Motley Fool Money - Google Gets Fit, Facebook Connects, and Apple Hits a New High

Episode Date: November 1, 2019

Google buys Fitbit. Apple hits a new high on earnings. Facebook connects with advertisers. And Barbie gives Mattel a boost. Motley Fool analysts Andy Cross, Ron Gross, and Jason Moser discuss those stories and weigh in on the latest from Arista Networks, Avis Budget, Dine Brands Global, Etsy, Grubhub, Starbucks, Teladoc Health, Texas Roadhouse, and Wayfair. (To get 50% off our Stock Advisor service, go to http://RadarStocks.Fool.com.) Get the money you need to run your small business. Go to Kabbage.com and use the code FOOL to get $100 credit on your first loan statement. Offer ends November 30, 2019.  Must take a minimum $5000 loan to qualify.  Credit lines subject to review and change. Individual requests for capital are separate installment loans issued by Celtic Bank, Member FDIC. Learn more about your ad choices. Visit megaphone.fm/adchoices

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I'm Chris Hill joining meeting studio this week, senior analyst, Jason Moser, Andy Cross, and Ron Gross. Good to see you, as always, gentlemen. Hey, Chris. You're doing. We've got the latest earnings from Wall Street. Once again, it is Earnings Paloza. And as always, we'll give you an inside look at the stocks on our radar. But on Friday, Apple reclaimed its crown as the biggest company in the public markets.

So we will start there. Shares of Apple hit a new all-time high in the wake of its most recent earnings report. iPhone revenue in the fourth quarter came in higher than expected, Andy. But services segment continues to do well. Chris, it's all about the services with Apple, at least on the growth side, because as you mentioned, the iPhone business, as we've talked about, pretty stagnant now. They continue to make really good iPhones, and the iPhone 11 is seeing good reception. But revenue up 2% a little higher higher than guidance. If you back out the iPhone growth is up 17%, but really about the wearables.

The wearables business continues to drive a lot of the growth. On the services side, which includes the wearables, up 18% on the sales now, makes up 20% of sales. But 33% of the growth profits. They now have 33,000 apps across all their platforms. It was the best quarter ever for AppleCare. $450 million now paid subscribers across all of the. those platforms up from 330 million a year ago, that's up 36%. So, when you look at the growth of Apple, they continue to add and innovate into the wearable side as they continue to build out

that ecosystem that has really tied to the iPhone, and they continue to drive that part of the profit picture. You know, the net income was basically flat to down, but when you add in all the share buybacks, they boosted the EPS by 4%. So a really nice quarter and about what I think investors were expected, but the innovation that they're showing on the wearable side continues to drive the growth. Yeah, I really like how Tim Cook is managing this company beyond the iPhone. I think there were a lot of questions just a few years ago. I think he's answering those questions.

We've always talked about Apple being a premium hardware provider, right? They had some pricing power on that hardware. We're hitting sort of a saturation point there. The ASPs on iPhone is starting to come down a little bit. But the neat thing with this business, and I think they can pull this off. It's going to take a little time. But with the services that they're offering, whether it's Apple Care, Class, or music or streaming, there's the opportunity for some pricing power there.

I mean, I know we talk a lot about those low prices on the video streaming product, but if they put out good services, good products, I think that over time, they actually would have the opportunity to raise prices on those services, whether it's the music product or the video product or whatever it is. This could be kind of a second act for them where they could demonstrate some pricing power that maybe some investors aren't really expecting. 2012, $288 billion in share repurchases. You add in dividends, and it's $385 billion of capital return to shareholders. It's an amazing, amazing number. Turning to Apple TV for a second. Am I

right that you get Apple TV for free for a year if you buy a phone or upgrade? Yeah, if you buy one of the qualifying Apple devices starting September 10th, you get 12 months free of Apple TV Plus. And I've heard the shows are terrible. Well, I mean, listen, that's going to be... That evolves, right? I wish you one would hope. They have all the resources in the world to throw at this. I mean, it's just going to be a matter of locating some good ideas and then just paying the money that they need to get those things produced. So I think that takes time.

So Jennifer Anderson and Steve Carell is not getting it done? It wasn't getting it done for me. I couldn't care less about that show. But to your point about the devices, it's iPhone, iPad, Apple TV, and Mac. And if you go just a couple of years back, that's something in the – that's like in the neighborhood of 80 million devices. they sold for the holiday quarter there. So they're going to have tens of millions of instant subscribers here. And it's really about that first year, communicating some kind of value and getting you to grab onto just one piece of content that you like.

I was going to say the wearables business overall was up more than 50 percent. And now at 6.5 billion this quarter, it's about as big as the Mac category for Apple. Well, and to go back to the video streaming service for just a second, you look at all the streaming services. Apple has, I think, very intentionally priced theirs, long as well, and lower than absolutely anyone else's. So you're right, Ron. The early reviews on the first shows right out of the gate are not promising. But, you know, Amazon Prime had some stumbles out of the gate. So did Netflix. Not every show they produced right out of the gate was a hit. And when you've got the lowest priced option, I think that buys you a little bit of permission

with customers. You have to price it low until the content ramps, right? What is it? Four shows or four, six? I forget which. So you're not going to pay a premium, certainly, for that. I bet we'll see price hikes as that ramps. Alphabet's third quarter report on Monday evening got overshadowed by reports. The company had made an official bid to buy Fitbit. By Friday morning, the deal was done. They're paying $2.1 billion for Fitbit. Jason, the third quarter was kind of a small miss.

Shares of Alphabet down a little bit. This seemed like one of those speed bump quarters that Alphabet puts up every now and then. They had some good wins in cloud. It's hard to overstate really how strong YouTube is becoming for the business. So I think you're right. I mean, it's basically steady as she goes for the core business, but the Fitbit news is really the big news of the quarter. And, I mean, this, I think, is the best case scenario for Fitbit shareholders. I'm not 100% sold on how meaningful this can be to Alphabet, but, I mean, it's a $2 billion acquisition. It's a rounding error in the context

of their balance sheet in considering the fact that they essentially have just unlimited access of capital. Now, I do get why they made this acquisition. And let's not forget, for the first six months of this year, Fitbit sold six and a half million devices. That's versus 4.8 million devices a year ago. So it's not like this is an insignificant business. It's just they've not done a very good job of monetizing beyond that device base. Google's got a lot of power in regard to that. I mean, if you're looking to build a subscription business, Google's got some skills in that regard and the infrastructure to take care of it. So I think that given time, they could probably build something.

out with this. And I do think there is a market for a dedicated fitness device. I mean, Apple watches a nice device, but it does an awful lot. And I think there are a lot of people out there looking for something maybe a little bit, maybe a step down, certainly not nearly as expensive. And I think that's where this device fits in. Now, I think it's up to Google or Alphabet to really build an accompanying subscription business to go with it at value. I think that's a great point, Jason, on the subscription business add value. I think when Ruth Porak came in and started to really slim and focus alphabet into what is the most highest priority. And clearly, you know, it's a $2.1 billion acquisition.

I think they earn north of $30 billion every year. They have plenty of cash in the balance sheet. So it really is just a rounding error. But what they can do with it, and clearly Ruth has said signed off on this and said, hey, there's some optionality here. We can actually take this hardware business and turn it really into a powerful subscription business that ties nicely into the Google Equalist. I guess we now have to put Fitbit in that category of companies that just couldn't cut it in the public markets, because it's worth remembering this was a company that went public at $20 a share and the buyout price, which represents, to your point, Jason, a nice premium, sort of late in the year for Fitbit, about $7.40 a share.

Most hardware businesses are kind of a race to the bottom, and that's why it's so important to be able to go beyond that. Apple was always that exception because they could command that pricing premium on the hard. hardware. We're seeing that disappear, but we're seeing them really pick it up on the services side. That's why it's so important. And I know a lot of times shareholders don't like when their companies get acquired out from under them because they want to grow with the company. I think in this particular case, this is a gift to Fitbit shareholders. Starbucks closed out the fiscal year with strong sales growth in both the U.S. and China. Ron, the stock really didn't move much this year.

Yeah, but I think a solid quarter on China expansion, loyalty program growth, growth in cold drinks. China has 10 million active members now in loyalty. US membership in that program was up 15%. You had global net store growth of 7%. 600 stores in China opened in the quarter, now past the 4,000 store mark there. So really explosive growth continuing.

Cold drinks, which I didn't realize really was a thing here, whether it's iced tea or their refreshers fruit drink or nitro cold, really showing some strength here leading to EPS, a 20% increase, which is not too shabby. It's just, investors kind of shrugged it off of, you know, it's just a fine corridor kind of a thing. Well, and you think about the IPO of Luckin' Coffee, and you had analysts on Wall Street who are saying, boy, this is really going to be bad for Starbucks. And the early results so far indicate the opposite.

Starbucks is remaining very competitive there. They plan to open 2,000 new stores in 2020, 1,400 of them being internationally, and the bulk of that will likely be in China. So, luck in certainly a competitor here, but Starbucks holding their own. Record revenue for Facebook in the third quarter. Profits came in higher than expected and shares of the social network up again this week, Andy. There are many $550 billion companies that have been able to grow nearly 30% a year. And you think about the growth rate. It was 29% on the revenue side this quarter.

That was versus 28% last quarter, 26% the quarter, before. that. So not only high revenue growth for that size, but some acceleration. Let's some nice growth on the earnings per share side. Facebook daily active users up to 9% versus 8% last quarter. There are now 2.2 billion Facebook, Instagram, WhatsApp, or Messenger users at least once per day. That's up from 2.1 billion. So continued growth into both the platform as they are kind of like expanding their reach, being more meaningful, but then also clearly showing up on the business side. Ad impressions were up 37 percent. Revenue per ad was down a little bit, so that's kind of interesting to watch and a little bit of boost from the payments and other.

A lot of conversation on the conference call about the political ad situation that Facebook is now found itself obviously in and some of a little bit of Mark Zuckerberg's testimony, and that juxtaposes with what we heard from Jack Dorsey over at Twitter, with them refusing or removing any kind of political advertisement on to accepting money for political advertisements onto the platform. So, a really nice quarter overall from the business, but clearly, obviously, a lot of them exogenous and big picture issues to watch with Facebook. Yeah, an interesting bit of gamesmanship by Jack Dorsey at Twitter, because it was just a few hours before Facebook came out with their quarterly report that he announced, as of, I believe,

November 22nd of this year, Twitter will no longer accept money for political ads. And I think, Jason, it represents somewhere in the neighborhood of 2% or so of revenue, ad revenue for Twitter right now. So that seems like, from a monetary standpoint, it was a relatively easy decision for Dorsey to make. On the call, you touched on this, Andy. Zuckerberg said that in 2020, Facebook expects that the revenue they get from political ads will be less than one-half of 1%, which makes me wonder, why are they doing this for so little. money, it really seems like it's not worth the headache. It does feel like the juice isn't worth the squeeze here. And I guess the only way I can really come to grips with this, to me,

Zuckerberg right now is kind of like soft bank with WeWork. He just can't quite admit that he made a mistake here. And I think he will ultimately change his mind. Because the upside, to me, is exponential versus all of the work. I mean, it actually costs them more to accept money for these ads and then deal with the aftermath. Whereas if you pull back and just, you know, eliminate yourself from the equation there, it's not that politicians can't get their message out there. It's just the way Jack Dorsey put it, I think this is really well said. It should be earned and not bought. And I think that's the bottom line, really. But Twitter's not going to censor tweets. So you can go out there and basically create your

own ad as much as you want, whether you're a prominent person or a super PAC or whoever you want, just doing it by tweet, not paying for the advertisement. You can't pay for the reach. And I think that's the ultimate point is that they don't want to be subject to people putting contentious or potentially false messages out there and then getting that reach by paying for it. Again, it goes back to earned and not bought. And I think most people would think that makes sense. It was a really cheeky timing by Jack Dorsey, head of Facebook's earning call today or this week. Twitter. Yeah, this week. So I think what was really interesting is, For me, it's like Mark Zuckerberg is going to the match for this. He's talked about this to his team. He believes in free speech. He's trying to protect it.

My take on this is I just think there's, if they want to continue to accept money for these political ads, he has talked about how much they want to police them, monitor them. I think they should just take some of the resources they are putting into the business and focus on making this a better experience for those politicians. And most importantly, the readers and the consumers of the content. to be able to make that whole process far better and also to be able to support that initiative. Just curious. Has anyone at the table ever even looked at a political ad on Facebook? Not intentionally.

I don't know if I have or not. They just fly right by me. It doesn't mean the thing. Much more earnings to come. So stay right here. You're listening to Motley Fool Money. Welcome back to Motley Full Money. Chris Hill here in studio with Jason Moser, Andy Cross, and Ron Gross. Teledoc Health reported a loss in the third quarter, but it was a smaller. loss than Wall Street was expecting. Overall sales came in higher and shares of Teledoc moving higher as a result. Ron, you followed this company closely. Oh, no, wait. Wait, wait. Jason Moser. Jason.

Your thoughts on Tel-Doh? Sure. Well, I mean, I like what I'm seeing. To your point about the top-line growth, they hit their top-line guidance. They raise full-year guidance a little bit. I mean, management clearly understands the need to develop this massive network with a comprehensive offering. And to this point, it's the faraway leader in the space. Looking at the numbers, revenue, 24% growth of 138 million, visits 928,000 were up 45% in utilization, remain strong. The membership base is what's really impressive here. With U.S. paid members now at 35 million and visit fee only at 19 million, those are the biggest increases in the company's history. And most of that is because they have brought United Health Group network.

into their network. And so you're seeing Teledoc partnering up with this virtual visits entity, which is a service provided by the United Health. And it reminds me of PayPal in the payment space, right? It's not like they're trying to completely shake things up, but they're partnering with the big players in the space to make it a better space. And ultimately, it seems to be working out. The expectations to be operating cash flow positive for the full year are intact. And in fact, they're already there on a trailing 12-month basis. And in regard to revenue growth management is targeting 20 to 30 percent annualized growth for the next three to five years at least. So they are making all of the right moves here. I think it's going to be difficult for other competitors to

catch them. Ultimately, I feel like maybe Teledoc ends up getting acquired, though. I hope it doesn't. Wasn't United Health working on their own version of a competitor in this space to Teledy? They've been working on their own. They've been working with partnering with other providers. And ultimately, they're bringing other providers into the network. Because, number one, United is a tremendous network. And you do have other companies in the space that are working in telemedicine. It's just, that's the benefit to being a business that focuses on doing one thing, right? And that's where Teledoc, that's how it began. That's how it's grown. And I think that's why it's succeeding so well today. It's because it's grown this big network,

but more so it's got a very comprehensive offering that is very difficult to match. It's a $5 billion company. United Health, 240 billion. It sort of seems like one of those situations, if the partnership goes well, United Health is going to make them an offer. It wouldn't surprise me, though you can understand my selfishness and want you to see Teledon continue to go alone, given the market opportunity that exists. Texas Roadhouse served up a strong third quarter report. Profits and revenue came in higher than expected and shares of Texas Roadhouse up 16 percent this week, Ron. Great to see, because it is a total income recommendation, and the stock is still down

slightly on the year. So they needed to put in some good numbers, and they certainly did, Cops sales at company restaurants up 4.4%. Domestic franchise restaurants, comps were at 3.2%. Those are pretty strong numbers. They had some nice increase in margins as a result of higher average checks, but they also had some higher labor costs, as we're seeing really across the board. But still, diluted earnings per share were up 29 percent as a result. That's a very strong number. Company continuing to grow. Four company restaurants, including one Bubba 33, opened to international franchise restaurants were open. They repurchased $19 billion a stock, and they planned on opening 30 new restaurants in 2020. So the growth story continues. I like

the margin expansion, and the earnings followed suit. Bubba 33 is their sports bar concept. The comps in the quarter were roughly double what they were doing in Texas Roadhouse locations. Any chance they're going to ramp that up in terms of more Bubba's 33? They're definitely going to ramp up the growth, but it will never overtake the number of actual Texas roadhouse restaurants, but we'll definitely see growth. All right, guys, hang in there because earnings paloosa continues to roll on. Stay right here. You're listening to Motley Fool Money.

And there goes that brand new potty act. And there goes the shirt right off my bag. Before we get back to the headlines, let's talk about you and the business that you run, because managing inventory, covering payroll, and doing 100 other things before lunch, That's just the average day when you want a small business. Your time's valuable, and getting the money you need should not take up all of your time. That's why Cabbage created a simple, modern way for businesses to access up to $250,000 of credit. You can apply online.

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Chris Hill here in studio with Jason Moser, Andy Cross, and Ron Gross, as earnings. it rolls on. Disastrous week for Grubhub. Third quarter sales were weak. Guidance for the fourth quarter was terrible, and shares of Grubhub fell 45 percent, Andy. It's at a three-year low. Yeah, really tough quarter. Average daily grubs grew 10 percent. That's basically the orders that they have. That's just much lower than what the expected numbers from both the company and also from analysts. Total cost and expenses for the quarter up 41 percent and up 50 percent for the first nine months of this year and revenues up versus revenues up 30%. So the real story here is just the concern about the marketplace and the competitive pressures

that Grubhub is facing. They said that the pressures from some of the other players like DoorDash or Uber Eats, maybe Postmates, the pressure that they are putting onto the entire space lowered some of the diner growth rates by up to 300 basis points or 30% of the growth rates. So, when you look at the environment and the cost that Grubhub has to continue to put into the business to both expand their networks, add more diners, it just is really starting to add up. We're not seeing it yet.

And we've seen this deceleration, the number of diners and restaurants that are going to be able to add onto their platform. I've said this before, and I'll say it again, winning cures everything. And if you're doing great and your business is doing great and your stock's going up, you can come up with all the cute names like average daily grubs you want. When your stock drops 45% in a week, you're going, you're doing it. Nobody wants to hear that. And the CEO, whether he meant to be joking or not talking about how online diners are becoming

more promiscuous, it's like, don't go for humor. Your stock's down 45%. Yeah. The impressive side is Matt Maloney, the CEO and founder. He actually put out a 10-page letter for the first time to shareholders trying to explain the market. Now, whether it is going to turn the stock in the right direction or not, it remains to be seen. But clearly, the market itself is seeing some real personal.

pressures. Wayfair shares down 30 percent this week. The online home furnishing company's third quarter report came with weak guidance for the fourth quarter. You tell me, Jason, how bad is it? Well, it wasn't as bad as Grubhub, so I wouldn't say disastrous, but Chris, it's not good. It's not good at all. I mean, it's a really difficult time right now if you are a top line story. And the market is really focused on businesses making some money, actually. And Wayfair is not there yet. Now, with that said, they are doing some. some good things. But if you go to the guidance and really the call set it all, they said

it since the beginning of the year, more than 90 percent of their suppliers who are subject to China tariffs have raised wholesale prices. That's resulting in higher retail prices. And that's affecting consumer behavior. It's resulting in volatility and some more of some hemming and hawing, so to speak, not really committing on buying. That's a problem for Wayfair in the near term, of course. But there is light at the end of the tunnel. When you look at the core metrics of the business. They're still quite sound. I mean, gross margin ticked up 40 basis points from a year ago. Active customers up 37 percent. Orders delivered up 32 percent. Percentage of orders from repeat customers. Remember, that's a really important metric. It's 67.3 percent now,

up from 66.3 percent a year ago. So they're investing a lot of money right now in fulfillment and logistics. There are some questions regarding China tariffs, and that's not just a wayfair problem. I understand the market's trepidation today. I don't think it takes away from the long-term opportunity that they have. I think they're doing the right things. It's going to require some patience. I saw one analyst note that said that the lack of urgency with respect to profitability was perplexing. Is that fair to Wayfair's management?

I think so. It's a question I start to ask myself every quarter now. And I'll look back to another company where I felt this way it was Zillow. It seemed like quarter in and quarter out. there was just this lack of urgency for them to get profitable. I am starting to feel a little bit that way about Wayfair. And I'd love to see a little bit more information on that for management. Shares of Mattel up more than 15% this week after better than expected results in the third quarter. Thanks, Ron, too. Of course, Barbie. It's always Barbies always getting it done for Mattel.

You know, it's actually interesting. Most of the strong sales were international, especially in Asia, lifted by sales of dolls based on Korean boy band, BTS. And I must admit, I've never heard of BTS. You're not the target demo. Good, good point. But you know what? Call me nostalgic, but it was nice to see Barbie up 10% and Hot Wheels up 25% that kids are still playing with toys.

That kind of sounded nice to me. There was some weakness. Their infant toddler and preschool division were weak, and that offset some of the strengths. So revenues were only up 3.1%. But it was still significantly better than expected. You got some widening margins due to cost cutting, which led to an adjusted earnings per share increase of 44%, which is a really strong number for a company that has kind of had a tough road of late. Relatively new CEO, has done a pretty good job of stabilizing that core doll business. And then also kind of moving into entertainment with feature-lane films and shows and amusement parks, a lot of what Hasbro is doing as well. Well, interestingly, they saw no impact from tariffs, whereas Hasbro spent a significant amount of time focusing on the impacts that tariffs had on their business for the quarter.

So that's kind of an interesting difference. The story with Mattel is one that we've seen play out with different companies in different industries. And by that, I mean you've got several divisions. One of them continues to deliver quarter after quarter and maybe another doesn't get it done quarter after quarter, young brands, certainly with Pizza Hut. That's been the story for literally years now. When you see a business like that, that's part of you want to have, you know, the activist investor part of your history kick in and really urge them to either double down

on what's working or just cut their losses with another division? Absolutely. If you see a division consistently having declining revenue or not being profitable, something has to change. And sometimes the easiest thing to do is just shut it down. I do just want to mention, I'd be remiss if I didn't. The company also resolved a whistleblower complaint regarding their accounting. They're going to have to restate some 2017 accounting quarters, but there's actually no material impact at all. But the CFO, who is also relatively new, is leaving the company. Arista Networks took a page out of Wayfares' playbook. Third quarter results came with fourth quarter guidance that was well below expectations and shares of Arista down big, Andy.

Yeah, a tough day. Many of our members and listeners own Arista, I'm sure, and it's a popular stock here in the Motley Fool. So not to bury the lead. The real story here is Arista, which provides cloud networking for like data centers, software and hardware for data centers, big clients, including Facebook and Microsoft, our cloud Titans. Well, one of these cloud Titans looks like it is now changing its spending habits for the fourth quarter and importantly into 2020. and these are large, meaningful north of 10% revenue for Arista. So that really has gotten some investors spooked. When you look at the profits, those companies bring in, and Arista is very profitable, and it's been able to grow very handsomely over the last five years. But now they really are expecting a drop in the fourth quarter in revenues, and for a company that has steadily put up very handsome north of 25% growth rates,

that's kind of sent a shock through the system, and investors are selling the stock off this week. Etsy's third quarter results didn't look that bad, Jason, but shares of the online retailer fell more than 20% this week. Was it that bad? No. So investors got it wrong? This is like your wife making you sleep on the couch for making tater tots instead of mashed potatoes. I mean, it's a total overreaction by ever.

Is that ever happened? Apparently it has. It never happened to me, but I could just imagine. I mean, I feel like with Etsy. I'm sorry. That was an oddly specific example. So, forgive me if I don't believe that hasn't happened. I'm not going to go any further on that.

Let's talk about Etsy. Let's move on. I mean, you know, we talked about Wayfair and the top line story being such a difficult one. With Etsy, I mean, there are fundamentals of play here. I mean, this is a company that makes money and cash and all that good stuff. Gross merchandise sales are up 30 percent, revenue up 31 and a half percent, sellers up 27 percent. Buyers 21 percent.

They're growing mobile share. I think the only thing in the call that really stood out to me, And maybe the market's parsing a little bit of that reverb data in regard to the revised guidance. Maybe they were expecting a little bit more from the core Etsy business itself. Maybe part of it has to do with the take rate, the revenue that Etsy is making on the total gross merchandise sales. That blended rate's going to come down a little bit with that reverb acquisition, but that's also opportunity. So for me, this really was a short-sighted reaction. It's nice to see the market is giving it a little bit of credit today. It's coming back

a little bit. But yeah, this to me stood out as a big overreaction in virtually every way. You know, active seller is up almost 27 percent. 7 percent. Active buyer is up 21 percent. They pulled in the profit margin guidance for the quarter, and that seemed to Jason's point about maybe not taking as much on the profit side. That seemed to really ascend some fear into the investing marketplace. Chris, as you and I talked about this week, that really made me think more of a I'm already doing some Christmas shopping on Reverb. That is a fun site to look around on if you have any musical inclinations. Well, you look at shares of Etsy. They're roughly where they were a year ago.

And to your point, Jason, we're going into the holiday quarter. It seems like if this is a stock you've had on your watch list for a while, this might be the time to pull the trigger. Because if they come up with a halfway decent holiday quarter, you've got to believe shares are going to pop. They very well may. I mean, I do agree with your point. point on the buying opportunity. I said as much this week. To me, this is a very well-run business with very strong leadership in Josh Silverman. I just expect big things. I own shares personally and have no intentions of cutting them lose anytime soon.

Coming up, a reminder that when your business has a winning strategy, the best thing to do is stick with it. Stay right here. You're listening to Motley Fool money. As always, people on the program may have interest in the stocks they talk about. And the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks. solely on what you're here. Welcome back to Motley Full Money. Chris Hill here in studio, once again, Jason Moser, Andy Cross, and Ron Gross. Third quarter profits for Avis budget fell 11%. Chairs were down for the week. Ron, the stock is a few bucks away from a five-year low. It's really tough for them in this Uber-Lift world we live in. It's just a struggling business

that is getting disintermediated and disrupted. They're doing their best to try to mitigate that by creating partnerships with these folks, whether it's Uber Lyft, where their cars are available to drivers of those services. I'm not sure that's going to get this done, to be quite honest. You see it in the numbers. Revenues were basically flat, up a meager 1%. They did have some per unit fleet costs that improved to the tune of about 6%. But as you noted, profits down 11%. The company tried to mitigate some of the damage. They purchased 2.1 million shares for a total of $59 million during the quarter at a price pretty much right where the stock is right now. I don't know if that's going to be a good use of capital, quite honestly. So it's just kind of a

me. I heard the term car as a service this week for an analyst based on like the software as a service. I just kind of rolled my eyes. Well, Green Dot brought in banking as a service as well. So it's bass and cats. Are we perhaps podcasts as a service? Possibly. These guys got a lot of debt, too. 3.5 billion dollars of debt. So don't sleep on that too. That could get a little dangerous. So, you know how we look at different industries and we say there's going to be more than one winner in this industry? It's not a zero-sum game. Is this one of those situations where the opposite is true? There's not going to be any winners. I mean, Hertz Global. That

stock has been down over the last few years. You look at Avis, but is this just now officially a bad business to be in? Yes. The answer is yes. You've got to look at the multiples. That'll just tell you everything you need to know. Six times forward earnings for Avis, nine times forward earnings for Hertz. It's tough. Their next report will incorporate holiday travel, so hopefully that's going to pay off for Avis budget. And speaking of the holidays, Dine Brands Global is the parent company of IHop and Applebee's. Over the past two years, shares of Dine Brands Global are up nearly 60 percent,

thanks in no small part to the creative drink specials that Applebee's has rolled out. And this month, oh, just in time. It's the $1.Vodka cranberry lemonade served in a 10-ounce month. mug. Appleby said in a press release, and I'm quoting here, this will help you get in the Thanksgiving spirit because sometimes you just need some inexpensive alcohol to deal with your extended failure. You know, we joke, and we've joked in the past when they had the, I think it was the $1 Long Island iced teas that they rolled out right before Christmas. But this is actually moving the needle. This is actually one of those things that we kind of poke fun at that is

legitimately good business and is materially driving this stock higher. Yeah, you come for the cheap booze and you stay for the chicken fingers. You can't underestimate the power of alcohol. I mean, in any form. It's just the American consumer is a total sucker for it. I bet you they still make money on a dollar, you know, based on the amount of alcohol, the cheap alcohol. I don't know that for sure, but I bet there's a couple pennies of margin in there. Well, we were talking during the break after we discussed Texas Roadhouse and talking about, well, maybe we need to do a road trip to get to a Bubbis 33.

There's one not too far from here. Maybe we need to do a little boots-on-the-ground research at an Applebee's and see what this vodka-cramberry lemonade is all about. It's tasty food. It's basically Kraft Mac and Cheese. The chicken fingers, as I just noted, are pretty good. You can order a delivery with the partnership of Grubhub. And Grubhubhub shareholders would love it if you would do that over and over.

Don't know if you can buy the drinks. Real quick, if you're looking for even more stock ideas and recommendations, check out our flagship service. Stock advisor. You get stock recommendations from Tom and David Gardner. You get their best buys now and a lot more. Just go to Radarstocks.fool.com. That's Radarstocks. Fool.com. 50% discount for the dozens of listeners. So check that out when you get a chance. Let's get to the stocks on our radar. And our man behind the glass, Steve Royd, is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week? I got CME Group, ticker CME.

operates the world's largest future and options exchange, most powerful player in the space, great position to innovate or acquire, a great toll booth model where they process a trade and they charge for transactions, clearing, settlement fees are collected as well. As institutions look to manage risk, they turn to derivatives that only increases their business. They have increased their regular dividend consecutively for the past nine years. They also pay an annual variable dividend based on profits. When you look at all of that combined, the yield right now is at about 2.3%. Steve, question about CME Group? What's a option strategy that you would recommend I never take or try? Nothing naked, which means you have to own the underlying stock at

the same time. Don't just speculate using options. Oh, really? That's what naked refers to. I thought it was just like some creative term to get people interested in options. Jason Mason Moser, what are you looking at this week? Yeah, going to go with the, what is now, the top performing stock in my augmented reality service. Everybody's heard of this one. Say it with me, folks. Lumentum, right?

Lumentum. Ticker is L-I-T-E. As I led into here, second quarter results were very good for the company. They are a chipmaker, ultimately, in the V-C-SEL, vertical cavity surface emitting laser. And ultimately, that's the technology that's required for 3D sensing, which gets us into great places like biometric authentication, augmented in virtual reality, etc., etc. 5G rollout is a nice tail win for this company, and they really do actually own that VC-SEL space. So a lot of things to like there. It's a good start to the year form. Steve, question about Lumentum. Where can I see

this product in the field today? Not 20 years from now, but today. Where is this today? Check out your local smartphone, whether it's an Android or an iPhone. You're going to typically find that technology being incorporated into all of these new phones. Andy Cross, what are you looking at this week? E-PAM system, symbol E-P-A-M, $9.6 billion company. It's a digital and software consulting firm is recommended in a few of our services. It's founder-led, Arkady Dobkin, founder the company back in the early 90s, and it provides digital and technology consulting services for lots of different firms around the world.

Expectations are quite high coming into the next quarter's release next Thursday. sales have grown 20% for 30 straight quarters. So if my math is correct, that's a little over seven years. The travel and consumer side of the business to like different travel sites and consumer sites has been growing only about 8% last quarter. That's a little bit slower than what we like to see versus some of the financials and tech part of their client base, which is more like 17 or 24%. So I want to see the travel business kind of show a little bit of a rebound. Steve, question about EPAM systems? What's driving the growth? growing forward.

All the digitization, all the applications we're using. We look at companies and what they're trying to do, how they're evolving. Everybody is trying to become more digital. And that really has been the big driver for EPAM over the last 10 years. Steve, we've got CME Group, Lumentum, EPM systems. None of them household names, but three very interesting businesses. You got one you want to add to your watch list? Well, I think Lumentum makes the most sense to me right now. So that's what I'm going with. Does it have anything to do with the sales job that Jason did? Because you really sold What was that? Vertical cavity? That was a mouthful.

You had me at vertical. Excellent. Yeah. You lost me at cavity. Jason Moser, Andy Cross, Ron Gross, guys. Thanks for being here. Thanks, Chris. Keep the emails coming. Radio at fool.com is our email address. That's Radio at Fool.com. Keep in mind, later this month, we've got our annual Thanksgiving special coming up. And speaking of Thanksgiving, it's possible we're not going to get to Applebee's.

So, if someone out there among the dozens of listeners wants to do a little boots on the ground research for us, let us know how Appleby's is, maybe try the new drink special. We'd appreciate it. Did you say booze on the ground research? Oh, I like that. Go ahead and trademark that. We'll make at least a dollar off of it. All right, guys, thanks for being here. 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. Thank you.