Motley Fool Money - Motley Fool Money: 10.23.2009

Episode Date: October 23, 2009

Amazon.com and Netflix report big earnings.  Microsoft unveils Windows 7.  And the “Pay Czar” gets down to business.  In this installment of Motley Fool Money, we tackle those topics, talk about a new study on the relationship between housework and sex, and share three stock ideas.       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. Welcome to Motley Fool Money. I'm Chris Hill and I'm joined in studio by Motley Fool Senior Analyst, Seth Jason, James Early, and Shannon Zimmery. Guys, happy Friday. Happy Friday to you, Chris. Is it happy? I'm happy. Stocks are moving down late here. Oh, oh, just your way. We'll get to that. Margins galore. One of us is extremely happy. On this week's show, we've got earnings from Yahoo, Netflix, Microsoft, and Mickey D's. We've got a salary-slashing Paysar, and as always,

We've got three stocks on our radar. But we begin with Amazon, reporting much better than expected earnings. The stock is up more than 20% today. Ended the quarter with 98 million active customers. And Amazon said the Kindle is the company's best-selling product, but didn't really provide any specifics around that. And I'm really happy because I'm an Amazon share. I was very surprised.

I mean, that's really incredible. If you think about it, that means it's selling better than the iPod, not probably all iPods together, but any individual iPod. And you've got to figure any individual model iPod. They must move a lot of those. Well, they've clearly rekindled desire among American consumers. Oh, good.

I like it. I like it. I mean, that's actually pretty incredible. And I don't know if we talked last week. I can't remember. I've had a lot of cold medicine. If we talked about the new Barnes & Noble reader recently, the Nook, which looked pretty interesting to me.

But I wonder if Amazon isn't so far ahead right now if this thing is really selling like that. they can afford to just keep the prices low and essentially freeze the nook out. I mean, they may have won the game already. Yeah, if they make it a commodity product, then who's going to play in that space? I think that James and I might be the last two humans not to own a Kindle. My wife has one coming in the mail. Oh, I'll be the last human. In looking at the company in the crazy stock price pop today, Amazon has almost everything that I love to see in the company that I want to invest in. Seriously, talented management, no debt or a little negligible

debt and growth prospects a plenty. But you look at that valuation, it's just crazy. There's 60 times current earnings, 20 times cash flow. 20 times free cash flow or so. You look at insider activity, they're not buying shares. They're holding what they have on the margins. They're net sellers. But at this valuation, even great companies can be lousy investments, and I think the Amazon is a lousy investment right now. I will say I like that international sales are about 47% of their total sales. That actually impressed me, but I am concerned long term about Walmart's entry into this business. I think that could be something to watch for, especially if you're already concerned about the valuation. I would like to point out that I was concerned about Amazon's valuation when it was,

I think, about $50 or $40 a share, or not so long ago. How'd that work out for you? Yeah. Now that it's north of 110. Exit question. Back in the day, you mentioned Barnes & Noble. That's who Amazon was really competing with and gunning for. Barnes & Noble, borders. Is that still their competition today, or are they aiming for? or something. James is right. They're the new Walmart. Yeah, it works both ways. It's everybody. There's not plans of products, yeah. Microsoft shares up today, after reporting stronger than expected earnings.

Sales were actually down, in part, because Microsoft is deferring revenue on its Windows 7's upgrades, and yes, Windows 7 launched on Thursday. How do we think Microsoft did? Well, Microsoft results were just like Apple's only worse. They were actually positive compared to what the market was expecting, but Apple, but Apple really blew out the quarter. Yeah, we'll see what Windows 7 does. I think that's going to be the key. This is the weird horse race that people like to talk about all the time.

Microsoft sells two things. Software, or one thing, software. It's about three different pieces of software that it sells, the OS, Office, and then some server stuff. I mean, those are really the big thing. So to compare it to Apple, people love to do that because they love, because that is the competition they see in their living room with the computers, but it's not a very good comparison.

And they do have the Zune. Well, I was going to say, does it make sense at some point for Microsoft to just abandon things like the Zune and really focus on its core competency? Well, people might have said that ought to the Xbox, and that would probably be a mistake. So, I mean, the Xbox, I didn't look at these numbers in detail to pull out the Xbox stuff. These numbers are, this is, let's be honest, Microsoft is not going to be a fast-growing company. It's already so huge and it's got such a huge market share that there's absolutely no way it can, grow at 20, 30, 40 percent rates ever. So if you invest in Microsoft, you're there for cash flow and you're probably hoping that that dividend continues to come in. So a dividend investor like James

Early is probably very interested in Microsoft. Anyone purchased Windows 7 yet? You're the only user. I'm a Mac guy. And it's just the release candidate version, but it's great. In some ways, they seem like an old-school company who's great days of growth are behind them. But it really is a sleek sort of lean-to-meat operating system to compete with Snow Leopard. And in terms, of media sharing in your home, it's pretty sophisticated. Even Mossberg liked it. They could out-hivo-T-bo. He said Apple was no longer better than, he said it was no longer worse than the Apple OS,

which is incredible. I dropped my coffee. There are problems. I mean, there are 17 different flavors of this operating system, and not all of the flavors have, all of the cool functionality. It's 17? I thought they brought it down to three. It's 31, actually.

Okay. Over the next five years, what do you like better? as a stock, Microsoft or Apple, and not to be morbid, keep in mind Steve Jobs' health over the next five years. Well, and it is such a jobs-centric company. And I don't know. I mean, can Apple continue to innovate in the way that they do and actually get traction around their innovations? Maybe. They've been pretty remarkable at that so far. A lot of what's going on for them is something similar to what's going on with Google. People want to be a part of that story. And so that gets ahead of the fundamentals, if that gets ahead of the fundamentals, then no. I think that Microsoft

will out-earn them. James? Yeah, on the, not the PC, but the computer end of Apple, I actually see it more as not just them so much doing great now, but sort of catching up from previous dumb decisions made a long time ago, sort of earning their rightful market share. They're still not that large compared to Microsoft. I would say for the growth stock, certainly Apple, but as Seth points out, for a dividend stock, Microsoft could evolve into something. pretty nice. Okay, way to stay on the fence there. If you're, if you're buying a stock for a stream of cash flow, you want Microsoft. If you're buying a stock hoping that somebody's going to buy it from you later for more money than Apple. All right. A lot more earnings this week. Let me get your

quick take on a few. McDonald's, better than expected earnings. U.S. operations delivered 6% earnings growth aided by its Angus Burgers and McCaffey-Epresso-based drink. No, when you say Angus, it's not just the Angus Burger. It's not just the Angus Burger. It's It's an English third pound burger, Chris. Americans love a big burger. I'm going to break a little news. They're working on a sandwich that includes an entire canned ham. In time for Thanksgiving.

The average American male has four pounds, I think, of undigested red meat in his colon. No. No, that is, come on. That's not even in wiki. I bet that gets cut out. I just wanted to say it. I just wanted to say. Snopes.com, ladies and gentlemen.

This is an interesting thing to me. What McDonald's has done is sort of what Britney Spears did, if you think about it. Remember Britney Spears was only a joke? And then people kind of started to like her in an ironic way. And then people just started to like her. McDonald's coffee actually becoming a growth engine and somewhat respected. Used to be a joke. People only drank it if they had to or if they were very old and looking for a free cup. Now people stop there for the coffee. It's pretty amazing. I actually love watered down diner coffee. So the old school McDonald's, that was me. Yahoo, better than expected earnings. But revenue still down. and yet Yahoo raised its outlook for the rest of the year. Any thoughts? Anyone besides me missed the fact that CEO Carol Bartz was not on the conference call because she was sick?

F-bomb. I was following more closely the lap dance story, actually, Chris. If you just Google for Yahoo! Lap-dance, and ironically, Google for Yahoo! It's not of the times, I guess. Shouldn't you be using Bing? You will see some interesting photos, and we at Motley Full Money should have been invited to this party. me say but apparently they do this every year and and oddly enough I could almost see Carol Bart's endorsing this is a Taiwanese kind of shindig for the Yahoo folks over there

they have this uh this this these exotic dancers come and I guess this year they finally gotten some sort of a PR trouble for it well that's almost hard to believe that they got in trouble for that I mean exotic dancers at a company event we had lap dances in here this morning with breakfast where was that for that yeah but Mac was doing them so it was less it was less fun. All right, so let me try to yank this out of junior high school. So very poor year over year results, but up sequentially relative to the last quarter, what does that say? Maybe that says that the ad market is finally going to turn it around. But in this space, you know, only the strong survive. Everybody gets weak eventually. Google is the dominant player,

97% of their revenue coming from ad sales. That's going to have a corrosive effect over time. I think that in some ways Yahoo is a canary and a coal mine. And Carol Bart's people wondering, has she turned Yahoo around? Well, can you really? say that? I had a strange thought. Maybe it's all those people who got fired and are no longer drawing salaries. Maybe they're the ones that should get credit for doing this. And let's just keep in mind that you cannot cost cut your way to growth. Eventually you run out of people. Final earnings story, Netflix, better than expected earnings and revenue. It added another 510,000 subscribers and the stock was up big today. Yeah. So I was thinking about this sort of big

picture style. You know, if you think of Netflix and their core product is they, you order a DVD that arrives in the mail, then that is dead. Physical storage is eventually going to be dead. Sooner rather than later, I suspect. But really, that's not their product. The product is this experience that you have with them. A pretty nice web interface, very slick presentation, basically friction-free. So who can compete with that? Nobody's going to be able to come and do what they do in terms of physically mailing things back and forth. But you could find a rival that would reduce the friction even from there. Comcast, any of the cable companies, once they have the licensing agreements in place that would allow them to have

the inventory that Netflix does with the DVDs, that's a serious competitive threat to these guys. That's going to take forever because Hollywood is so slow about working these deals because they think they're going to be able to bring more profits from the traditional model that they have in place right now. And I think that's price into the stock. It looks expensive, but the longer those deals take to get struck, the better it is for Netflix. And remember that Netflix is way ahead on intelligence and knowing what to suggest to people, which is what keeps them coming back.

And the cable companies don't have that information, really probably aren't collecting it in any organized way. And that is the main thing in the experience. It's part of the experience at Amazon as well. The software gets to know you and suggests things that you're likely to buy. So Netflix has really a huge lead here, and because they're streaming through the Xbox,

that's how I watch almost about 85, 90% of my Netflix viewing is now streaming online from their service through the Xbox to the big TV. We barely use the DVD. they are already in the place that this entire industry is moving to, and they are the leader there. So, I don't, expensive, I think they're the disruptor. I think you buy them today. Let me just ask you a quick question, though, with that fancy algorithm, both you guys, is that really, I mean, yes, that's cool, but is that a reason to stay? Like, if a competitor were offering 20% cheaper prices, I mean, is it really that good, or is it just kind of like a nice bonus?

I think that once you have a competitor that's competing with Netflix on price, it becomes such a thin market. in business, unless you're the company that has the market share and the dominant experience with consumers, it's not going to be worth your while. I don't think the people are going to get into it on price. Yeah, I don't know if anybody wants to start that war. Yeah. According to reports, Obama administration Pazar Ken Feinberg is cutting pay for executives at some of the bailed out companies. Wall Street Journal reported that Feinberg rejected many of the pay packages for AIG's top employees, including those in the financial products unit. Now, I know this will come as a shock to you, but some on Wall Street have said that this will lead to a brain

drain as the talent flees. Oh. I mean, are we scared? Are we afraid for Wall Street? I read something on the, I believe there was a Wall Street Journal that said, these guys are going to go to European companies. First of all, no, they're not. Second of all, let them try. They'll make less there. They pay their executives much less there. They could just go to Goldman Sachs or someplace like that. I mean, Kenneth Feinberg specifically is just regulating the pay on companies that have taken direct government money. There's a separate package that the Fed might want to regulate pay on, or just regulate pay to make sure it doesn't encourage undue risk taking among the 28 largest financial

institutions. But the Feinber thing is just confined to actual government money recipients. And ironically, I think this is going to create a huge incentive for them to just repay the government money as fast as they can. That's what it'll do. That's the unintended consequence. We'll take it back. Well, the problem with that is that if they're not really as strong, they're going to,

they're going to want to cut corners on how strong. they are in order to get it back. Right. That is the big problem. It sort of speaks to the bigger picture here. The utter shamelessness of this. It's about time that something with teeth happened, and these teeth are mostly false because the amount of money that is involved is not that high.

But I'm damn right. I mean, so these institutions owe the fact that they're still up and running to the U.S. taxpayer, and yet they're going to come out with pay packages and big compensation packages to include bonuses that are as egregious as this. I mean, I don't know. It feels like populism, but it's populism that is actually. actually mindful. Let me say one thing here, though, that I agree, you know, that these guys were jerks and should be punished, but the problem is there's, quote, these guys, and then they're

the companies, which are actually owned by the shareholders. So because of free agency, basically, these people can just go anywhere they want to, to Goldman Sachs, to J.P. Morgan, et cetera, there's probably very little guarantee that the actual people paying the price. In fact, the people who probably caused the most damage will be the first ones to leave, I bet. So the people stuck holding the bag are going to be the shareholders with these companies, staff. by lower paid, less effective employees. That's my concern. I don't feel sorry for shareholders who are holding shares in companies,

though, that depend on government largesse to remain viable, which is most of these big banks right now. And this just speaks to the fact that too big to fail has got to go. I think all three of us agree on that. And let's just really hope that somebody out there has the guts to pull these things apart. Yeah, I think that that moment has passed, at least for right down, that what was the quotation coming out of the White House when it broke? You never want to let a good crisis go to,

waste. I think they wasted this one. Well, and you mentioned that this largely has false teeth. Would the teeth be stronger if Ken Feinberg had some goons? Like, don't you think, if you're the Paysar, don't you want a couple of hired goons on the payrolls that you can, you know, like start getting your, you know. Yeah, I think so. Tim Geithner doesn't look like he could, well. Exactly. I'll fight him on the playground. Yeah, the three wusses sitting, well, four wusses at this table could take Geithner. Sales of existing U.S. homes increased by a record 9.4% in September. As people took advantage of a tax credit for first-time buyers before it expires, Congress is considering whether to extend the credit.

Should they? As a proud American homeowner, I certainly hope they do. Re-enlate that bubble. There's nothing in it for you. There's zilch in it for you. If I want to sell my home and somebody's going to have an additional incentive to come and buy it, you know, that means I can dial my price up a little bit higher. You're not going anywhere.

This is actually pretty interesting. Good news. The question is how much of it is. artificial demand because of these incentives. Three words, cash, four clunkers. In September, first time buyers were 42% of home purchases. It's pretty high. Yeah.

But can I just turn to the National Association of Realtors again? Oh. A rip on Lawrence Youen and the National Association of Realtors. Gather around the fireplace kids. They are shameless. There is nothing that is bad enough for Lawrence Ewn. There is just torn apart by dogs, you know, a circle in hell of Dantes, you know, knee-deep and duty, headfirst, sorry. These things are all too good for Mr. Lawrence.

These are the kinds of things that he is saying, which are the kinds of things that got people in trouble during the housing bubble. Without a firm foundation for middle-class wealth recovery, people, your house is a place to live. It is not an investment. It is not a retirement account. It is a place to live. If you pay it off judiciously, it can operate a little bit of. bit like a savings account that's deferred. It is not a way to make money. And until the National Association of Realtors stops with this line of BS, I think every news organization in the country

should stop quoting them. You know, the National Association of Realtors does a lot of radio advertising in the D.C. area. I'm guessing they're not going to be doing any advertising on our podcast. Let's get Lawrence Hewn in here. All right. Finally, according to a new study published by the Journal of Family Issues. The more housework you do, the more often you are likely to have sex with your spouse. Wives in the study spent an average of 41.8 hours a week on housework, husbands spent 23.4 hours. So guys, let's just go around the table real quick here. How much time are you spending on housework? And what's your best move in terms of housework? What's your strong suit? And I'll start with you, Shannon. Well, I'm instantly going to dial it up. I do a fair

amount of housework. Give us a percentage. How many? Three percent? Three percent. Excellent. And what's your specialty? Is it cooking? Is it cleaning? Some bathrooms? Windows? I like to supervise. Wow. You got nothing. You got no game, man. James? I'm pretty good at supervising, too. But I like laundry. That's my kind of special thing. Nice. I don't know why. You got a tip for anyone listening who wants to get their whites wider and their colors brighter? I don't, but if you turn your clothes inside out, the colors don't fit. like Chris Cross as much

Wow Seth No this explains why James keeps coming offering to come over to my house and mop the floors But Oh How does it explain that

I don't know I probably I used to do more housework My wife is staying home with the baby these days And so she gets stuck with more of that now So I would say I probably was doing my half before Depending on what counts his housework And I'm sure it's down at 25% or less these days

And your strong suit I like to fix the bicycles, change the oil. I'm lawn, garbage, stuff like that, some vacuuming. Here's my tip on ironing. When you're ironing. Don't do it exactly.

No, no, no. Brooks Brothers iron-free shirts? No, no, here's the tip. Do it while you're watching TV. Do it while you're watching football, something like that. It breaks up the action of both. But you look fairly well wrinkled. You're either not watching...

I didn't iron this. I'm just saying other shirts. I don't have to look good for you. This is audio. Steve, what do you got? I'm doing most of the housework, and if Tara is listening out there, I would love for that to change. Oh, really? You're doing most? Like 80%.

I do most of the housework. Well, there may be some disagreeing. Right now, she's yelling at her iPod, which you cannot hear us. Yeah, I'm doing a lot of, I'm doing the litter boxes. I'm doing the bathrooms. Wow. Wow. Yeah. I know a guy wearing headphones who is getting cut off.

Yeah. All right. And just, I will ask you, too, a strong suit. What's your best move? I'm really good with the bathroom. I will knock it out, man. Wow. 80%? Maybe 60, 70. I'm hedging now. By that, you mean like 30.

Yeah, well. And by that, he means 10. All right, guys, as we head into the next week, Halloween week, give me one stock that's on your radar. It can be scary if you want it to be. Well, I'm going to go back to one from before. It's an ETF. TIP is the ticker symbol. I shares Treasury, Inflation, Protected Securities. I think that now we're still in vaguely deflationary times. Inflation is coming probably maybe later rather than sooner,

but eventually it's going to come. Now is a good time to buy into a depressed asset class. James? I'm going to go with CRH. This is an Irish building materials company. It's definitely a scary stock and that it's exposed to macroeconomic factors. But it's paid its dues in a lot of respect. It's actually very well run, has strong returns.

It'll certainly catch any wins of sort of a macroeconomic rebound. In case anyone's wondering, the housing bubble in Ireland, really sort of surpassed what we had here. Maybe as bad as Spain, somewhere in that region. It's pretty bad. Yeah, pretty bad. I'm putting the hairy eyeball on solar.

And it could be any solar stock just about, but SunTech power I'm looking at right now. Wow, I've got these graphs on my computer screen, free cash flow, all pointing down into the negatives. When you've got companies like that, everybody's scrambling to sell the same thing, valued at a couple of billion dollars, burning money, buyer beware.

All right, that'll do it. Seth Jason, James Hurley, Shannon's everyone. Guys, thanks for being here. You're welcome. Thanks, Chris. That's it for this edition of Motley Fool Money. As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. Do your homework and make your own decisions. And remember, the conversation continues 24-7 at Fool.com.

I'm Chris Hill, and we'll see you next time. Steve, coming strong, Otara. It's true.