Motley Fool Money - Lululemon’s Big Move

Episode Date: September 6, 2019

Lululemon jumps on strong growth in men’s sales and an improved outlook. Docusign delivers big returns on e-signatures. And Slack slips after its first earnings report as a public company. Analysts Andy Cross, Ron Gross, and Jason Moser discuss those stories and weigh in on the latest from Constellation Brands, PagerDuty, WeWork, and Zoom Video. Plus, we dip into the Fool Mailbag, and communications expert Emily Hoffman teaches us how to navigate crucial conversations. Thanks Netsuite. Get the FREE guide, “7 Key Strategies to Grow your Profits," at www.NetSuite.com/Fool. Learn more about your ad choices. Visit megaphone.fm/adchoices

If you're a small business owner, you already know what it takes to keep everything moving. You're juggling customers, invoices, and about 100 decisions every day. Thankfully, taxes don't have to be one more thing on that list. With Intuit TurboTax, you can get your business taxes done for you with a full service expert. TurboTax matches you with your dedicated tax expert. Who knows your industry understands your business write-offs and gives you the personalized advice your business deserves. upload your documents right in the app, hand everything off, and still feel like you're in the loop the whole way through. You can even get real-time updates on your expert's progress right in the app, which makes it so much easier to stay on track.

And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full service experts. This episode of Motley Fool Money is supported by NetSuite, the business management software that handles every aspect of your business in an easy-to-use cloud platform. Download their free guide seven key strategies to grow your profits today at NetSuite.com slash fool. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Full 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, as always. We've got the latest earnings from Wall Street. We will dip into the full mailbag. And as always, we'll give an inside look at the stocks on our radar. But we start with a couple of high flyers. And first up is DocuSign. Second quarter revenue for the provider of electronic signature technology came in higher than expected. Shares of DocuSign up 18% on Friday. Jason, Still not profitable, but the top line number sure is going in the right direction.

Chris, I mean, this is 2019. Come on. Come back. We need to be profitable. I mean, I don't know. I mean, all kidding aside, I mean, you remember last quarter, the stock really got hammered on some Billings guidance that management offered. And this quarter, it's sort of the opposite in play here.

So I think that really, this is a good example of how Billings can not only be a challenging metric with which to assess a business, but they can also present potential opportunities for investors paying attention. And Billings essentially is just reflective of new customers and subscription renewals and additional sales to existing customers. So it's telling you how the business is doing. It can be a little bit squishy due to timing and new products and whatnot. But this quarter, Billings were up 47 percent outpacing revenue growth, which is a good sign. They raised guidance, which is always nice to see as well. And so ultimately, it really is all about this company building out on its core competency in e-signage.

and document management. And if we've talked about the agreement cloud before, Chris, which I don't think we have, we're going to talk about it today. That's essentially the life cycle of document management, from inception to signature, to storage, to execution. And they are building out this agreement cloud, which is becoming the trusted source. It's the end-end solution. They have 537,000 paying customers now, dabbling into the mortgage business here with rooms for mortgage. I mean, that is a big market opportunity. You know, we saw, Before, Ellie Mae went private. They had partnered with Ellie Mae. L.E. May was using DocuSign for their products.

So, you know, the mortgage market is a big opportunity, so it's nice to see them entering that vertical. Have they uttered the phrase path to profitability? Do we have a sense of how long we have to wait here? I mean, are we talking Gap or non-Gap here, Ron? Because that is... I have an adjusted gap. That's my favorite. It is still a very young company, only about a year in the public markets, I suspect.

We have not seen them harp on that really so much right now. It is all about growing that top line and building out the cloud infrastructure and product suite. I suspect, though, this is a very high gross margin business profitability will happen. It's not terribly worried about that. And I think the business, from the business side, the investment side, we like the stock. It is very volatile. I mean, you just look over the last year and a half. The stock had touched base at 65 and just been all over the place.

So investors do have to realize, like many staff-based companies, it can be a volatile stock, and you really have to invest for the next five years. Shares of Lulu Lemon Athletica hitting a new all-time high on Friday after same-store sales in the second quarter rose 15%. Ron, I know Lul-Lemmon reported other numbers, but when your comps are up 15%, it almost doesn't matter. It's so impressive because it's consistently solid results. And I must admit, better results than I thought they would be able to put up consecutively. And this time around, really solid results in both on... online and menswear. Online up 30 percent. Men'sware comps up 27 percent, so at a faster pace

than the 15 percent overall comp. Really impressive to see. I was a skeptic of menswear. So again, I'll admit that. Clearly, I didn't call this one right, but they're really impressive. Revenue up 22 percent. Operating margins widened, translated to earnings per share growth of 35 percent. They were able to raise guidance as a result. Stocks trading at a premium, no doubt about it, 43 times for a specialty retailer. Wow. But they're putting up the numbers to support it. Well, you point out one thing that I think is really important, which is that you talk about the men segment growing. That's something management has called out for a couple of years

now, so it's nice to see a business, any business, sort of executing against their stated plans. And just to provide you a little bit of cover, I was thinking this morning about, you go back six, seven years ago on this show. And I think we were all a little skeptical of Lulu Lemon, in part because the price point they were selling the yoga pants at competition coming in from Nike and Under Armour. You know, you're forgiven for being a little bit skeptical. Well, I thank you, Chris, but it doesn't take the sting away. Shares of PagerDuty down more than 10 percent this week. Second quarter profits for the

cloud computing company came in higher than expected. PagerDuty's management raised guidance for the full fiscal year. And Andy, still sold off. Yeah, if you look at the revenue growth at 45% for the quarter, very healthy. A little bit of deceleration, the company is recently public. But what's the focus that I was looking at, and I think investors are paying attention to are just the investments they're making, continuing to making the business, not profitable, generated a little bit of free cash flow this quarter, which is nice to see. But operating expenses up 48%, again, versus revenue up 45%,

sales and marketing expenses up 49% as they build out both their people, which is the big investment, but also their solutions. Long-term, looking at the stock, their sales may be up 38% for this year. So I hope they can do a little better than that. It sells at 13 times sales. A really great culture they're building there for this solution. Very tech-friendly, insiders own north of 15%. So I like the business long-term. We'll be volatile in the stocks at a discount now. I'm still confused as to exactly what this company does. And I think it's the pager part of pager duty that really just. It just stifles me. What does PagerDuty do?

So it's basically they're the nerve center inside these big tech companies and help developers and operations and salespeople kind of monitor the solutions. And if things are failing and not working, they're basically sending out alerts. And it's kind of like an on-call management for tech people. The PagerDuty is basically a name they created when it was first envisioned inside Amazon, basically when they had Pager's many years ago. Yeah, I mean, we've had a little bit of fun over the years. at the expensive companies like Coach, when they changed their name to Tapestry, which we didn't

really completely get. Tronk. Tronk. Absolutely. This seems like one where we want to go ahead and just openly encourage the executives at Patriot Duty to put together a team. Maybe think about some rebranding in 2020. Zoom Video's second quarter report was pretty much everything you would want to see if you're a shareholder. Profits and revenue came in higher than expected. The guidance was good. Shares of Zoom falling nonetheless, Jason. And this is one of the of those recent IPOs that's really taken off. Is it just about the valuation? Is that why it's sold off? Yeah, I think the biggest risk to the stock clearly is the valuation in the near term,

because by every metric, the businesses, Ron, I'm sorry, firing on all cylinders. Don't be sorry. I mean, actually, we talk about companies that may want to rebrand. I wonder if Zoom might not want to take the video out of its name because they are, they've introduced this new Zoom phone product, which is really just an audio-based Zoom phone offering. Hey, man, I mean, just make it Zoom communications. It probably paints a little bit more of a clearer picture, but I think ultimately you can never really underestimate the power of a constant focus on making your customers happy. That's what founder and CEO Eric Yuan does. It seems day in a day out. But strong

quarter revenue was up almost 100 percent to 146 million dollars. Customers contributing more than $100,000 in trailing 12-month revenue were up over 100 percent. They stand now 466. put that in context, Slack just reported 720 of those customers. So you can see there is some room there for Zoom to grow that customer base. Total of 66,300 customers with over 10 employees. And then also some interesting data that they had on the call in regard to remaining performance obligations or kind of another billings metric. But ultimately, what it's telling us is that their customers are signing into longer-term contracts,

and they're doing that because they like the product and they are getting more value out of it. Let me step back for a second, because a couple of the companies we've talked about not really having to deal with the burden of being profitable. You mentioned something, Andy, they got me thinking, and it's basically how unprofitable companies invest. And when they're in that growth mode, that's something that we like to see. But I'm curious, as analysts, is that a little bit trickier to evaluate management on? It seems like for the blue chip, well-known companies that have a history of paying a dividend

or buying back shares, they've got that track record. It almost seems like it would be a little easier to evaluate how they do on that. And I'm wondering if it's just a little bit trickier for investors to look at younger companies that aren't profitable and judge how management is doing in terms of capital allocation. Well, I think in the big expenses and people, and evaluating the expense you're having people, we certainly saw it with PagerDuty. quarter and this year, it's far harder and more difficult to evaluate what the ultimate return on that will be. But that goes into your compensation, stock-based compensation,

and just costs of being on a manager growing business. So for those young companies, a lot of it isn't people. Yeah, the younger companies, the growth companies, you'll often see missteps. They'll go in one area, spend a bunch of money, they'll have to pivot. That's part of kind of the growing pains about being a younger company, eventually, hopefully growing into a midsize or a larger. not to give the larger companies a pass. Some of them are horrible capital allocators, whether it's buying back stock or making an acquisition that they never should have in the first place.

Yeah, and I think it's also with these younger companies seeing a clear strategy that they're focusing on their core competency. I think DocuSign is one good example. Zoom is another one. And if you look at the customer base that they're signing up here, they added a little-known customer here called HSBC Bank, Chris, which I say a little known facetiously here. I mean, that's going to introduce them to 3,900 global offices. 67 countries in potentially 290,000 additional hosts. So clearly they're doing something that is getting on these big companies' radars, particularly in the finance sector.

Chief Financial Officers not necessarily known for having a great sense of humor, but this week, one CFO made headlines for making a joke that turned out to be both funny and true. Details coming up. So stay right here. You're listening to Motley Fool Money. I've got $5 and it's Saturday night. Welcome back to Montyful Money, Chris Hill here in studio with Jason Moser, Andy Cross, and Ron Gross. This week, Slack issued its first report as a public company.

Shares fell 15% Thursday morning, but recovered some of that loss later in the week. What do you think, Ron? There's actually a lot to like in this report, but I think investors are mostly concerned about slowing top-line growth here. Revenue is up 58%. That's compared to 82% growth last year. But, you know, there are some really positive things going on. Net dollar retention rate up 136% in the quarter means they're able to get existing customers to spend even more money.

So we were talking earlier today about we all have Microsoft Office on our laptops, and there was an upgrade recently. And part of the upgrade is Microsoft Teams is automatically served up when I boot up my laptop. That's Microsoft's answer to Slack. And what I've seen of it so far, even though we use Slack here at this company, what I've seen Microsoft Teams so far, I think would have me nervous if I was either a Slack executive or a shareholder? I think that's precisely the reason we saw weak guidance for the third quarter. Increasing competition, specifically Microsoft Teams, and that led to revenue guidance of growth of 46

to 48%. Again, that's in contrast to the current quarter of 58%. So continuing this trend of saying our revenue growth is going to slow, to support a four. $14 billion valuation. That's not what investors want to see here. So, very formidable competition in the likes of Microsoft. Yeah, I do agree with Slack's leadership that channel-based communication is better in most cases than email. For most things, where Slack falls down for me is on the organizational structure. I mean, there's just no organization to it. The nice thing is it's a fixable problem. They just really need to get to it and figure out a way to organize.

it so that it's easier to find stuff without having to dig too much and then still ultimately coming up empty-handed. The last high-profile IPO of 2019 is WeWork, which had originally scheduled its public debut for later this month. But something interesting appears to be happening during WeWork's Roadshow with institutional investors, namely a lack of interest. This includes reports that WeWork's private valuation of $47 billion is roughly twice what Wall Street thinks it should be, Andy.

Whoa, Nelly. This is, I mean, I don't think we've ever seen this kind of, like, potential private market valuation downgrade as it goes ready to file. It's filed as reports, ready to go public. I mean, this is pretty big news, especially if you're SoftBank, by the way. SoftBank is the largest investor. There are reports that Adam Newman, who is the co-founder of Wee Company, the owner of We Work, flew to Japan to meet with SoftBank.

and Masayoshi Son, the founder of SoftBank. SoftBank's a big investor into WeWork, and now SoftBank's trying to raise money for their next Vision Fund, next $100 billion-plus funds. So when coming on the heels of the Uber IPO that wasn't a huge success, now there's some concerns at the SoftBank level, whether we should even maybe think about pooling the IPO. I mean, frankly, they need so much capital. We work is burning money. Revenues are growing, but doubling, but their costs are doubling more so. So the business, the economics of the business, not showing the profits that companies want, investors want to see, maybe they should think about pulling the IPO. Well, and you mentioned the Uber IPO. I mean, Ron, there were bulls.

There were people who thought that was absolutely going to work. And it may still end up working. The IPO wasn't necessarily a big success. I'm looking around. I'm not seeing a single person who's coming out on the financial media and saying, I love this company at this price. If you're the investment bankers, it's a disaster. I mean, the demand is just not there for the stock. They won't be able to support the stock. And I think there's nowhere for it to go. But down, unless you just take a baseball bat to the valuation.

But even then, there's just no appetite for the stock. If they pull it, I don't know where the capital comes from to support any type of growth going forward, whether private money steps in and tries to support this company. Well, I mean, you've got Wall Street saying maybe it's worth about half what they're saying it's worth now. Well, I mean, think about after it goes public, I mean, you know, that thing could then sell off to the tune of another half. I mean, you're really looking at a company here that the valuation does seem to be extremely in outer space. That doesn't mean that if it goes public, that's going to ultimately take care of business. Because I suspect if this thing does go public, it's going to get cut in half and possibly get cut in half again.

It feels like we're done with the IPOs for this year. I mean, at the end of this year, when we do our wrap-up show, this is probably going to be one of the stories of the year, the IPOs of 2019. There's a lot to like there, but I feel like we can just pack it in now. Maybe, but I mean, it's also a very good example of remembering that when a lot of these companies want to go public and they have a lot of private money behind them, there's an exit strategy that goes into investing in a lot of these privately held companies. I mean, these big investors have an exit strategy.

Eventually, they want their money back. And so that's what makes it so difficult, not only for them, but for investors who then want to consider investing in it when it goes public. It's just, you're depending on valuations. And as we've seen many times, valuation is more art than science in most cases. Constellation Brands has a portfolio of beer, wine, and liquor brands. And lately, Constellation has seen an uptick in the millennial generation's consumption of alcohol. Why?

week at the Barclays Global Consumer Staples Conference. Constellation CFO, David Klein, said he knows exactly the answer to that question. Millennials are starting to have kids. Ron, I've got to say, you have kids. I like the fact that he was just very open and honest, and as the parent of three kids that I really love, I think I understand why they're starting to see that uptick. I see some truth in there. It's also just the age one is at when they're having kids, right? Work, stress increases. Just life in general gets more stressful, looking to take a little bit of the edge off. It's interesting now that we're seeing a lot of these kind of new beverages, whether it's kind of the hard ciders or the sparkling wine with seltzer. So

you can imbibe, but maybe in a little bit of a healthier way. I will say, all kidding aside, I do think that beer, wine, spirits, I think this is going to be one of the more interesting industries to watch over the next couple of years, in part because, as you said, Ron, the entry of hard selt or hardteller, that sort of. Well, not just that, but then now we're seeing the cannabis market, CBD oil. So there's other alternatives for, you know, the Generation Z, who, you know, in the young 20s and the alcohol-consuming years coming up, they have the alternatives there legal, which weren't quite legal when we were growing up. Boston Beer's CEO just said they'll be jumping into that THC beverage market.

They're just not going to be first. They're going to see how the space is dictated. They'll be getting in there. Don't worry about it. All right. Andy Cross, Jason Moser, Ron Gross. Guys, we'll see you later in the show. Coming up, communications expert Emily Hoffman with a few ideas on how to navigate crucial conversations. Stay right here. You're listening to Motley Fool Money. Give me that wine. Oh, give me that wine. Yeah, give me that wine. Because I can't cut loose without my juice. If you don't know your numbers, you don't know your business. And the problem that growing businesses have that keeps them from knowing their numbers is the patchwork quilt of business. systems. You know what I'm talking about. One system for accounting, another system for sales, another

for inventory. It's inefficient. It takes too much time, too many resources, and that hurts the bottom line. Introducing NetSuite by Oracle, the business management software that handles every aspect of your business in an easy-to-use cloud platform. NetSuite gives you the visibility and control you need to grow. With NetSuite, you save time, money, and unneeded headaches by managing sales, finance, accounting, orders, and HR instantly right from your desktop or phone. And that's why NetSuite is the world's number one cloud business system. Right now, NetSuite's offering you valuable insights with a free guide. It's called seven key strategies to grow your profits. You can find it at netsuite.com slash fool. That's netsuite.com slash fool to download your free guide. It's free.

What do you got to lose? Seven key strategies to grow your profits. Go to netsuite.com slash fool. Everybody's talking at me. I don't hear word the same. Welcome back to Motley Fool Money. I'm Chris Hill. A few weeks ago on this show, our guest was Motley Fool co-founder, David Gardner. Recently on his podcast, David was joined by Jeff Haslow, our finance director and treasurer here at The Motley Fool. David and Jeff then got on the phone with Emily Hoffman, who teaches corporate clients how to have crucial conversations.

With more and more ways to interact at the workplace, companies are finding good communication is more important than ever before. David and Jeff started their conversation by asking Emily what she considers to be a crucial conversation. So we define a crucial conversation as a very specific type of interaction, and it's characterized by three defining features. The stakes have to be high, so it has to matter, the consequences of the dialogue have to matter, you have to have opposing or differing opinions.

If we all agree with everyone and we're just nodding our heads, it's not crucial. So you've got high stakes, you've got opposing opinions, and then the third element that is really the kicker is that strong emotions come into play. And when you take those three things, high stakes, opposing or differing opinions, and strong emotions, and you mix them up together, that's when a conversation really turns crucial. And the skills that we give people are around how to handle those, really high-stakes, difficult conversations.

These conversations really do. They're the fabric of our life in office, outside of office, and the more we can get better at them without ever probably expecting to be perfect, the better off we are. Emily, let me ask you some, because I think for some of our listeners, not yet familiar with the book, I hope they're inspired by our conversation to read into it and learn more, but they're probably hearing phrases like tools,

or there's kind of a self-consciousness about this that a lot of us probably don't think about when we have conversations. Crucial conversations is not a cognitive science. It's not something I need to understand. It's something I need to be able to do. It's a performance art. So it is really about saying, can I learn something and then use a skill or a tool in a very behavioral way? So we really try and offer up specific behavioral skills in the book that people can use. want a conversation to go differently than it has before, to go better than it has before, you have one option, which is to change the way you enter that conversation, to change the you that you bring to that conversation. I can't change the other person. I can change me. So we really

talk about how do I work on myself first. And there's a couple of great skills. I'll talk briefly about two of them that I love. The first one is to say, I need to focus on what I really want here. what is my intent when I come into that conversation? Because ultimately it's our intent, our motive, or what we call our heart, that drives our behavior. So if I can get my intent right, I'm going to be successful. And if you think about, in fact, I'd love all of our listeners to do that right now. Think about the last time you had a conversation that didn't go very well.

When you think about that conversation, getting in your mind, either you got really upset or maybe you cried or maybe you just shut down completely and thought, this is not worth it. I'm not going to say anything because I'll just get into it. trouble. Whatever it was you did, it didn't go very well. I want you to think about in that moment, what was your intent? What was it you wanted? For most of us, if we're honest about it, our intent was to save faith, to avoid conflict, to blame someone else, to be right in the conversation. That's pretty much always my intent with my husband, right? Like, I'm going to be right. He's going to be

wrong and he's going to apologize to me. It's so easy to get those kinds of motives. And instead, what we teach people is to challenge yourself and say, okay, that's maybe what my intent was when it didn't go very well. But what is it that I really want here? And not just what do I really want for me? Because that starts very self-focused. But what do I want for that other person as well? What should they be getting out of our conversation? And what do I want for our relationship? And what do I want for our team or our organization having to go through that process of asking those four questions and really thinking about what is it I want, that's how we challenge and get back to a better intent, an intent that will help us learn, produce results, strength and

relationships, and ultimately want to hear the other person. So that's a great example. About a third of the whole effort of the conversation needs to occur before the conversation ever happens, and it's this kind of self-examination, Emily, that you're talking about. You mentioned that there are kind of two tools you're going to hand out. That's the first one. What's number two? The second one is what we call master my stories. So as I told you earlier, a crucial conversation is defined by high emotions. And typically those emotions take us astray in a conversation.

Right? We get kind of a fight or flight response. We call it silence or violence. I shut down or I get really aggressive in the conversation, and I'm driven that way by my emotions. So what we teach in crucial conversations is a way to master our emotions. And in order to do that, you really have to understand that our emotions are driven by our stories. They're driven by the interpretations that we give to events. Often we think that our

emotions are caused by other people or what other people have done. And you can hear that when you hear yourself say, oh, he just really frustrates me or, oh, she just annoys me. We think that what other people do creates an emotional response in us, but it's not true. The science doesn't show that. The science, in fact, shows that it's our interpretations and our judgments, our inner processing of what we've seen and heard that creates an emotion. It's the story we've told ourselves about why he did that or why she did that that creates an emotion. And what that does is it unlocks tremendous power

because it says if you can learn to engage your stories, to process them, to cognitively challenge the story you've told yourself, you can actually create a different emotion in yourself, a healthier emotion, an emotion that will make you want to return to dialogue. Now, one of my assumptions about human nature, and I've said this before on Rule Breaker investing, and I stand by it, I hope the science bears it out. But Emily and Jeff, it's that we tend to judge ourselves by our intentions and others by their actions. So, somebody's late for the meeting.

If it's us, it's like, well, I was trying to be on time. If it's that, it's like, Dave's late again. And so instead, if we reverse those two things and try to judge others by what we perceive to be their intention, intent, hopefully a positive one, and ourselves by our results, I think that leads to a better meet. Yeah, so I absolutely agree with that, David. I think you're right on in that. And the thing that I often teach people in the class that I want to be careful about is

that shift of focus, right, where I judge them instead by give them an openness and say, okay, there could be lots of reasons they relate to that meeting. What that does is that allows me to challenge my story and change my emotions. but what I don't want to do is give a free path to bad behavior. I still want to be able to go address it. I still need to have the crucial conversations say about your perpetual tardiness or your poor results or whatever it is. Sadly, guilty is charged.

Whatever it is, it's frustrating me. I'm not going to say, like, let me give him the best of intent. Like, you know, let me be kind, let me judge not, right? I'm not going to say that just so I can let you off the hook. I'm saying it and I'm re-engaging with it so I can change my emotions. so when I go talk to you about it, we have a really good conversation that's like, hey, Dave, why were you late? I don't bring all my irritation and frustration there, but I don't avoid the conversation either.

One of my favorite questions while you're doing that process is why would a rational person behave that way as you're looking at the other person, that there are stories. There's a story, I think, in the book or either in the course materials about somebody tailgating you all the way and flashing their lights at you and you're getting very angry at them and then they pull into the emergency room of a hospital. And suddenly your anger goes away and you understand, oh, I was judging this person for completely the wrong reason. That's such a great example because the fact that your anger can go away so quickly

is evidence that the anger was caused not by the tailgating, but why you thought the tailgating was happened, the story you told yourself. And the moment your story changes, your emotion changes as well. So when we stop, we take a breath, we ask ourselves, what do we really want and how does that affect us, our emotions right in the moment? It makes me think, Jeff and Emily, that it's a higher order of thinking. I mean, a lot of us, it's hard to observe ourselves briefly within a conversational context

and then plunge back into that conversation and behave better. Emily, is that a skill that we all need to develop or is it already there inside us and we just need to let it grow some? Help me understand how I can be more self-consciously observant and reflective in the context of crucial conversations. I think it is a skill that we can develop, and I say that because I've seen people who haven't had the skill develop it. Now, that being said, some of your listeners are probably saying right now, but wait, I know some people who are just naturally good at it. And here's my anecdotal evidence about people who are naturally good at communication. It's that they actually have parents or teachers or school friends who are naturally good at communication.

I actually think they've learned it, but they just learned it a long time ago. So I do think when we get to the workplace, some people do seem really naturally gifted at it, but it's not that it's not a skill. It's that a skill they've already learned. You can hear more of that interview by checking out David Gardner's weekly podcast, Rule Breaker Investing. You can find it anywhere you find podcasts, and just like this show, it's free to subscribe. So just click that button. Coming up, we'll dig into the full mailbag to answer some of your questions. And we've got a few stocks on our radar to tell you about. So 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 ourselves 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. Before we get to the full mailbag, if you've got an Amazon Echo or Google Homehouse, assistant, then you can get the Motley Fool's daily news briefing. Just look for the Motley Fool on your Echo or Google Home app. Click subscribe, and you are good to go. That's the Motley Fool's daily flash briefing seven days a week on your home assistant. Our email address is radio at fool.com. Question from longtime listener Bruce Woodford, who writes, Oak Tree Capital Group has had a nice run since being acquired by Brookfield Asset Management. It's up 21% since the announcement

after years of remarkably flat returns. However, that fat, juicy dividend I've been enjoying, appears to have gone away. I was expecting it to show up about a month ago. I don't see any reporting about a change on the part of management. Can you explain what's going on? What am I missing? Yeah, Bruce. So, Oak is being acquired, and they paid their last distribution dividend on May 10th, $1.5 per unit.

And that will be the last one for Oak Tree. The acquisition will close sometime later this year, and then Brookfield will have their own dividend policy, make their own decisions of where that dividend goes. But as far as the Oak Tree dividend that you've loved so much, that's done. And we own Oak Tree in one of our real money portfolios, and I just reached out to Interactive Brokers, which is our broker. They have not yet provided the information on how to vote for the merger because it's part cash, part stock. So they're in the works of kind of getting that ready for their shareholders. So people may not have received all of the information yet from their broker on the Oak Tree Bam merger. Is this a common occurrence?

Because I'm not really familiar with Brookfield, but on the surface, that seems like an unforced error. If people, Bruce can't be the only person who bought a stock thinking, oh, I'm buying it for the dividend. And then to just discontinue it. Well, they were very clear that there would probably be only one more distribution when they announced the stock. acquisition. At some point, you do have to suspend it. They're into closing mode here. So the companies are going to be one company here. So at some point, you just got to cut that off. Question from Sam Muffley in Queens, New York. He writes, when you're buying new stocks or adding to your current holdings, how do you think about money amounts? I have around 60 socks

and I do bite-sized purchases that end up being about 1% of my account each time. I'd value any thoughts that you have. We'll just go around the table. Jason, I'll start with you. Yeah, I mean, I think primarily the goal is to make sure that whatever you're doing when you invest that money, don't pay any more than 2% of the overall purchase and transaction costs. So whether you're paying nothing or $5.95, just let that be your guide there. Then it really boils down to investing philosophy. I mean, are you looking to own 60 or 120 different stocks? Are you looking to own a more concentrated portfolio? Do you feel like there are some companies in there where you'd like to make higher conviction bets?

And I shouldn't say bets, higher conviction investments rather. But really, for me, it does all boil down to just making sure you're not overpaying in transaction costs. Then from there, it's investing philosophy. Yeah, I have no problem with nibbling into positions. We've talked about buying in thirds a lot for many, many years in stock advisor. So start a position, 1% is a good amount. What is important to know is how, I think Jason was saying this is how are you going to allocate future purchases? Do you want to keep this at 1%?

How it's going to grow? But I think starting positions, as opposed to jumping in and putting a chunk of money, whether that is $1,000 or $10,000 or $100,000 into a stock, depending on your portfolio, I don't feel like you have to go in and match up a complete allocation. Buying in as long as you maintain your costs effectively, I think that's okay. You know what I feel like really helpful? Once you get used to that old David Gardner axiom of buying your winners, you know, adding on the way up, it really makes it a lot easier because I think a lot of people feel like you

got to go all in to get it at the cheapest price. Once you feel good about adding to a stock on the way up, it makes this whole question a heck of a lot easier. I'll take the other side just for the sake of argument here. If you're intended to be an active participant in your investments, it gets difficult to do when you get up to 100 stocks. It's very difficult to follow that many companies to determine if they're on track, they're doing well, you continue to believe in them. So if you want to be more passive and you're just going to let them ride, and hopefully they'll do well over to the long term, then you might be okay. One other caveat is the more stocks you own, once you start

to own 100 or more, you're so diversified that it's likely that you're going to be getting a return that is equivalent to whatever the return of the market is, whether that's the S&P 500 or the Willshare 5,000. Diversification, to that extent, will lead to returns that are just equal to the market itself. What's that Buffett quote? Something like diversification is for people who don't know what they're doing? I don't know that I necessarily agree with that, but I just found it interesting to hear that coming from him at one point. You know what? That's a little snarky for Warren Buffett.

I don't think he says that. But credit to Sam Muffa, I mean, he's a young guy. So the fact that he's got around 60 stocks, he's got that kind of diversification. I mean, that's a good path to be on. All right, let's get to the stocks on our radar and our man behind the glass. Steve Broido is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week? I just started looking at Jack Henry N. Associates, J-K-H-Y, and August Stock Advisor recommendation. There are tech services and data processor for smaller U.S. banks and credit unions.

So all those regional or mid-size and small-sized banks out there, they need technology as well. Jack Henry is there to provide it. They've got an really incredible track record of stable growth, market outperformance, growing dividend. Revenue has grown for 30 consecutive years. They've increased their dividend for 23 consecutive years. And I think the continued trends towards outsourcing will only continue to spur that growth. Steve, question about Jack Henry? Can you give me a more specific example of what they actually do?

I'm a little confused here what Jack Henry is doing. Sure. So they'll provide the technology for a small bank. So whether it's electronic funds transfer or a mobile banking platform, automated teller machine platforms, digital check management systems, all of those technology solutions that smaller banks need. And much like PagerDuty, they have a name that doesn't necessarily... I was going to say, it lines up for me with like a mid-range whiskey or something, you know? Give me some Jack Henry. Jason Moser, what are you looking at this week?

Well, I wonder how many people are listening to us on this company's products. I'm looking at Sonos, ticker is S-O-O-N-O. But Sonos, they make their money by selling audio equipment in the form of wireless speakers and home theater speakers and components for those speakers. They are expanding their partner ecosystem. They've incorporated things like Alexa and Siri and Google Assistant voice control. Big partnership with IKEA, they recently just announced, which actually incorporates Sonos speakers into IKEA furniture. I really got to go check this out.

That sounds like a bit of a stumble. Maybe, maybe not. I don't know. We'll see. But, you know, balance sheet is in good shape. This is an interesting business. High reputation there in the speaker space. So learning a little bit more about the business as we speak. If I buy one of those things at IKEA, I don't have to put the speaker together, though. Oh, no, no, no. I think the speaker could... You might have to put the legs on the furniture, but the speaker should already be in there. Steve, right. A question about Sonos?

So we have Sonos at home, and I love it. What is the speaker? your favorite thing about Sonos, J-Moh? Well, I think, honestly, it's the audio quality. That's what's really captivated my attention, because as cool as I think Amazon's Alexa technology is, I don't think the audio technology is really quite up to par with something like a Sonos. So we'll have to give it a shot, Steve. That's interesting to know that you own it. Andy Cross, what are you looking at this week? Another fast-growing cloud SaaS company Z-scaler, symbol ZS. It publishes its earnings next Tuesday,

then has an investor day. It's when public in March 2018, one of the 3,000 companies helps provide security for their applications, all based through the cloud, so there's no on-site applications. Market cap about $9 billion, growing 50% a year, not profitable, but really looking at how they are continuing to grow the business and customers they're serving and what their revenue retention rates look like. So owner and founder owns almost 20% of the company, so looking to see how the growth prospects are shaping up for Z Scalar. Steve, question about Z Scalar? So that's definitely the coolest ticker or company name I've heard in a while.

Where did that name come from? Do you have any idea? It's a good question. I don't know that, Steve. I don't know where they got that name. X-Scalar was taken. X-Scalar was taken. X-Scalar, Jack Henry, three very different businesses. Steve, you got one you want to add to your watch list? Well, I'm enjoying Sonos at home. Maybe I will add it to my portfolio. You never know. You know.

All right. Jason Moser, Andy Cross, Ryan Gross. Guys, thanks so much for being here. Thank you. Thanks, Chris. That's going to do it for this week's edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.