Motley Fool Money - IPO Dramas and Apple's Big Surprise

Episode Date: September 13, 2019

Smile Direct leaves investors frowning. WeWork reworks its corporate governance. Old Navy prepares to split from The Gap. And Popeye’s brings new meaning to BYOB. Motley Fool analysts Andy Cross, Ron Gross, and Jason Moser discuss those stories and weigh in on the latest from Dave & Buster’s, GameStop, Shopify, and Zscaler. Plus, media and entertainment analyst Tim Beyers talks new iPhones and Apple’s evolving business (To get 50% off our Stock Advisor service, go to http://RadarStocks.fool.com.) Thanks to Grammarly for supporting Motley Fool. For 20% off a Grammarly premium account, go to Grammarly.com/fool. Learn more about your ad choices. Visit megaphone.fm/adchoices

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We've got some big IPO drama. We're going to dig into Apple's event from earlier in the week. And it's all brought to you by Grammarly. Grammarly is a communication tool that helps people improve their writing to be mistake-free, clear, and effective. Start writing confidently by going to Grammarly.com slash fool and get 20% off a Grammarly premium account today. Everybody needs money. That's why they call it money. The best thing in life are free.

But you can give them to the pie. From Fool Global Headquarters, this is Motley Fool Money Radio show. I'm Chris Hill, joining me in studio this week, senior analyst Jason Moser, Andy Cross, and Ron Gross. Good to see you, as always, gentlemen. Hey, Chris. We've got the latest earnings from Wall Street. We will break down what you need to know about Apple's big event. And as always, we'll give you an inside look at the stocks on our radar.

But we begin this week with IPO drama. And yes, we will get to the Wii company in a minute. But first, Smile Direct Club. went public this week. And shares fell 28 percent on the first day. That is a rough start, Jason, for the online dentistry company. Yes, maybe, but I mean, it's pulling a little bit of it. Maybe. Pulling a little bit of it back, right? I mean, all in all, it was a net loss for the week, but maybe it wasn't as bad as the first day, perhaps portended. But I think you look at IPOs,

and generally they fall into one of two categories. Either, you know, it was well done, and they They made a lot of money from it, or it was mispriced, and they didn't. It looks like, in this case, maybe it was a mispricing. I would just encourage investors to not use an IPO mispricing as the reason to say, oh, this is just a bad business or a bad company. I mean, you dig through the S1 for Smile Direct, and there's some interesting things here. It actually looks like it could be a pretty compelling idea. I mean, they paint a picture, certainly of a very big market opportunity.

The U.S. market opportunity of 124 million people, $234 billion. dollars based on that $2,000 price tag. And if you expand that out globally, obviously, it gets much larger. I do like the value proposition versus the traditional orthodontic model. And Matt Greer, I know, is just, he loves it whenever I mentioned teledoc and telemedicine. This gives you the opportunity to say teledentistry, Chris, teledentistry. So just say it a few times. It rolls right off the tongue. Listen, they have 300 smile shops around the world partnering up with CBS and Walgreens. You can either get this thing done through the mail, or you can actually go to one of those small shops and see an orthodontist in their network. What works against them, they do have a very convoluted organizational structure that I would encourage investors to at least understand a little bit more about.

But all in all, again, I think you don't look at a bungled IPO as necessarily a sign of a bad business. It was obviously a bad IPO and not the best start. But it's an interesting business, I think, from a number of angles. Yeah, yeah, yeah, great business. Back to the IPO for a second. Am I right that they priced higher than the indicated range, and then the stock got slammed? That's how it appears. That's an investment banking bundle, a bungle, to the 10th degree.

That's how it appears. That's a terrible pricing of an IPO. And didn't they raise their range up a little bit, too, from what was originally reported, right? Somebody did not read the demand correctly on this one. That's a big deal. You don't often see that. The Wii company saga continues. The parent company of WeWork is trying to salvage its IPO by updating its S1 filing. Andy, they're trying to make it more shareholder friendly, but their initial plans to go public at a valuation of 47 billion are quickly becoming a distant

memory. Yeah, pretty much off the charts now. They're trying to, speaking of bungled IPOs, they're trying to prevent having a bungled IPO. Now they've made these changes. to their filing their S-1. Now, they'll be listed on the NASDAQ, apparently, when they go. Apparently, now, reports are that they're going to try to go in late September. We'll set the initial price sometime soon. They changed a lot with how Adam Newman, the co-founder, the CEO, really the brand of WeWork now, his relationship with the company. They committed to appointing more independent directors. The board will choose his successor rather than a committee.

committee. His wife was supposed to be able to choose me. I've never heard of that. She is no longer, well, she actually works for the company, so she is no longer involved in that decision. Importantly, his high vote stock, which was 20 votes to one, is now going to be pulled back to 10 votes. So they are trying, but Chris, you mentioned the valuation. I mean, initially earlier this year, SoftBank had invested billions at a $47 billion dollar valuation. Now there are talks of this valuation being 15 to 20. they are 15 to 20 billion. They're trying to avoid the kind of situation that other IPOs like Smile Direct might find themselves in when they have a really bad day. And trying to avoid a stock price that a couple days trading after is much lower.

Yeah, I'm all in favor of improved corporate governance. I think this was pretty egregious. I think it's still a little egregious, but it's better. But that doesn't forgive the business model. The business model should never have supported a $47 billion valuation. in my opinion, SoftBank, I'm sure, has real smart folks over there. That baffles me. They've done a great sales job, I would say, with raising private money. But that sales job doesn't seem to be continuing to the IPO roadshow because I think people are really seeing this business model for what it is. Well, and SoftBank owns, I mean, they own almost 30 percent, up to 30 percent of the company.

So they are serious at SoftBank and its entities. And so they are seriously invested into the success of WeWork. Well, you talk about the questionable business model. I mean, they're basically taking the concern of the fixed cost of real estate for many workers and eliminating it. But the problem is, in eliminating it, they're just taking that risk on themselves. I mean, real estate at the end of the day is still a very expensive proposition. And to put some numbers around it, I mean, just remember in 2018, they brought in $1.8 billion in revenue. That's terrific. But you know what? They spent $3.5 billion to make that $1.8 billion. So, I mean, they're losing an astounding amount of money. And there's no real flipping point there where that turns around and goes the other way. And if we see this company, if we run into a recession or some other type of real estate crisis, I mean, this is a company that stands to get hit very hard. So it seems like a real mess. I mean, I understand why they're trying to rush to market.

There are a lot of people that want to cash out for this. But man, oh, man, a smile direct is looking a little bit better right now. Well, yeah, and importantly, they have a $6 billion line of credit lined up. But it depends on a successful IPO raising of $3 billion. So, like, they have capital, as Jason mentioned, losses piling up. They have capital needs. Really interesting to see what SoftBank and how much they are pushing WeWork to go public sooner. Or are they not and trying not to, but bankers are saying, no, you've got to go to the market now.

And there are a lot of investors out there in the market who don't want this to go because they're worried about what it does to the overall IPO market. Yeah. And the business, there's nothing proprietary here. There's competitors out there. It's duplicatable or duplicable. Replicable? That. There you go. That too. Landlords, owners of real estate can replicate this. Real true competitors and using the same business model are out there. Again, it speaks to the valuation. It speaks to margins. It speaks to cash flow eventually. I just don't see it. I realize that we're living in a different time than we did 20 years ago, particularly in terms of media and information.

But, Ron, have you ever seen anything like this before? The closest thing I can come is 20 years ago when Alta Vista was looking to go public. But that was really just a market condition thing that they canceled their IPO. I've never seen something like this where they are stumbling to the finish line. Yeah, you just know that I was going to say, I've seen IPOs be pulled, but it's usually the result of market conditions, not typically the result of something specific to a company. This is a debacle. Dave and Buster's down a little bit this week. Second quarter profits in revenue came in higher than expected,

but Dave and Buster's cut guidance. The stock took a hit initially, Ron, but it looks like it's mostly recovered. Yeah, not a terrible report, but investors are rightly focused on negative comps, lowered guidance. But you did have revenue up 8%, and that's largely because of store count increasing by 11%. That obviously helps boost overall revenue. You had a 9% increase in amusement, a 6% increase in food and beverage, That all sounds good, but again, it's only because there were these new stores that were open during the period. Comp sales, comparable store sales, actually fell 1.8%. That's not good. That's what investors are focused on, and they should be.

Interestingly, the company has a lot of initiatives in place to kind of improve results. They continue to repurchase shares. They pay a dividend. They're remodeling stores. They have a plan to continue to open new stores. But these new initiatives are going to take time. Therefore, they had to lower their near-term guidance. Stock takes a hit as it should. Shares only trading 13 and a half time, so if you think the longer-term initiatives are going to bear some fruit, it's actually not an expensive stock right here.

Speaking of store count, things continue to look rough for GameStop. Same store sales fell 12% in the second quarter. The video game retailer cut guidance. And, Andy, they're saying they're going to close a couple hundred locations, but there are still an awful lot of game stuff. $5,700. They have like $5,700. stores of GameStop and it's just moving in the wrong direction. This stock is pretty much, it peaked around $57 in 2013. Now it's down to $4. I mean, that's a 93% loss. It just

continues to kind of trying to find its way in a market where consumers are just not going into the stores to buy and to interact with games like we used to. And we're just much more, we've shifted away and GameStop, the business is trying to shift with it. And they're putting forth some initiatives, some digital initiatives, other initiatives, and they're closing some stores. But they have a lot of activist investors, some hedge funds getting involved. There was a proxy fight earlier this year. So a lot of Volter investors pushing for them to make much more draconian steps, and they still haven't quite done it. And the stock has really just suffered for it over the past couple of years.

Yeah, you know, it's interesting. They recently bought 12 million of their own chairs in a modified Dutch tender at 520. So where are we now? And the four is somewhere. It appears to not be a good of capital, at least in the near term. I do like that they're paying down their debt. They still have about $400 million of debt. It's relatively equal to the amount of cash they have. So I don't see any balance sheet trouble right here right now. Stocks trading at three and a half times earnings. Yeah, but those earnings are just not going to improve. Chris, you mentioned. They were guiding for comps to drop in the 5 to 10 percent range. Now they're going to be in the low teens.

The only part of their business that was up really was the collectibles business. So if that's your headline. I think that's a little sign of trouble. How much does an army of warehouse robots cost? The answer is next. 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. This week, Shopify made a cash and stock deal to buy six River Systems, a company described in the press release as, quote, a leading provider of collaborative warehouse fulfillment solutions. We're talking robots, right? We're talking about the rise of the machines.

$450 million in cash and stock for a lot of robots. That's right. At its very core, this acquisition is about warehouse automation. And it's another sign, I think, of the grand aspirations of founder and CEO, Toby Lukia. I think one of the great things about commerce from the investors' perspective, there are a lot of opportunities because it offers a lot of ways to innovate and bring more to the table for your customers. And so this is really kind of just right out of the page. page of the Jeff Bezos playbook, honestly. And I mean, to be clear here, this company,

there are folks who work there that came over from Amazon Robotics or what was formerly known as Kiva Systems. But yeah, I mean, their robot's name is Chuck. It's very easy to implement into the workflow. I don't want to know the name. Sure you do. Let's really, let's take this to a personal level, Chris. They're 12 to 18 month payback on the investment, which I think is attractive. They have a very robust customer base. And, I mean, listen, don't get me wrong. I'm not saying that Shopify is going to be the next Amazon. But Toby Lukie certainly, he has that same passion and customer-centric nature. And the only way you keep and grow your customer base is by offering great products and services and continuing to innovate and bring more to the table.

So, like you said, $450 million deal, mix of cash in stock. Unfortunately, as the story with Shopify has always been. It is not something that is going to impact the top line here in a positive way anytime soon. In fact, it's going to add to their expense line. So the business is going to continue to be unprofitable for some time to come. To put that into context, today, Shopify is trading around 40 times sales versus Amazon's four. So, you know, take that into consideration when you're thinking about adding shares of Shopify. But with that said, we own it in the augmented reality portfolio. Love the business. Just the markets really pull forward a lot of success. Rough week for Z-scaler, the cybersecurity company closed out the fiscal year

with its fourth quarter report and shares are down 25% this week. Z-scaler was your radar stock last week, Andy. I say that just to remind folks not to blame you. Thank you. Was the report bad or are expectations that high? It's the expectations, Chris. This is yet another lesson that we talk about for these high-beta, high growth, high multiple stocks, and when they start to struggle, or because they actually had a really nice quarter, but the guidance was a little bit weaker on both the revenues and the profitability. I think investors just saw that. Also, something Jay Chondry, the CEO and co-founder and the largest shareholder talked about some of their larger customers starting to slow a little

of their purchases, so I think investors were looking at that. But the quarter that they reported, Revenues were up 50%, billings were up 30, more than the 30%, profits beat both their own expectations as well as investors. But the guidance for revenue up about 32% versus more than 50% growth last year, and then the profit picture weakening a little bit for the investments they're making. Investors saw that and just wonder if the growth is starting to slow a little bit, competition ramping up for them in the security space, the cloud security space, and just wondering if the stock at more than 20 times sales is worth that price, and obviously they thought not long term.

I still like this business, and it's a cheaper stock, obviously, now. And long term, that market is extremely attractive at north of $20 billion in total potential sales down the road. So I think the stock at $6 billion in market cap with lots of cash in the books and their free cash for positive looks like a better buy today than it was last week. Next year, Old Navy will be spun out of the gap as its own public company. This week, Old Navy announced plans to open 800 stores. And Ron, for context, right now, Old Navy's got about 1,100 stores.

So that's a seriously big ramp up they're talking about. Almost double. We'll open about 75 stores per year, smaller markets, off mall locations, trying to get to $10 billion of revenue over time. They stand at about $8 billion right now. The other, after the spin, GAP Athleta, Banana Republic will remain with the new GAP. They will be focusing on denim for those who are interested in being or remaining GAP shareholders. Yeah, I don't know about that, but I think the Old Navy Company is much better positioned going forward.

Certainly, as we say, big expansion plans. I will remind folks, though, that they've struggled a little bit as of late. We've seen some cracks in comp sales for Old Navy. Actually, they were negative in most recent periods. So not a completely rosy picture, but I do think the spin-off makes sense. Yeah, but you look over the past decade, and frequently, when the Gap was issuing its quarterly report, the story was, Old Navy, much better than literally every other brand the Gap has.

For sure, and hence the spin-off to create the appropriate value. Restaurant Brands International is the parent company of Burger King, Tim Hortons, and Popeyes. You may recall, Pop-Iyes made headlines in August with a chicken sandwich that was so popular. It's sold out as the company tries to get its supply chain in order. Popeyes rolled out a new marketing campaign, encouraging customers to B-Y-O-B. Bring your own buns. That's right. Bring your own buns, Jason. Well, Popeyes will sell you the chicken tender so you can assemble your own sandwich. which, and surprisingly, to Popeyes, but not surprisingly, that everyone else, this backfired

and customers not happy at all. I mean, understandable, but I mean, what about those who are perhaps a little bit hasty, and they just immediately take off right after BYOB, and they show up the store like a 12 pack of beer, right? Because that's what we grew up with in the BYOB. I mean, it sounds like no matter what you show up there with. I don't know that bringing in external food is acceptable anywhere at any time in the restaurant business. It just seems like a lawsuit waiting to happen. I've got an idea. Order more buns. Isn't there a local grocery store with some pepperage farm or something? Don't ask me to bring a bun

and then give me chicken fingers and tell me you're selling me a sandwich. I think I get what they were trying to do, and clearly they are trying to get their supply chain in order. But, Andy, they're basically just trolling their customers, which is never a good idea. And it's not like restaurant brands. It's a small company. I mean, like this is a $20 billion, company, like, headquartered at in Toronto. I mean, like, they have a, as you mentioned, Chris, a lot of brands below. So they have a lot of people understanding and thinking about their customers and marketing. Somehow, to do this, I'm just wondering, hmm, what was the strategy behind that? I just feel like they were trying to parlay the success of this campaign, and they just

flew a little bit too close to the song. All right, guys, we'll see you later in the show. What was the headline of Apple's big event this week? Up next, we will dig into that and more with our man, Tim Byers. So stay right here. This is Motley Fool Money. All right, before we talk Apple, I want to say thanks to Grammarly for supporting this week's Motley Full Money. Grammarly is a communication tool that helps people improve their writing to be mistake-free, clear, and effective. They encourage everyone, even the best students, even the top professionals, to use Gramerly to do their best work and accomplish even more of their goals. They help people show their best self through writing, and it's available across platforms, including online browser extension,

desktop editor, and mobile keyboard checker. You can find it on multiple browsers like Chrome, Firefox, Safari. You can find it on platforms like iOS, Android, Windows, Mac. Their free product, which is great, reviews critical spelling and grammar. But Grammarly Premium looks out for spelling, grammar, plus structure, style within context, vocabulary suggestions, conciseness, readability for different occasions. so maybe you're working on a business proposal, maybe you're writing an essay for school, whatever. Grammarly Premium is going to help you out, and it's so easy to use that I've been using it.

I'll just say that the advanced punctuation helps me a great deal. So whether you're looking to polish up your resume or just look smarter in your emails at work, do yourself a favor. Check out Gramerly by going to Gramerly.com.com slash fool and get 20% off your Gramerly premium account today. That's Gramerly.com slash fool, 20% off. your Gramerly Premium account. All right. Let's talk Apple. Welcome back to Motley Fool Money. I'm Chris Hill. Earlier this week, Apple CEO, Tim Cook took the stage at an event in Cooper Tino, California to unveil the iPhone 11 here to help us sift through the headlines of Apple's event. It's Tim Byers, Media and Entertainment Analyst for the Motley Fool. He joins me now from Colorado.

Tim, thanks for being here. Thanks, Chris. What is your headline for the Apple event? It's on like Donkey Kong because we've got games, like for real. So this is very much a services announcement wrapped around an iPhone upgrade and some new watches. Let me put a pin in the games for a second because I do want to talk about the iPhone first because part of what's getting people's attention here is the pricing. Pricing both for the video service, which we'll talk about in a minute, but also for the the iPhone 11, which starts at 700 bucks.

On the surface, this seems like a pretty compelling offer compared to in years past, certainly the past couple of years, where Apple has unveiled the new phone, whatever it is at the time, and it's usually got a price stack of around $1,000. Did you see enough with the iPhone 11 to make you think, oh, this is a compelling argument for someone who's looking to upgrade? It's a compelling argument if you are. looking to upgrade but not go all the way up the stack because the I this is really epic rebranding and business insider gets some credit for this they did a review and what they found is

that the iPhone XR last year's you know big phone is roughly the same as the low end of the iPhone 11 so now you're not getting a rebranded low end of the phone it's just all iPhone 11 it depends on how high you go up the stack all the way up to the iPhone 11 pro and it's just a rebranded low end of the phone. So that $700 price point looks very attractive, but really what you're getting is an incrementally upgraded iPhone XR. I think that's interesting. I think it's smart marketing. I don't think that it is a compelling value proposition necessarily. Now, what's very interesting to me is the iPhone pro is a recognition that there are some photographers now who are making a living using their phone as their primary camera,

or at least the one that they are using to get out and get shots on the scene. And it does a really excellent job. And so I do think there is a professional market for an iPhone camera. And I think Apple is pricing in that area. They're certainly delivering in terms of features with the multi-lens camera. But I think that is the outlier announcement here. Really the big announcement is, can the iPhone 11 at the base level drive enough demand to stop the bleeding because this is a business, the iPhone business that's been growing a lot more slowly

in recent years. So we want to really see this turnaround. I'd be looking to see how many of those $700 iPhones we're lining up for. My expectation is not really that many, but I do expect there to be outsized demand, at least in that niche that needs it for the iPhone 11 Pro. So we saw this a few years ago in the enterprise space where computers, desktop and laptop were improving over time. And so you had large companies that were essentially not hitting the refresh button. And they were extending the lifetime of the equipment that they had in their offices. We're seeing this now a little bit with smartphones, where the average consumer keeps their smartphone for about three years. I've had mine even longer

than that, if you're an Apple shareholder or you're thinking about buying shares of Apple, do you need to lower your expectations for what iPhone is going to do to the bottom line? I do think you have to. And I'm right there with you, Chris. I mean, I've had my tiny little iPhone SE for coming up on three years now, and I'm not going to upgrade. So I do think we're in this phase now where the smartphone refresh cycle is extending. And that's part of the natural evolution of technology, the better the technology gets, the better the underlying gear gets, the more sturdy it gets. It has a longer life. And so there's less temptation to upgrade. And on top of that, you have cloud services, services that you can get anywhere, apps that you can

get anywhere. So it's much easier to upgrade the phone without upgrading the hardware. And this is Apple sort of killing itself in a way because the services business is growing fast. It is the second biggest part of Apple in terms of overall revenue. And so by making its services business so attractive, it does in a weird way make the business of upgrading your iPhone. It's just a little easier to put it off now. So yes, I do think we're seeing that. Now, if you're going to become an Apple shareholder to answer the second half of your question, what you really should be focused on is what Apple can do with its balance sheet and in this services business. Because certainly one of the things that people are going to be looking at is the wearables business, and I know we're going to

get to that. That is a potential catalyst, but the future of this company is going after Netflix, going after Amazon, going after Nintendo, going after all content and trying to own all of it through every device that they sell. So it becomes like content at the center and we happen to sell devices around it. That's an interesting strategy. If you believe that Apple can own that, and disrupt Netflix and Amazon and others, then it's a compelling buy here. So Apple TV Plus, their video streaming business, they came out with a price tag $4.99 a month. Are you surprised they went that low? I am very surprised they went that. I mean, that's a gut punch, man.

I think Netflix and Disney took a hit after that announcement, the stocks of both those companies, because that's a gut punch. I mean, basically, Apple is saying we're going to run our content business at a loss in the short term because we are intent on grabbing market share. Because this is not new. Apple has been in the content business for a little while. And their content hasn't really caught hold. So now, by lowering prices so dramatically, Apple is saying, look, give us a try. You're going to like what you see because the content is not.

selling itself right now. So they're looking for the price to sell the content until the content can sell itself. So I'm very surprised. It's a bold move. And it may pay off, but not in the immediate term. This is much more of a long-term play where Apple is using its balance sheet at $100 billion in cash that they have available to make a power play in both the gaming business and the TV business. Well, and they also got a tiny bit of a leg up on Disney. with the timing of when Apple TV Plus comes out, because it's coming out November 1st, nearly two weeks ahead of Disney Plus.

Right, right. And that is important, too. So there is definitely going to be a rush to figure out, especially going into the holiday season, do I want the Apple TV? Am I going to buy a new Amazon device? Am I going to order Disney Plus? This is going to be a really interesting holiday season.

And in the middle of all this, right, is Netflix. And so now we get to see just how sturdy the Netflix model is, because up to this point, Netflix has been, has had two principal advantages. The first is that they had scale. They have a lot of scale in terms of a lot of shows, a lot of inventory. The second advantage they had is they're beloved by artists and creators because they give you a budget up front, and you create and you dictate terms. and artists have been willing to give up things like royalties and residuals in order to work with Netflix. Will that continue to be the case when Apple is throwing money at the business? If Disney is throwing money at this business, we'll see.

I think it's going to be a very interesting time for all three of these companies, but the one that's most at risk is Netflix. Let's talk about wearables for a second because one of the things I was thinking, as I was looking at coverage of this event and also some of the highlights is that it really seems like Apple is positioning the watch as a health device. You know, they had this video of people who were warned of heart attacks by the watch and it's, I'm not someone who wears a watch, but they made a pretty compelling, almost emotional case for buying this device. And that is Apple at its best because Apple at its best. Because Apple at its

best makes emotional appeals and connects emotions to technology so that you feel invested. And so it's interesting. I don't know if it's certainly a good short-term strategy to connect the dots and say, hey, look, this is what you need in the environment we're in now. People are working longer hours. We're working out. We're trying to measure our fitness, measure our lifespans and everything else. The watch is sort of the hub for health tracking. And it's an interesting play, but I think it's also bigger than that. If that is the loan pitch that Apple makes to the Apple Watch, I think that dies in six months because we've heard this before. And before our health tracking device has been our smartphone. So we're really going to take the leap

from where we are using our smartphone to kind of track our health with apps like Strava, or even just the built-in app inside the iPhone or any other smartphone you pick and moving it to the watch, I don't necessarily think, despite the emotional appeals, that that translates over the long term. But in the short term, yeah, it's an interesting pitch. Tim, this event reminded me without Apple ever talking about it on stage, and there's no reason that they would of just how much of an asset their cash balance is. Because if you think back to the initial launch of the watch, it was sort of a ho-hum response from Wall Street. The talk of video programming for a long time has been just that talk, or to the extent that they've executed

against that, it hasn't been that inspiring. And this has just been a nice reminder that one of the things that cash enables you to do is it buys you time. We have now new iterations of the watch, and now they're in a position where they can throw enough money at video programming. As you said, we're going to operate this at a loss. We're going to give stars in the industry, the bandwidth, to create great programming, and we can do that because we got the cash. That's absolutely right. And let me give you a stat here, Chris. So Apple has about $100 billion, on its balance sheet in cash right around $95, $95 billion. They also have a little under $110 billion in debt.

What you don't see unless you look at the balance sheet is there's another $100 billion in long-term investments. So Apple has a lot more cash that they could either repatriate from other countries or from other businesses and put to work. They have a huge runway. And Apple has gone from being a company that's keeping cash as a cushion to now being a company that's using cash as a weapon. That's different. So this is a very different look for Apple.

And it could be, I mean, it could bring in a new era for this company and drive returns for a while. But it does remain to be seen. It's just a fundamentally different pitch. Apple has always pitched itself as we build something that is high quality, that has emotional resonance that you're going to want to associate with. They've never been able to get over that hump in entertainment. Now the sales pitch is different saying, look, this is cheap. If you give it a try, I know we can convince you that the stuff we've got is high quality and has emotional resonance. But they haven't been able to make their core sales pitch in this entertainment business. So they're

trying something different and they're using cash to do it. So it's a very interesting time to be an Apple shareholder if you have shares now. And if you don't, it's an interesting time to look at the business because they're going to be very aggressive. That's one of the main takeaways I got from this event, Chris, is that this is a sharper elbowed apple that is taking fewer prisoners than it used to. Last thing, and then I'll let you get back to work. Shares of Apple are up around 40% year to date. What is something you're going to be watching in Apple's business going forward? I'm going to be watching the services line item because it's growing, it's growing quickly. It's not growing as fast as wearables, but I want to see what the uptake is.

And I want to see not only the growth on the top line, but what does the operating margin look like? Because if I'm right and this is running at a loss, we're going to start to see some thinning margins inside that services business, that's okay as long as the top line is growing very quickly. So I'm looking for maybe some acceleration in terms of revenue from the services business while the operating income where a lot of the expenses, some of the fallout from running this at a loss is going to show up. If those two things start to normalize and get bigger, boy, I'll be very, very interested to see that. And if it moves faster than I expect, then two things I expect will happen.

First, the stock will respond accordingly. And it might be a dark day for Netflix. Tim Byers covers media and entertainment for the Motley Fool. Tim, always good talking to you. Same here, Chris. Thanks a lot. Coming up, we'll give an inside look at the stocks on our radar. You're listening to Motley Fool Money. If you've got the money, I got the top.

We'll go honky talking and we'll have a time. We'll make all the night spots do the town a fine. If you've got the money, honey, I got the time. If you've got the money, honey. 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 that don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill,

here in studio once again with Jason Moser, Andy Cross, and Ron Gross. And Ron Gross. We will get to the stocks on our radar in just a minute. But if you're looking for even more stock ideas, you can check out our flagship service, Stock Advisor. Every month, you'll get stock recommendations from Tom and David Gardner. You'll get their best buys now and a lot more. And you can get a 50% discount off the price. That's what we negotiated for the dozens of listeners, Ron. Just go to Radarstock.fool.com. That's radarstocks.fool.com and get 50% off stock advisor. All right. Let's get to the stocks on our radar. Our man behind the glass, Steve Brodo is going to hit you with the question. Ron, you're up first. What are you looking at?

I got CRISPR Therapeutics, CRSP. It's part of my gene therapy basket, along with six other companies, including Editas and Intellia. They're a Switzerland-based gene editing company focused on the CRISPR-Cast 9 editing technology. Now, shares are up 70 percent this year, but don't let that scare you. This is still an early-stage story. It's going to take a long time to play out. There's going to be plenty of ups and downs over the years. They're partnering with Vertex Pharmaceuticals to treat blood disorders through this gene editing technology. Balance sheets solid, $428 million in cash, another $175 million coming due to an expanded partnership with Vertex. Strong balance sheets are essential if you're going to play this early stage biotech game. Steve, question about CRISPR therapeutics?

When will I first see some results of their work? I think within the next 18 months, you'll see a lot of trials kind of progressing to the same. stage of where we'll either be really excited or really disappointed, but there's a lot of really interesting stuff happening. We've got a little bit of time, Ron. You want to ask Steve a question? Yeah, Steve, I would love to. According to your Facebook page, you're a fan of musician Bob Mould. Please explain that. Bob Mold, he's huge. Husker-Doo. He's from Minneapolis. He's a great, great musician. I've got to get out more. Jason Mozer, what are you looking at?

Well, giddy up, fellas, because I'm taking a look at Churchill Downs for a big project we coming up here at the end of the year, Chris. We'll probably get into more of that later. Downs, ticker C-H-D-N. And you may not know this, but the Kentucky Derby is the longest continuously held annual sporting event in the United States today. Pretty impressive. But Churchill Downs is far more than just the Kentucky Derby Company. It operates casino's other tracks, online gambling sites, including Twin Spires, which is the largest legal online horse racing platform in the U.S. of the three major revenue buckets in racing and online wagering in casino. It's casino that actually is the biggest moneymaker for the company. But as we see

this regulatory landscape in the U.S. continue to evolve in regard to gambling, I think that Churchill Downs could be in a really good position to benefit, given their experience in the space. Steve, question about Churchill Downs? When do you think brick-and-mortar casinos will go away? I don't know that they'll go away, but I do think that's a really good point, Steve, because as we've seen the proliferation of mobile technology, a lot of companies out there really capitalizing on mobile sports betting and Churchill Downs is no exception. You want to ask Steve a question? Yeah, you know, Steve, I'm just kicking around

another project to do around the house. I was wondering, what was the last home renovation-style project that you undertook at your casa? Well, I tried to paint a door last week. And that was, when I messed it up the first time, I tried again last week, and I think I'm going to be hiring someone. Andy Cross, what are you looking at? Scholastic Corporation, symbol,

SCHL, largest publisher of children's books and magazine. Steveo, maybe your kids read Scholastic News like my daughters do at school. Reports earnings next week. Stock's around $40, market cap of $1.4 billion, $300 million of cash on the books, no debt, and yields 1.5%. Stock has really not gone much anywhere. We actually shorted it in another mindful service before. What's really interesting to me is how they're moving into the digital space, like streaming, taking some of their brands into Amazon Prime and PBS kids, like Clifford, The Dog. Steve?

Five years from now, will they be having anything in print format? Yes, they still will. Three stocks, Steve. You got one you want to add to your watch list? I think I'm going to go with CRISPR. Nice. Finally. Ryan Gross. Andy Cross, Jason Moser.

Guys, 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 time.