of a Darth Vader or a Baymax kind of character? What are we going to see in your first Disney-related AI video? So I'll tell you, Travis, I'm embarrassed to admit this.

But when I was five years old, I was a ballet dancer. And we did a really dubious version of the original Star Wars. And I played Obi-Wan Kenobi. So I fully expect somebody to dig back into those archives and figure out a way to bring Dan's ballet back to life after 50 years. I feel like we can make this happen. I do think, though, it's going to be one of these things. It's going to go viral. You're going to see a whole bunch of stuff.

It's going to catch fire for at least a period of time. I don't know how long it's going to last, but I think that probably what you'll see is initial adoption. Everybody's going to try it out. And then maybe somebody's going to start getting ideas for a more lasting trend based on it. Not sure what that looks like right now, but these things iterate really quickly with AI. John, what do you think? Is this the kind of thing that is going to be? to be good for Disney to be able to have their characters in these AI tools or is this a nothing

burger? Is it going to be bad? Where's your head at? Yeah, I won't bury the lead here, Travis. I dislike this move for Disney. And the reason is Disney has some of the best intellectual property in the world. And this feels like it cheapens it to a degree. If you can recall back in 2018, when the movie Ready Player 1 came out, Stephen Spielberg directing and couldn't get the rights to the Star Wars characters for that movie, Disney would not budge, even though Spielberg has lots of connections to Lucasfilm and the like. And I think that the reason Disney didn't do it was because it knows the value of its IP and it wants to protect it. It doesn't want to dilute it. It wants to make sure that its IP is very, very valued. And I don't know that this deal really

brings that in. For Open AI, this is a no-brainer. Of course you want to do this. Of course you want to be the video generation platform that has the Disney IP. That makes a ton of sense. Now, nothing from the press release says the deal is exclusive, so maybe OpenAI isn't the last one to make a deal like this. But if we look at it from a business perspective, one of the things that I find really interesting here is that Disney is investing a billion in Open AI.

So is it going to get a billion dollars back in value? Yeah, we don't know what the license. fee looks like. Is there actually money flowing back to Disney? So is it, you know, I'll give you a billion, you give me a billion back. So we don't know those details yet. Exactly, which is another reason why I'm not as enthusiastic with this deal. But let's say this. Let's turn to the positive. What is so interesting to me about this is it says that these user generated videos could stream on Disney Plus. Now, you think about what is this competing with? I think it's competing with, I think it's competing with YouTube shorts. Shorts don't have to be necessarily great. They just have to be

entertaining enough to keep me watching. And is this something that we're going to see on Disney Plus? Is it going to be big enough that it actually matters? I don't know. But that's an interesting component of this deal. That is one thing that they clearly have an idea of what they're going to do with Disney Plus, but that could be a complete nothing burger and we never really see anything out of it. Or you could start to see this be a real YouTube competitor. John, I wanted to push back, Because, you know, my reaction is much more positive. And I think one of the ways to at least think about this, and we don't know how all of this is going to end up. I think some of the concerns are correct.

Are creators going to be using content in the way that Disney wants? Maybe not. You kind of lose that control. But if you think about a movie launch like Zootopia, so that just came out. It's been a hit. But if there's suddenly videos of my kids, you know, hanging out with the Zootopia character, there was a video that was going around with a bunch of, you know, famous movies and somebody doing selfies with them.

That's the kind of thing that you could potentially create. And if you're Disney that's creating buzz, it's also meaning that you get that buzz instead of someone else. You make the deal first so that your characters are used in these user-generated videos. So is that at least a potential upside? And then it's going to be in the details of can Open AI actually figure out how to contain these characters so that we don't have a bunch of maybe content that Disney doesn't want floating around. Yeah, it's a good, it's a good question, Travis. Is it the right kind of

attention to its brand? Is it the kind of thing? You can just recall years ago with Star Wars, right? A new Star Wars release comes out. I mean, the fans were just ready to go. It had this incredible following and movies rarely came out. And so it, it was a big deal when something happened. Yes, it keeps the characters in the minds of consumers. Is it the right kind of attention? Does it actually create long-term excitement, or is it just kind of a novelty in the short run

that actually just kind of feels like we're, yeah, I get what you're saying, and I still maintain my original thing. I don't like this for Disney. You know, what you mentioned about Disney potentially using this content for its own purposes reminds me of what we saw with GoPro early on when it started really. That's not a great comparison.

Well, that's my point is it's kind of like, look, there was talk at that point that you know, GoPro was hosting. It was like a cloud-based platform for people to share their videos. I think that some investors in GoPro would kind of hope that that would turn viral and turn into a money stream for GoPro. If Disney's going to do something, it needs to do a much better job, obviously than GoPro did. on that. I think the intellectual property of much higher quality, of much higher value, but still, it's, it's going to, I think it's going to be a slog for it to find ways to monetize this kind of user-generated content enough to justify the potential dilution of,

of that quality by kind of opening up the creative process. Dan, I wanted to bring in the recent deal between Netflix and Warner Brothers Discovery into this, because one of the, of the reasons that I think a lot of people don't necessarily think that's going to get blocked is because the real threat to Netflix and Warner Brothers Discovery is not Disney. It's YouTube. And one of the things on YouTube is if this is going to be user-generated content, YouTube is primarily user-generated content? Is this sort of a backdoor way for Disney to become relevant, whether it's shorts or eventually more traditional-looking videos, maybe higher production, if they're pulling stuff onto Disney Plus, you would think that eventually that's going to be a full-screen view.

Maybe it's going to be longer than eight seconds. So it'll be a bunch of these pieces clipped together. I have to think that Disney, even though they're a streamer, even though they're a content company, they're thinking about YouTube too. And this is at least a way that they can kind of play in that user-generated game that YouTube just dominates today. I agree it's a way. I think that if it were a big part of their intent, in making the move that they would have been more,

they would have been louder about making not the point. Now, granted, Disney has to always balance because its existing content, its existing content distribution has so much value. They don't want to poach away from that. They want to prevent poaching as much as they can. Obviously, though, that didn't stop them from doing Disney Plus. At some point, people were sort of like,

why would Disney go the streaming route? they can just keep on doing the limited theater releases and they have pricing power there, but Disney did look forward there. So I do think it's in the realm of possibility of Disney is looking even further forward here with this user-generated content. But I think if that, I guess we'll see, right?

Because this is still early on. We'll see how it progresses. They probably don't want to take too big of a stand up front because they don't know how it's going to play out. But if it plays out well, then they can say, well, yeah, we're going to take this step broader strategy-wise towards more of a direct YouTube competition scenario. I will say this. It will be interesting to see if any of the major owners of intellectual property take a different route.

I think that's really where the rubber's going to meet the road here. If everyone does this. I think the ones to watch would be like Nintendo. Exactly. You've got some of the other players like you've got universal. you have the studios that are owned by Netflix. So there's a lot of players here, and Disney is at least saying, hey, we're open for business when it comes to AI.

They are. And if they all do it and it's all a bad move, then it's a wash, right? If another player in the industry, such as Nintendo, takes a different position saying, we're not going to do this, then you're going to have a scenario where one of them's going to be right and one of them's going to be wrong. The other thing to bring into this is the exact same day that this announcement came out, Disney also sent to cease and desist to Google related to Gemini and said,

you know what, we got this deal with OpenAI. They're going to theoretically pay us something to use the characters in his videos. So, John, is that the approach? Is that going to put kind of these chatbots against each other? Is that the right move to say, you know what, we're protecting our IP? And we have to have this framework. Because I have noticed that on Gemini, you can get logos, you can get. get all kinds of stuff that Google used to kind of put the clamp down on. It seems like they've

really opened up. But that's kind of the other side of this coin, is that they make a deal with Open AI, and then they say, you know what, Google, we don't like what you're doing. So it seems like they're kind of trying to do both things. Well, for sure, because in Open AI, it's now an investor. And so it does have a vested interest in seeing the success of one versus the other. So there's so much ambiguity here in what's allowed and what's not allowed. IP laws are going to, there's going to be tests over the, over the course of coming, coming quarters and years. So it'll be interesting to see.

But yeah, it makes sense that it would send a cease-dicist to one when it's an investor and the other now. When we come back, we're going to stay in artificial intelligence to talk about what we learned from Oracle this week. You're listening to Motley Full Money. In a world full of noise, long-term thinking stands out. On the Capital Ideas podcast, Capital Group leaders explore the decisions that matter most in investing, leadership, and life. It's a rare look inside a firm

that's been helping people pursue their financial goals for more than 90 years. Listen to the Capital Ideas podcast from Capital Group, published by Capital Client Group, Inc. Welcome back to Motley Full Money. We did get some earnings this week. Oracle announced earnings, and this was one of the hottest stocks in AI just three months ago. That was when the stock jumped about 40% after earnings in September. That was after they said. signed a $300 billion deal with Open AI, but the stock fell 10% on Thursday and is now down 41% from its peak since that Open AI deal was announced. So, Dan, what is going on here? Yeah, Travis, I think we're starting to see a pattern here. When a big tech company announces an

AI investment upfront, investors get excited. They bid up the shares. But then as time goes by and companies actually start paying out the cash for making those investments, investors now still to seem like they're getting a little bit worried. They worry the capital expenditures are high. I mean, the argument for big tech for investing in big tech companies for years has been their cash cows. They generate huge amounts of free cash flow. They're able to divert some of that towards internal investment,

some of it for buybacks and dividends. But now a lot of companies, including Oracle, they're using all of that cash flow and potentially more just to fund these big artificial intelligence investments. And we're early enough in that adoption. We don't know how that's going to pay off, when it's going to pay off, how much it's going to pay off. And I think investors are starting to get impatient by that. So we're in, buy the news, sell the reality territory.

Is that instead of by the rumor sell the news? You're actually buying the news, but then when it becomes real, people are going, ah, maybe not. I think you buy the news, you sell the worries. Then whatever the third step is, is when we actually get the reality. Because we have half the reality, money is going out. We don't have the other half. What will AI generate to compensate the companies?

John, looking at the report, the market's reaction is always interesting because I didn't think the September news should have necessarily driven the stock 40% higher. I also didn't think there was a lot of bad things. The things that they said that we should be looking at remaining performance obligations were up significantly in the quarter. So what did you think? Yeah, remaining performance obligations is unlike anything I've ever seen. $523 billion in remaining performance obligations for Oracle.

Granted, it's up 438%. A lot of that came from the last quarter, the deal with Open A.I. But still up 15% sequentially. And it's not just deals with Open A.I. That Oracle is making. Also deals with Nvidia and meta platforms. and so this growth on the RPO is absolutely mind-blowing. And then you look at it, it breaks down the numbers.

Only 10% of this expected within the next year. But an additional 30% between years two and three, you look at that. That's about $160 billion in a two-year span of revenue expected just from the RPO. And for perspective, trailing 12-month revenue is at an all-time high right now. 61 billion. And so maybe two years from now, we could see a $80 billion year for Oracle. I mean,

that's substantial growth from a legacy tech company. Dan, one of the challenges with Oracle, as I look at them, they do have a lot of debt, over $100 billion worth of debt. Now you have the stock dropping from all-time highs. How do you think about paying for these investments? because John talked about it, they do have a lot of revenue that's going to be coming in over the next five years, if all of these remaining performance obligations are actually served. But they got to pay for them. They have to build the data centers. They have to buy the GPUs.

They have to get them all running. And that is upfront investment that thus far they paid for primarily with debt, issuing $18 billion in September and probably more coming in the near future. Yeah, it's funny. We used to look at tech raising debt as just, kind of for fun because they've had huge amounts of cash on their balance sheets still. It was a way for them to keep cash overseas in a lot of ways. The rates were just so low too that it just made sense for them to keep that cash. And like you say, some of the international trading type stuff did play a role there.

But now I think that AI is testing the limits. And it's testing the limits in many places in the credit markets. It's making investors really rethink the relationships between different. asset classes within the capital structure. We saw Oracle's credit default swap rates rise to 1.41 percentage points. It's not super high. It's not a big number in the absolute scale, but it is the highest for Oracle since the financial crisis in 2009. Oracle so far still has an investment grade debt rating, but at Triple B with a negative outlook from S&P, it's kind of on the fringe of where you start to worry.

Is it going to lose its investment grade status? Is it going to turn into a junk bond? Their cost of capital could rise quite a bit from where they are. So what happens then? If the cost of capital, which is sort of this, it's not a number that you can necessarily look at. You can look at what that costs, what the interest rate is. But when you think about cost of capital and what the future for Oracle looks like,

what are the implications of that cost of capital going up or going down? The question is how quickly AI can pay off with actual positive cash flow to help Oracle and other companies maintain this debt. If the cash flow comes in quickly enough, then it should be fine and Oracle should be able to maintain refinance this debt at reasonable terms. But if the cash flow is slow, Oracle's going to have a hard time convincing bond investors, hey, you should let us get a little bit further extended, that's where it has. It's not going to be necessarily a quick near-term thing. It starts to come into play when it comes time to refinance this debt. So is this sort of a frog boiling in water kind of situation where we look back and we go,

oh my gosh, the stock is down, the debt costs are up? Yeah, we have a bunch of remaining performance obligations, but that once 15% return on invested capital, now my capital costs have gone up and now we may even be underwater. I mean, I've seen that with going back to the solar days, Sun Edison fell into that category. It's a slow boil until something breaks. And when something breaks, everybody's going to look at everybody else and say,

oh, boy, that's starting to show cracks as well. When we come back, we are going to play free agency with some CEOs. You're listening to Molly Fool Money. The old adage goes, it isn't what you say. it's how you say it, because to truly make an impact, you need to set an example and take the lead. You have to adapt to whatever comes your way. When you're that driven, you drive an equally determined vehicle, the range rover sport. The range rover sport blends power, poise, and performance. Its design is distinctly British and free from unnecessary details, allowing its raw agility to shine through. It combines a dynamic sporting personality with elegance to deliver a truly instinctive drive. Inside, you'll find true modern luxury with the latest

innovations in comfort. Use the cabin air purification system alongside active noise cancellation for all new levels of quality and quiet. Whether you prefer a choice of powerful engines or the plug-in hybrid with an estimated range of 53 miles, there's an option for you. With seven terrain modes to choose from, terrain response to fine-tuned your vehicle for the roads ahead. The Range Rover event is on now. Explore enhance offers atrangeover.com. Welcome back to Motley for Money. We'd like to have a little fun on the Friday show. So I'm taking a page out of Bill Simmons book. Instead of doing a trade machine for executives with an investing theme, I want to do a little free agency. I'm going to give you a company that could use a little bit of a boost.

I want to give you, I want you to give me an executive that you want to join them as a free agent, and then what are you going to offer them to convince them to come to the company? So we're going to start with Nike. I think Nike maybe lost its way a little bit over the past five years or so. Dan, if they're going to be recruiting a new CEO, anybody in the world, who do you want and what are you going to give them to convince them to come to Nike? Travis, I think that we need someone, an individual who has his feet in the sports world, but also has executive prowess, has a little bit of shine. I'm going with Mark Cuban here. Ooh, I like that. Well known. Well known. The shark is definitely somebody that I think could add some spice to

Nike's business. And, you know, his experience with the Dallas Mavericks, he's a savvy, he understands how the sports industry works. I just think he's a natural choice to push Nike forward. John, who would you like as Nike CEO? Well, let me be clear up front. I'd actually hate to see Nike make a trade. I'm not overly bullish about Nike from here, but I do think it made a great move in bringing back Elliott Hill. If you are a brand that, that consumers kind of, it's kind of falling out of favor a little bit with. Bring in somebody who absolutely loves your brand. And Elliot Hill really does, I believe, love Nike,

and it's somewhat inspiring reading and listening to him talk. But if we have to make a move here, how about Shaquille O'Neal? He's a Hall of Fame athlete. He's a good businessman. And, you know, he signed deals with other athletic apparel companies in the past. So you might need to offer him a good pay package, but bring him into the Nike family and let him come. cook. And I think he just brings that name recognition, but he's also a good businessman.

Shaq has a fascinating investing history. We should talk about him at some point. It made what he called an accidental investment in Google in 1999. What a great accident. Yeah, he's phenomenal investor. Like you said, executive. He knows the sports world. I like either of those. What are you offering? I want to ask that, Dan, first. What are you offered to Mark Cuban? Mark sold off his majority stake in the Dallas Mavs. I think Nike should just buy it back and give it to him. That seems like... So he regrets it so much he would go to Nike to get it back.

There you go. John, what are you giving Shaq to convince him to come to Nike? Hey, he's just going to... He's going to want to have control of the company, especially when it comes to inspiring the next generation of athletes, and you're just going to have to give them a good pay package. He's got enough money, but yeah, I assume they would have... he would take a little more cash for moving out to Oregon.

Let's talk about the Trade Desk. Trade desk stock, their drawdown is absolutely crazy. 73% from its high. John, I want to start with you. If you're picking a new CEO, getting a free agent, who are you attracting to the trade desk? Well, my idea, it's a little late for it. I would say Rick Smith, this is the former technology officer at Sentinel One. He's now the new CEO of Octa. He just made that move over.

But let me explain what I'm talking about here. I believe that digital advertising is being changed for better or for worse by AI. And really, I'm not sure that the trade desk fully understands where it's at and where it needs to go. I think that you need to bring in an AI expert and somebody with technology experience. And Sentinel One, I don't really like it in the cybersecurity space, but I will admit that it is a leader in artificial intelligence. And so I think that's the kind of person that you need to bring in, somebody who understands what AI is all about and who can really form a technology roadmap. Dan? I think Jeff Green has already been thinking about this.

And I think it was part of the motivation for bringing on chief strategy officer Samantha Jacobson. I think that Jacobson is an obvious choice to be the next CEO at the trade desk. She won AdWeek's Digital Technology Executive the Year Award in. 2022 when she joined the Trade Desk. She has previous experience at Oracle. She's been able to work with tech giants to help advance the Trade Desk's Unified ID 2.0 initiative. She's made smart strategic investments. And I think really, Jeff Green as CEO, needs to make a move that inspires confidence. Trade Desk has had a bunch of other executives, including recently CFO Laura Schenkind, leave the company.

And so promoting from within, I think makes a lot of sense. Jeff's got plenty of shares. He can afford to give Jacobson whatever compensation package she needs to take the deal. All right. Those are some pretty realistic picks. So let's go a little bit off the deep end here. Disney does need a new CEO. Bob Eager is on his way out.

Is it by the end of the year? It's pretty soon. So they need to decide who their CEO is going to be. It sounds like they're going to go in-house. but if they were not going to go in-house and they were going to make a big splashy move, Dan, who do you want at Disney? So all we're talking about in media these days seems to be Netflix and its acquisitions and its subscribers.

And so Disney, I think, should make a big move and poach co-CEO Greg Peters from Netflix to be Disney's next CEO. Let's face it, we've been talking about Netflix because of the Warner Brothers deal. But who's been getting all the press? I don't know about you. All I've been seeing is Ted Sarando. the other co-CEO. Look, Peters is kind of the tech guy, Sarandos is the media guy.

Is that right? Yeah, but you know what? I still think Peters should be stepping into the limelight. And there's no better way to do it than by joining a potential arch rival. I just think that just makes total sense. John, who do you want at Disney? How about Jeffrey Katzenberg? So this guy, he led all of Disney's big hits in the 80s and 90s.

He left unceremoniously and started DreamWorks. And I got to be honest, I think that DreamWorks is the better family entertainment business right now. What is the argument for that, Shrek? Oh, come on. Kung Fu Panda, How to Train a Dragon. These are perfect trilogies. You can tell how old your kids are if you're still talking about Kung Fu Panda. Exactly.

You need someone who understands good storytelling. and I think that Disney's forgotten this. I don't think that this is realistic. I don't know if anything Disney can offer would convince him to come back to the company. It would probably be a lot more than money. It would probably mean creative control over the direction of the company.

So Dan did not answer this question. Dan, I want to know, what are you giving Greg Peters to leave Netflix and go to Disney? I think we need the usual stock and options awards. But hey, why don't we have some fun with it? We'll give them season passes to Disney. World.

Throw in a streaming subscription to Max, just to, you know, give him a little bit of what he might be missing out on. If Peters is really hardcore and it tries to strike a really hard deal, then maybe Disney's just going to have to promise to toss in its own hostile bid for Warner Brothers Discovery. We'll see how that works out. Why not? There we go. All right.

This one, this one I think is fun because square probably, square block. I just, I'm going to go back to these original names. they probably do need a new CEO, even if management there doesn't want to admit it. But, John, if you were going to get a new CEO at Square, who would it be? Every single suggestion I'm making here is entirely unrealistic. But how about Elon Musk? Let me explain why. It may not be unrealistic.

I think he's CEO of about 12 companies at this point. Right. I mean, what's one more? Let me say why. I've been a shareholder of Locke for a long. time I finally sold because I can't for the life of me figure out what this company wants to be and what it wants to do. I feel like it's trying to do everything and nothing at the same time. Maybe there's a story here that I'm just not getting. And I think the business needs a better

storyteller. There's somebody who needs to articulate the vision better. And nobody inspires with a vision better than Elon Musk. Nobody can tell a bigger long-term vision than Elon Musk. And that's what this company needs. It needs someone who's going to articulate where it's going. So he wants a trillion dollars from Tesla. What does Square have to offer? Yeah, I mean, maybe it's just as simple. He does want to get more into financial services. So maybe it's just as simple as, hey, you can be CEO of the company and we'll let you integrate it into all of your other companies. Yeah, he does seem to want to do this kind of stuff with X. So oddly enough, that sounds fairly rational. Dan, who do you think should be the next CEO of Square.

So boy, FinTech, such a crowded industry, so much regulation, so much intricate, interplay with the financial system. That made me think, who's going to be looking for a job in the next few months who could lead a company like Block, like Square? And I think in Federal Reserve Chair, Jerome Powell, looks like he's going to have some time as Elon Musk when he puts out. Twitter posts. I tell you, I mean, you know, there's no way Powell is going to be CEO, 12 different companies. So Square would have Powell's entire attention. I think it'd bring new

perspective. It'd certainly be a nice change of pace for Powell. It'd be interesting with block, paying so much attention to blockchain and trying to figure out how to take advantage of cryptocurrency digital asset trends. You know, hey, maybe the right incentive package to get the Fed chair to make the move. Black just makes a newly minted stable coin. They even call it Fed. They'll go to take the ticker FED. They'll give him the right to make essentially shadow central bank monetary policy decisions. Let him kind of continue his old job and see if he can stick it to whoever the new Fed chair happens to be after he's gone. I kind of like all these moves, to be honest. Disney is one that I would love to see actually take a big swing instead of going the conservative route.

but I don't think that Greg Peters is probably on his way to Disney, even though I do love that idea. And Shaq, I want more Shaq in my life. So I love that one too, John. When we come back, we are going to catch up on Lulu Lemons' earnings and get two stocks on our radar. You're listening to Motley Full Money. Today is going to be the day that they're going to throw it back to you.

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Please check out our show notes. One of the other big earnings reports we got this week was Lulu Lemon. This is a company that like Nike, a little bit down and out, but a lot of people think it could make a comeback. So, Dan, what do we learn from Lulu this week? I think the most important thing we learned from Lulu Lemon

is that investors are kind of tired of CEO Calvin McDonald. McDonald announced that he would be stepping down. the stock immediately moved higher. You know, the results, I mean, kind of middling at best. I mean, sales did rebound, although all the growth came internationally. Comparable sales were still down in the North American market. Earnings topped estimates by quite a bit, but they were still down 10% year over year. But investors still, I think that they would just want any sign of improvement and the fact that the company

dedicated another billion dollars towards future stock buybacks. That never hurts to create a positive impression on investors for sure. Yeah, I mean, I've been on record here the last several quarters saying that Lou Lemon's financial results haven't been as bad as the market was making it out to be. In the same way, I wouldn't say that these financial results were surprisingly better than expected. I'd say it was pretty much about the same as what we've been seeing. And what you said to Dan, we have good growth internationally. We have struggling U.S. same store sales. We have some profit margins that are under pressure because of tariffs, but still solid profits there, over 20% operating margins. So these results really weren't material

deterioration or improvement, in my opinion, it's a lot more of the same. Therefore, since the financial results are pretty much the same as they've been, I agree with Dan, investors appear to be celebrating the CEO change, and I'm not sure that's as good of a thing as investors think. I don't know if the CEO was the CEO was a problem here. But there is one big thing, though, from the press release, as you mentioned, Dan, the billion dollar share repurchase increase on their authorization. You know, this doesn't have to be a crazy growth company to be a good return for investors here. it's a very cheap stock. And just by putting up solid results, you know, modest growth, good profit margins, and returning capital to shareholders, this could eventually be something

that does a lot better for investors from here. Yeah, just to put some numbers to that. Even after the bounce in the stock, the price earnings multiple on a trailing basis is about 13. On a forward basis, it's about 15. John, is this the kind of company that maybe it's not going to be the growth machine that it was for the last, gosh, more than a decade. But at that price, the expectations are if you can grow single digits and have decent margins, it's fine. And some of the overall trends of maybe, you know, yoga isn't the hot thing that it once was. Maybe people are moving more towards, I have shares of on, right? They're growing 30%. It seems like there's just sort of a shift in the market. And this happens in fashion and athletics. But it's maybe not that bad if you're getting that

kind of a deal. And the stock is very different than paying 40 times earnings. You're right. The big thing, you do need to be a long-term investor with a company like this, right? I mean, we're talking about slowly compounding some returns over maybe a five-year plus period. And if you are holding a company for the long-term, which we all hear at the Motley Fool believe that you should be, really what happens with the business fundamentals is really important. Is this a dying brand or is this a taking a breather. That's the question that you need to answer. In my view, Lulu Lemon is just a brand taking a breather. It's not a brand that's in material decline. I think that some of the things like the net promoter score bear this out. But that's a good scenario. If it's a solid brand,

everything's fine. And it's just taking a breather right now, hold it for the long term patiently. And chances are your returns will be pretty good because it is at such a good price today. Travis, I'm a shareholder. I think that it's a good business, but I do think it's going to take time. There's been a lot of movement in the consumer good space. John mentioned Elliott Hill at Nike. We've had Brian Nicol at Starbucks. These recoveries are super slow. I'll just note, Chip Wilson did weigh in with deep concerns about the lack of succession planning that Lulu Lemon had preparing for this. So I think that it's a hold. I'm not sure I'd recommend buying at this point, though. We'd like to end the show with each analyst providing a stock on their radar, along with some comments and questions. From Dan Boyd behind the glass, John, you're up first. What's on your radar this week? Yeah, on my radar this week is Sprout Farmer Market. This is ticker symbol SFM. And this is a grocery store chain. It's down about 50% from its high in 2025. But really interesting, it's sustaining double-digit growth on the top line, fewer than 500 locations.

but it's been opening up new locations, new stores, and that's providing a lot of revenue growth. Same store sales are up as well. But you have this situation where it's a very profitable business as well. Return on invested capital is averaged 11% over the last 10 years. Right now, it's at an all-time high at 17%. Just to put that simply, it means that as they're investing in new stores, this is adding to the profits of the company. And so this company, the stock has dropped down to just 15 times its earnings with the drop. it repurchases shares. It's reduced its outstanding share count by about a third over the last 10 years. So a very simple path from here for double-digit earnings growth, and it's a good at this price. Dan Boyd, what do you think about Sprouts Farmer's Market?

John, I will say that this is a very attractive stock, and you did a great job pitching it. But my big question is, can this market compete with Whole Foods? Yes, I think it can. I definitely think that it can. think that there are people who definitely like the the sprouts farmers model. And it is, there are a lot of similarities to Whole Foods. I think it's just a maybe a slightly different demographic, but I think it can compete. I'm looking at their website and I'm getting hungry already. Dan Kaplanar, what's on your radar this week? Dan Boy, let me pitch to you, Dollar Tree, ticker DLTR, this dollar store giant did a great job at stock performed really well during

2022's bare market. But then it fell sharply during the Bullmark. over the past few years. Couldn't keep up the strong business momentum. Now it's bounced back. It's done a good job fighting against tariff-related pressures, and consumers are now under pressure once again from inflation persistent high prices. That's why I'm liking Dollar Tree right now. Dan Boyd, what do you think about Dollar Tree? Well, one thing about Dollar Tree that I do like is it is a Virginia-based company. And as a fellow Virginia, I appreciate that for Dollar Tree. But yeah, Calvagar, I think we've got a situation where, you know, things are getting expensive and Dollar Tree is keeping those prices down. I think it might be a good buy right now.

All right. Which one is going on your watch list? Dan Boyd, Dollar Tree or Sprout's Farmers Market? Honestly, this is a tough one because while I do like John's pitch and the numbers, he was saying for Sprout's Farmers Market, I do think Dollar Tree is like the leader in the space. So I'm going to go to offer you. John, I'll throw you a bone and put, I'm interested in sprouts. I think you made a good pitch there. So I got to look at that one a little bit more. We are out of time.

Thanks for listening to the Motley Fool Money. We'll see you here tomorrow.