Motley Fool Money - Let's Make a Deal

Episode Date: October 28, 2016

Amazon and Apple slip on earnings. Mastercard surprises. Chipotle stumbles. And Google gains. Our analysts discuss those stories and weigh in on a mega merger. Thanks to Criquet for supporting The Motley Fool. For 20% off your first purchase, go to criquetshirts.com/fool and us the promo code "fool". Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's why they call it money. The best thing in life are free. But you can give them money. From Fool Global Headquarters, this is Motley Fool Money Radio Show. It's the Motley Fool Money Radio show. I'm Chris Hillen, joining me in studio this week. For Million Dollar portfolio, Jason Moser. For Motley Fool Rule Breakers and Supernova, David Kretzman, and for Motley Fool Pro and and options, Jeff Fisher. Good to see you, as always, gentlemen.

Hey there, Chris. Earnings Palooza rolls on. We've got the latest results from Wall Street. We will take a closer look at the big merger in the media industry. And as always, we'll give you an inside look at the stocks on our radar. But we'll be Begin with the AAA stocks, Apple, Alphabet, and Amazon. Apple's fourth quarter profits came in higher than expected, but that did not stop the stock from selling off a little bit. Jeff Fisher. You looked at the quarter. What stood out to you?

It looked good, really, Chris. Revenue was down 9 percent, as expected. But the company sold 45.5 million iPhones down just 5 percent. And it's selling every iPhone 7 it can make. It's sold before it even hits the shelf, basically. their supply constraint, constrained, which is the unfortunate news right now, they have more demand than they can meet supply. That may subsist through the rest of this quarter and even go into the next quarter for the iPhone 7 plus. So that's what analysts didn't like. They're not making enough product to meet all the demand. That said, it was a record quarter, September quarter for operating cash flow, which grew 19 percent. Free cash flow jumped 23 percent. And China still has a lot

of opportunity ahead as LTE networks roll out there. India, they talked about, finally has promise as 4G networks take hold there. You can't really sell a smartphone until you have networks that can support it. So, Apple, you know, the stock is up 10% this year, 100% the last five years. It still trades at about a 13 PE. And they're expected to grow earnings modestly but reasonably through 2019 at this point. So it still looks like a good holding. more demand than supply is definitely a good problem to have, better than the opposite. Something I really like to see with Apple is the growth in services. Services revenue accelerated 24% for the quarter.

That's the fastest that segment grew in the 2016 fiscal year. That's made up of things like Apple Music, the App Store, which the App Store grew more than 40%. So you're seeing a lot of strength there. I think that's just a great sign that users are engaging with the services and software side of Apple, which is often higher. margin revenue, recurring revenue in the case of Apple Music. So the more that that services segment grows, now more than $6 billion each quarter, that's a plus for Apple over the long

run. So true. And the installed base of Apple users on every product continues to grow every quarter, which then feeds into that services, as David talked about. The service business alone at 25 billion a year is bigger than most companies. Jeff, you mentioned the analysts and the supply chain and how the holiday quarter that we're going into. The guidance there is pretty light. I think they're sandbagging it. I think they're sandbagging it. Yeah, they only see revenue of 77 billion at the midpoint in this last quarter. Isn't that why the stock sold off, though? The analysts were looking for a more robust

guidance. It's funny the level of scrutiny that Apple withstands. I mean, it is a huge company, obviously a world-changing company, a very important company in everyone's life to some degree. But, I mean, it is still at its core, a phone company. I mean, that is what it is. That's how it makes most of its money. And I think the big question, you know, Tim Cook just hit his five-year anniversary as the CEO and the stock has done very well. Shareholders have doubled their money. I don't know that the next five years are going to be quite that easy. And the question we have, we can talk about this a lot in MDP, is with that balance sheet that they have, that whopping load of like $8.5 trillion in cash, what are they going to do with it?

Right? I think Cook's legacy is going to need to be as a capital allocated. And that's the question he has not even come close to answering yet. Yeah, but so Chris, Jason makes a good point. As going back to the next quarter, though, it will be their strongest, if they hit their estimates, their strongest quarter ever, and it represents a return to growth year over year. So people who are saying Apple's done growing are wrong, if this proves right. One of the reasons I think they're sandbagging is their biggest competitor, Samsung, makes a phone that keeps blowing up.

And Tim Cook spoke to that, too. No, it's unfortunate. Competition is stumbling, and we can't make enough phones to meet demand. So it's not really helping Apple all that much because they're selling everything they make. As David said, that's a good problem to have. Alphabet's third quarter revenue rose 20%. Net income was up 27%. Strong advertising on YouTube and through Google's mobile platform. David, this is like a greatest hits album. Man, Alphabet has ABCs of making money down. This was a great quarter. Free cash flow doubled

to $7.3 billion. As you mentioned, Mark, Mark. margins are improving, so seeing strong continued growth in that income. And given the size of Alphabet, that's really astounding and very impressive. They're really showing a lot of strength in mobile search, particularly with YouTube. But when you look at the mobile portfolio that Alphabet has, you have Google Search, YouTube, Maps, Google Play. That is a very strong platform as far as mobile goes. And they really are still in the early stages of monetizing YouTube. As a consumer, you'll notice a lot more advertising on the platform, a lot more promotion for YouTube Red, the premium subscription service for YouTube. So that is a very powerful platform. I think

that'll be something to watch closely going forward. Yeah, I think it's very interesting to see sort of the juxtaposition between Apple and Alphabet. I mean, you have one that is a great reputation as a hardware provider. The other one that is a great reputation as a services provider. I mean, they do make their money via advertising, but it's via all of the service. services. And both companies are trying to edge into those other spaces, right? I mean, I would argue, actually, that Google has this huge opportunity on the phone side with the Pixel because of Samsung's failures. Definitely.

Probably going to attract more people just because you don't have to switch operating systems. I don't know that Apple would pick up necessarily as many, but it would be incremental. And on the services side for Apple, that is a huge opportunity that they certainly need to continue to try to capitalize on. But two very, very large. in important businesses that are, you can see, they don't all have quite the total package. It'll be interesting to see how the pixel phone performs because Google or Alphabet has to prove that it can manufacture in a way as brilliantly as Apple has done all these years. And Apple cited in this last quarter more Android customers coming over to Apple than they've

ever seen before. Yeah, I think with the Pixel phone, Google couldn't have asked for a better opportunity given Samsung's flubs, because that's really the main upper-end Android phone competitor that the pixel phone will be facing as kind of that new, higher-end Android phone. So it's a big opportunity for Alphabet. If they can't capitalize with the pixel now, given the opportunity they have, that's probably not a good sign for their hardware business. Amazon continues to invest in its warehouse and delivery operations, and that is probably

why its streak of record quarterly profits came to an end in Q3, Jason. Well, with Amazon, I would also argue it's more about the top line with these guys. I mean, if you see the disparity in the way analysts project or predict earnings, it's quite large. But I think with Amazon, this quarter will be summed up with the, quote, history doesn't repeat itself, but it often rhymes. We are seeing the early stages of all of this investment that they're making into their international business, and particularly India.

That was noted in the call. So, I mean, operating losses internationally that reflect that investment, that's okay because they're still growing that top line. It should pay off down the line. It's sort of like what they did here over the past 10 years. And Amazon Web Services, that is a very competitive market. It is becoming a little bit more competitive, a little bit more saturated. So growth is slowing, but I think they saw a very nice, healthy boost to their operating

margin in that line of the business as well. So it's paying off as we thought it would. I think, as always with Amazon, it is all about how they invest their money. And I think that's the key word, is invest in the call. It showed up in some form 46 times. It's just constantly. They're investing in this, investing in that, video, logistics, everything to really become this customer-centric company.

And I think the long-term thesis here is still very much in play. Third quarter profits and revenue from MasterCard came in higher than expected and shares hitting an all-time high on Friday, Jeff. It's just another blowout quarter for them. It's been, you know, anyone who says you can't make money in the stock market during, you know, a flat market should look at MasterCard. Since it came public in 2006, the shares are up 2,000. 300%.

That's just 10 years. It's now a $118 billion company. It trades at about 30 times earnings, 26 times forward earnings, but they just grew earnings per share, 19%. So the company is growing strongly even in a weak economy where they're only seeing a gradual recovery in Europe. Everything's mixed in Asia still, and Latin America is bottoming out. And the U.S. is steady as she goes, really not growing much.

But they're able to grow anyway, double digits. transaction growth overseas, single digits as usual in the U.S., and their profits are leveraged so they make more money on even small incremental gains in revenue. So just a great business MasterCard as well as Visa, its main competitor. Coming up, we've got the Halloween-related financial stat that you've been waiting for. Stay right here. This is Motley Full Money. And it's a graveyard smile. Welcome back to Motley Fool Money, Chris Hill, here in studio with Jason Moser, Jeff Fisher, and David Kretzman.

Twitter was in desperate need of a hit, and it looks like they might have gotten one. Third quarter profit and revenue both came in higher than expected. Jason, the company is also cutting costs in the form of layoffs. Yeah, you said it. I mean, they were in need, desperate need of some kind of win anything. And really, I think that the stock didn't sell off 20% the following day. That's probably a win in and of its sense. But it actually was a decent quarter. They chalked up revenue of 616 million, which was up 8%

from the year ago quarter. Users now at 317 million, which grew from 313 million the quarter before. And this is all kind of showing us whether or not the – they're able to capitalize on these opportunities of 2016 in the form of the Olympics, the presidential election, this NFL deal, this move towards live streaming. I think there is some light at the end of that tunnel. I mean, from a product perspective, it is a good experience, the video. And it's encouraging to see that they're right-sizing the business. I mean, it's a bloated business. Not going to be so bloated now.

They're going to cut 9% of the workforce. And I know this is a bit of a heated topic, maybe on Twitter right now. I actually fully agree with closing down Vine. They bought Vine, I think, four years ago, about $30 million. That space has changed exponentially in just a short period of time. And Vine, really, they can do the same stuff with Vine, just in the core platform anyway. So I think you focus on your strengths. Your core platform, Periscope, live streaming video.

There is some light at the end of the tunnel there. They have the goal of Gap profitability in 2017. The stock-based compensation issue is improving. So there are signs of success, but we're going to need to see it on a sustainable basis. So we own it in a million-dollar portfolio, but we have it on hold. It's staying on hold until we can see some sustainable. signs of success. Does this, you know, proving that no good deed goes unpunished, does this mean that they have to repeat this in the current quarter? Well, they definitely need to repeat signs of progress.

Yeah, I mean, that's the standard that we're holding them to, is we need to see that in the form of growing revenue and users and, again, optimism as opposed to kind of playing defense. A tale of two restaurants shares of Buffalo Wild Wings up a bit this week after third quarter revenue rose more than 8%. Meanwhile, Chipotle shares hit a three-year low after third quarter same-store sales fell 22%. David, take those in whichever order you like. Yeah, a lot of restaurants are struggling right now, of course, but I think Chipotle exists right now to make other restaurants feel better about the situations that they're in. Chipotle revenue and store traffic both fell about 15%. Same store sales, still down 21.9%.

Net income down 95%. So, Chipotle is making incremental progress from the previous quarter, but obviously you're still having a hard time bringing people into the stores. And I don't think the recovery is really going at the pace that management had anticipated or would like. But there are some bright spots. This quarter, the big story, was the Chiptopia Rewards Program. That brought in 6 million participants.

Two and a half million of those people earned rewards. And 75,000 people earned the highest reward, which is catering, free. catering for 20 people, which is the value of about $240. So that should be some positive, you know, goodwill for the company in the coming quarter as people invite their friends to a Chipotle catering party. Moving forward, the company is really looking at cutting costs, investing in improving their digital ordering platform, and also renovating the second food line in the back of the kitchen. So they'll take care of digital orders, catering, delivery, and just help boost the throughput and efficiency of the store.

So that'll be interesting to watch. But they're also ramping up national advertising. So costs are not going to be going down anytime soon. They're probably going to launch a national TV ad pretty soon. They're looking into adding a dessert menu item in the coming quarter. So some changes going on at Chipotle, but I think I like the steps that they're taking. You're dessert, because that's what you really want when you go to Chipotle is. something else after you're done with your burrito.

Jason, Buffalo Wild Wings, don't get me wrong, I'm happy for the shareholders who see their stock increasing in value this week. This was not a particularly amazing quarter for them. Amazing. Geez, no, not at all. It was kind of a depressing quarter, actually. And I think one of the reasons why the market reacted to the stock the way it did was because the stock was relatively, I don't want to say cheap, but it looked like a pretty good bargain,

at least, going into earnings. Even with the reaction that put shares trading. it around 25 or 26 times, their revised full-year estimates, which were revised downward as well. So, Buffalo Wild Wings is a bit of a tough one, because, I mean, they've grown so far, so fast, but I'm not sure how far really they can take that concept. At some point, really, wings and beer can only go so far. It is very exposed to sort of the mom-and-pop fragmented nature of the business all around the country. And while they are tackling the mobile front and the takeouts, that's great, but they really need to figure out ways.

to keep people in those restaurants as well. Yeah, with Buffalo Wild Wings, you can definitely tell that the company is transitioning from a focus on growth to a focus on profitability. So cutting and maintaining costs, possibly initiating a dividend, taking on more debt to fund buybacks and other growth opportunities. So the company is in a transition period, but as long as earnings keep growing above 15%, I think Wall Street will be happy. Panera Bread put up strong numbers in the third quarter, and the company also raised guidance.

Despite that, shares still down a little bit this week. Jeff, I did not consider Panera to be one of those stocks that was priced for perfection. What gives here? It may well be, though, Chris. It trades it 25 times forward earnings estimates, and earnings grew about 8 percent last quarter. What Panera has done the last several years is invest in itself in Panera 2.0, as they called it, revamping stores, going digital, setting up a loyalty program. It's all done really well for the business.

And that positions them to, they hope, grow by at least 10. percent, the bottom line earnings per year, starting 2017, so starting next year. So that would be a good growth rate for this company at this point. But still, the stock is priced not cheaply, like so many stocks out there. Other ones we haven't talked about today, but Under Armour, anything that's priced beyond reasonably with high expectations is really getting hit this earnings season if they don't blow the numbers out of the park, so to speak. Go Cubs. But overall, Panera has done a lot of things really well, and they started talking about, you have to give credit to their CEO.

They started talking about it years ago, and they've really revamped. Now, about 60 percent of their stores are revamped. They're still working on the other 40 percent, and they're doing well with it. Shares of Hershey up more than 5 percent this week, as they should be, because for the seventh year in a row, spending on Halloween candy has risen. U.S. consumers buying an estimated $3.8 billion worth of candy this year. We've got about a minute left. Let's just go around the table real quick in terms of an underrated, undervalued Halloween candy. Jason Moser, you're up first.

I said it on Market Foolery earlier this week, and I'm sticking with it. Peanut Butter Twicks. You don't see enough of them. And they're way better than the original. Jeff Fisher? I looked up online the top 10 candies, and Junior Mints were not there. What? They should be. You get that little box of Junior Mints. It's gone right away. David Crutsman? I'm going to go with Smarties. I don't know. I can never get enough. of those. Let's go to our man behind the glass, Steve Broido. Steve, you must have an undervalued candy that you want to see more of in the world.

Chuckles. You guys remember Chuckles? Do they sell Chuckles outside of a movie theater? You can get them at Cracker Barrel, so. I don't even know what that is. You can always count on Steve. Yes, sir. All right.

Jason Moser, Jeff Fisher, David Kretzman, guys. We'll see you a little bit later in the show. Up next, media analyst Tim Byers, weighs in on the AT&T. time-warner deal and more. Stay right here. You're listening to Motley Tool Money. All right, before we bring in Tim Byers, I want to give a shout out to our friends at cricket shirts.com.

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I actually use the promo code fool. And again, it's cricket spelled CRIQU-U-E-T, Cricket Shirts.com slash Fool, and use the promo code full. Welcome back to Motley Fool Money. I'm Chris Hill. We are in the thick of earning season, but the week did kick off with a blockbuster merger. AT&T announced a bid to buy Time Warner for $85 billion, which means, among other other things, the battle for the living room just got more complicated. Here to help us make sense of it all

is Tim Byers. He analyzes the entertainment industry for Motley Fool Rule Breakers and Supernova, and he joins me now from Colorado. Tim, thanks for being here. Hey, thanks, Chris. Good to talk with you again. We have a tech giant buying Time Warner. I feel like I've seen this movie before. Oh, wait, it was back in 2000 when AOL bought Time Warner. that was a bigger deal in terms of dollars, but ultimately did not work out well at all. So I guess my first question out of the gate is, is this a good move for AT&T? I'm not sure. I think they feel like they have no other choice. Financially, I think it is potentially a horrible deal.

It's going to put AT&T, which already has $120 billion in debt, up $20 billion. dollars in debt, up towards $160 billion in debt. There's a $40 billion note that's out there, the Bank of America, and some others are looking at funding to make this deal happen. But there are serious questions as to whether or not AT&T can actually afford this and what the financial gain to shareholders would be. There are also serious questions being raised about whether or not this deal is going to get approved. Right. And yes, and you know, you have lots of different politicians making political hay over this. Trump has already said that a Trump administration would block it without any review,

draw any conclusions from that that you'd like. The Clinton administration has said they'd give it a careful review. Bernie Sanders is against it. Lots of senators expressing deep concerns. But that feels like a red herring to me. And the reason for that is because, you know, after AOL and Time Warner combined, and there were big questions about media consolidation. In 2010, Comcast and NBC Universal got together. There were some concessions made to the FCC in order to make that happen.

And there's really no reason that a serious review where some assets are sold off or what have you couldn't be made to get this deal through. I don't think that's the big concern. I think the bigger concern is the financials and what this really means for AT&T. Do you think, let's go back to the Comcast Universal, because that was a deal that took over a year to get approved. It was also a smaller deal. That was about a $30 billion deal. This is something that's nearly three times the size. Do you expect there to be concessions? And if so, does it lead to any sort of a spin-off of any of the major properties involved, whether it's with AT&T or with Time Warner? Yeah, sure. I mean, I could see TBS spinning off. as an independent network. That's one of the biggest contributors to the, you know, the Time Warner profit pile right now because of the, you know, just the cable fees there are still there.

I mean, came from court cutting, but, you know, ESPN and TBS are still big contributors. They earn a lot of affiliate fees. They earn a lot in, you know, subscription fees. So I could easily see TBS spinning off as an independent entity as part. of the concessions. But, you know, the real property, the real gem here that AT&T wants is the content, and that's going to be Warner Brothers. So the one thing you won't see spin-off, there are things that could spin-off. The one thing you would never see spin-off, at least I'd be shocked if they did, because it would invalidate the logic for the deal. It would be Warner Brothers. They need Warner

Brothers and Warner Brothers Studios in order to cash in on the content that they think will will help push the company forward. AT&T may have some issues with their balance sheet, but one company that doesn't is Apple. They're sitting on $200 billion worth of cash, Tim. Are you surprised that Apple is not more aggressively going after a major content deal, like whether it's Time Warner or something else? Yeah, I am surprised by that, frankly. Apple TV is a non-starter of a TV platform.

platform. And not because it's a perfectly fine distribution platform. You plug it in, you get Wi-Fi access, and now you're going to get Netflix, YouTube, and other things. But it's just an aggregator, which makes it no different than any other type of box. And if you've got $200 billion, and you have the means to be investing in original content, or better yet, like make good on the rumors from a year ago and strike over-the-top deals with networks like CBS. ABC and so forth, to actually bring live TV through the Apple TV box or programming to that box. Yeah, of course. But they seem to be unwilling to anger cable providers.

And they have more than enough clout and money to take on the cable industry. And Google, your alphabet, I guess, you know, the company formerly known as Google, has no bones about taking on the cable industry. so what the heck is Apple afraid of? Do you think at some point you mentioned YouTube? Do you think at some point we see a significant splash made by YouTube in the content space? Definitely. Definitely. And there will be a YouTube subscription service coming in the next, I guess these are the most recent reports in the next few months.

There will be a real YouTube subscription service to go alongside YouTube bread. right now, for those who don't know, YouTube Red is essentially YouTube without ads. And so it is a subscription service, and there is some custom content for that, but it's not much. What they want to do instead is have a real subscription service whereby you can subscribe and get on YouTube, CBS shows, ABC shows, you know, Fox and so forth. So they're negotiating with all the networks right now. So I do expect that to happen. And the key there, and what makes that so interesting, is that YouTube does generate 2 billion views per month on its service, and a lot of those views on mobile devices.

And when I watch my kids, you know, the three kids, they watch a lot of TV on their iPads or on the phone or what have you. They're used to mobile consumption. So it really is smart for CBS and these others to be looking at YouTube as a potential, distribution source for their content because, you know, I could very well see my youngest son, who's 11 right now, 20 years from now, have no TV in his home because he's already got his TV. He's building consumption habits on a mobile device. Boy, it is, when you think about the deep pockets that Apple has, that Alphabet has, all of these companies, it has got to be an absolute golden age to be a showrunner.

if you are someone who produces particularly limited series television, the options that you have available to you are incredible. Right. No doubt about that. And so that's why we're seeing so much of it. But you do wonder whether or not there is a saturation point. So like the other, you know, as we're taping this, I think it was either yesterday or the day before Chris, but then Snapchat said they're going to get into the original content business.

So at what point is it Fonzie jumping the shark? Is it the Snapchat moment? I'm not sure, but there's so much of these companies that want to invest in original content that somewhere we're going to have that moment. We're going to retrench a little bit. But for the meantime, Netflix has done amazingly well with original content, and it is actually driving subscriptions for them. if you look at what they said in their latest quarter, that the attraction of Stranger Things,

which, by the way, is a great show, if you have not seen it, brought in, you know, a significant beat on the subscriber line. And so, you know, when it works, it works incredibly well. So in that sense, it's really not surprising to see AT&T make such a rich bid. All right, one more topic, and then I'll let you go. And this is pivoting from television. I think it's fair to assume that at the end of this year, when we look back and we think about the major stories in entertainment business in 2016, one of them at or near the top of the list is going to be the success of Pokemon Go. And for all the fun that people may make of it, that has been a huge success. I'm curious as someone who watches the entertainment industry as closely as you do, what should we be looking for next in terms?

terms of either trends or just individual companies moving into this augmented reality space. Well, I think you use the right phrase because I don't think it's virtual reality. I do think it's augmented reality and VR as a component of that where programming has a multi-channel experience. So you take a Netflix show that has, you know, real-world completely. So say they broadcast a new original series or Stranger Things too, and you can have the VR experience on your Oculus if you want, and it'll be broadcast through Facebook, and you could, you know, go outside and visit the, or in your living room and visit the world of stranger things and have interactive, you know, experiences like that. I think that Pokemon Go opens the door to, you know, making, we, they have proved. the model that if you give a consumer an interactive experience and a challenge that, you know, they can accept and they can find, you know, new and interesting things, and it gravitates

towards something they're already interested in, and Pokemon has been popular for a very long time. So there already was a built-in demand there. But I do think there is a big opportunity for cross-channel media. And there's a lot of companies that can participate that in that. One of the biggest, interestingly enough, I think, is just Facebook as a way to, because it's becoming a video platform, it's already a built-in connection point with your friends, and, you know, they have obviously that big interest in Oculus. So we'll see where it plays out, but I like the future for cross-channel media, cross-channel entertainment. Tim Byers covers media and entertainment for Motley Fool Rule Breakers and Supernova.

which means this week has been busier than most, so I'll let you get back to work. Thanks for being in the team. Thanks very much. Coming up next, we'll give you an inside look at the stocks on our radar. 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 based solely on what you hear.

Welcome back to Motley Fool Money, Chris Hill here in studio once again with Jason Moser, Jeff Fisher, and David Kretzman. A couple more earning stories to get to before we get to the radar stocks. Under Armour shares falling more than 15 percent this week after third quarter sales growth came in at the lowest. It's been in six years. And Jason, their profit margins get a little squeezed. A little bit. I think really here it's more a situation of timing is everything. And for Under Armour, the timing, I think, has been adjusted a little bit. But it doesn't change the bigger

picture thesis for the company. This all boils down to the adjustment in operating income price target that they had set back in 2015. They were calling for by 2018, $7.5 billion in revenue and $800 million in operating income. They're ratcheting back on that operating income in order to invest more in the business. What they see is opportunities in footwear, international, direct-to-consumer, all of that good stuff. So it's really more of a matter of when and not if they're going to hit that $800 million. It's just going to be probably 2019, maybe 2020. It's very simple. The stock was priced based on one set of expectations the day before, and then the day after

it was priced on a new set of expectations. That sell-off made sense. It was right. It doesn't mean that the business is impaired. And I'll let everybody in on a little secret here, Chris. We actually added to our under-armor position after this sell-off in a million-dollar portfolio. So take that for what it's worth. Yeah, I think if you're an under-armor shareholder today, you shouldn't be investing with the

expectation of where operating income will be in a few years. This is a company that's investing for growth over the long term. This is not a two or three-year story. This is a five, ten, fifteen-year story. Very well said. Yeah, I think part of the reason the stock fell so much is sometimes when a company says we need to invest more for growth, it's because things aren't going as well as they hoped without that extra investment. But I agree with these guys on the long-term outlook for Under Armour.

Well, as an Under Armour shareholder, I feel better. So thank all three of you. You got it, bud. But we're here for. Next week marks the five-year anniversary of when Groupon went public. At the time, it was hailed as the biggest IPPRAO. by an internet company sent, wait for it, Google went public in 2004. That was then.

This week, shares of Groupon falling more than 20% after a bad third quarter report was compounded by the announcement that Groupon is buying Living Social, one of its rivals, for an undisclosed sum of money. That's probably good that they're not disclosing that they spent, I don't know, any money on Living Social. Is that mean of me? Well, I mean, we love to find the big dogs in the space, but that doesn't apply when the space sucks. And I think it could be argued that this space is less than stellar.

I mean, it's not good. I mean, we've talked about a lot of the weaknesses with this space, the online discount. I mean, it doesn't really, it doesn't elicit any brand loyalty. It has a lot of risks for bad customer experience, which then probably chases people off forever. And Jeff, we were talking about this earlier, is a lot of people nowadays are very aware of what brands they want to shop with. And they're ignoring a lot of the noise out there in the form of spam emails and whatnot. Yeah, Jason, there's less and less reasons to go out searching for things when you can

find them from your favorite few, right, with a quick click. So I think everything's becoming more competitive, and a few companies are rolling up so many of the profits that are available out there. But Living Social was worth $6 billion at its peak, and Amazon, speaking of Amazon, was an investor, so they don't get everything right. Maybe they sold early though. But yeah, it was acquired for nothing material. Yeah, I think in this case, Groupon is in a hole, and they're just digging the whole

deeper by doubling down with Living Social. Just to paint a picture, the gross margin has basically been cut in half since they went public in 2011. In the most recent quarter, sales only grew 0.4%. So when your sales are decelerating to that level and you're a lot less profitable, that's not a good combination. Yeah. Still, David, they see $3 billion in full-year sales, so it isn't like they're a tiny company,

but structurally, they haven't built the business correctly to capitalize on that. All right. Let's get to the stocks on our radar. We'll bring in our man. Steve Brodo from the other side of the glass. I hit you with a question. David Krenzman, you're up first. What are you looking at this week?

I'm looking at Etsy. This is a company that had a rough IPO within the past couple of years. This is the online platform to buy and sell homemade, vintage, and. and ultra customizable items. I think there might be something to this platform. You have 1.7 million active sellers and 26.1 active buyers. Those numbers are up a healthy amount year over year. The company is seeing most of its growth from seller services, where it provides services

to sellers like web stores, payments, and shipping solutions. They recently upped guidance for 2016. They're expecting 20 to 25 percent sales growth over the next three years. Healthy balance sheet with 266 million in net cash. So it's one I have on my radar. And the ticker, ETSY. Steve, question about Etsy? Do people that sell on Etsy have their heads on straight regarding pricing?

I've gone to Etsy and things are really, really expensive. It's high-quality stuff. It's customizable. It's the price for quality. You got to pay up, Steve. Yep. This ain't what's Olive Garden we're talking about here. Otterie Bowdery.

Don't you dare disparage Olive Garden. Jason Mozer, what are you looking at? I'm going to keep an eye out on Wednesday for Craft Brewing. Rue Alliance's earnings, the ticker is B-R-E-W. We've seen a very challenging quarter here in beer from Boston Beer to even the Biggs. Anheuser-Busch InBev ratcheted back their guidance as well. That was due to a particular weakness in Brazil. Craftrew Alliance is a tiny, tiny company, $300 million market cap.

But earnings come out on Wednesday. They recently amended a distribution agreement with Anheuser-Busch-N-Bev, which gives it a lot of certainty going at. And they are really, this is really becoming a story about the Kona brand, the Hawaiian brand that is really the main focus of their portfolio. And I'm trying to develop sort of a lifestyle beer brand around that like Bud has done with Corona. So we'll get a little bit better clarity as to whether that strategy is actually working. Steve, question about Kraft Brew Alliance? So if I'm in a big liquor store and there's 155,000 beers to choose from, which one do I go for? I think you've hit right on the biggest

problem that this industry is facing right now is such a massive amount of choice out there. It is becoming almost difficult as a consumer. Therefore, you're seeing a lot of consumers just fall back on old, reliable brands that they already know. Jeff Fisher, what are you looking at? Well, I think we talked about it earlier MasterCard, even though it's hitting a new all-time high, is still worth investors consideration if you don't own shares yet. But I'm going to pivot and mention O'Reilly Automotive, ticker is ORLY. I don't want to excite anyone too much here, but it's an auto parts retailer with about 4,000

700 locations, a great performing business and stock. And it fell quite a bit this week on earnings that were strong once again. So I think it may be a bit of a long-term opportunity for investors to look at. O'Reilly Automotive, Steve. Where are the big margins for O'Reilly? Is it a do-it-yourselfers, I guess? They're going in saying, I'm going to change my own breaks. That's one advantage or attractive thing about the business that's pretty evenly split between do-it-yourselfers and professionals. And they have operating margins that are far better than their competitors because they've figured out the distribution and cost structure of their business

better than anyone else. Steve, you've got a stock you want to add to your watch list? I may have to go with O'Reilly. That's a very wonderful answer. Oh, O'Reilly? On that note, Jeff Fisher, Jason Moser, David Kresbyn, guys, thanks for being here. Thank you. That is going to do it for this week's edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Matt Creer.

I'm Chris Hill. Thanks for listening. We'll see you next week.