Motley Fool Money - Show Business is Back in Business!

Episode Date: November 10, 2023

Studios struck a deal with actors and now the content engine can start back up again, but will Hollywood be tighter with its spend?.  (00:11) Emily Flippen and Andy Cross discuss: SAG-AFTRA’s deal with the film and tv industry, Disney’s deal to buy the rest of Hulu, and Warner Brothers Discovery’s “generational disruption.” The Trade Desk’s warning about ad markets, and DataDog showing healthy signs in cloud spend. How Adyen is learning how to better play the expectations game. (19:02) Motley Fool Contributor Lou Whiteman spoke with Brad Jacobs, former CEO of XPO Logistics, about embracing a problem, how a short-seller targeting his company led to a great capital allocation decision, and other lessons from his book How to Make a Few Billion Dollars. (31:14) Emily and Andy break down two stocks on their radar: Axon and Gartner. Stocks discussed: DIS, WBD, TTD, DDOG, ADYEY, CPNG, XPO, LLY, IT, AXON Host: Dylan Lewis Guests: Emily Flippen, Andy Cross, Lou Whiteman,  Engineers: Rick Engdahl, Annie Pope Learn more about your ad choices. Visit megaphone.fm/adchoices

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Show business is back in business. Motley Fool Money starts now. Need money. That's why they call it money. The best thing, Bill. Cool global headquarters. This is Motley Fool Money. It's the Motley Fool Money Radio Show.

I'm Dylan Lewis. Joining me in the studio, Motley Fool senior analysts, Emily Flippen, and Andy Cross. Great to have you both here. Hey, Dylan. Hey, good to be here. We've got a rundown on some of the biggest earning season movers, the best way to deal with a short seller and, of course, stocks on our radar. But we're going to kick things off this week looking at the entertainment business because, man, has it been a busy week in show business?

Emily, headline for me this week has to be that SAG After and the film television studios appeared to reach a deal, which would end the longest strike in Hollywood history. With the deal in place, it seems like we will be back in a spot where actors and now writers too are back to work. I think consumers are probably cheering this deal. It's been a little rough time for TV over the course of the past six months or so. But I will say this. It's going to be interesting to see where we are a year from now, because many of these writers and actors, they're back to business pretty quickly in terms of the live, late-night shows, for instance. But for so many different streaming services and other content producers,

over the last course, the past year, they realized how much money they can save. And this deal is going to increase the cost associated with productions of different TV shows, which is not a bad thing for the people who are working on them, But that in combination with the general pullback that I think businesses are experiencing in terms of the amount of money they want to spend on content, it could be a situation where we see fewer shows come out a year from now in comparison to the years in the past, even with this deal being struck. Andy, I know we saw some wins for the actors. We're still waiting for a lot of the details to come out about this, but investors and businesses like certainty. And I think more than anything else, we've gotten certainty that we are getting back to work here. I think, Dylan, certainly for the studios, they now can have actors, writers,

because don't forget, the writers were on strike. That was resolved. The directors were going to strike over a cup of coffee, time for a cup of coffee, and that was resolved. So now we have all of the creative minds back in place. So that's good for the studios, because they do have that consistency. There's been a lot more talk about the resolution. from the Screen Actors Guild

and their leadership team talking about what they got, the compensation side, the streaming benefits that they will get, the health benefits they will get. While we still don't know all the details, as we mentioned, they do have some nice benefits that they are proud of.

And again, this was an 118-day strike. So it was significant to the industry and very significant to some parts of the country like L.A. and New York and other parts as well, too. And it has ripple effects, right? So you start to see this ripple through because you have all the people who work on films. I mean, if you ever see credits and just try to count how many people work on movie or TV show credits, it's incredible. So all of those people were affected too.

So now we see that resolution. We see the studios have a little bit of consistency. Yes, at some point it will hit their cost structure. That will ultimately probably hurt a little bit on the profit side. But to have the consistency going forward after this very long strike is a good thing for the studios. Let's talk about some of the companies in play here because this impacts Disney and Bob Eiger was at the table for some of these discussions. But he and his management team were also talking through quarterly results with investors this week. Emily, what is the state of Disney at this point?

Well, the Disney boat has been taking on water for a few years now. And so Eiger being at this table, thinking about what Disney can do to kind of write the ship, realizes that, yes, we need to return to growth in terms of our top line. But more importantly, we need to manage our content spent, our costs. That's where most of the water has been taken on, especially with the launch of Disney Plus. So it was really interesting seeing them coming out with their end-of-year results here, alongside expectations for cost management over the course of the next fiscal year, because you could see that they actually raised expectations by nearly $2 billion in terms of the amount of money

they're going to save mainly on things like content costs. So we talk about the strike being over, and all of that's wonderful, right? People back to work. But Disney at the same time is sitting a different signal saying, yes, we're going to produce TV shows. We're going to produce movies. We're going to get involved deeper in Hulu, but at the same time, we're going to be more conscious about what we spend the time and money to produce. Because over the past couple of years, what Disney's done is kind of thrown everything at the wall, they're in a ton of money, and then just see what has stuck. And for consumers, not much has stuck.

So reducing the amount of money they spend on content to produce fewer but higher quality TV shows and movies is kind of the direction that Disney is pushing in right now. Emily, you mentioned Hulu there. And in addition to the earnings update, we had the announcement that Disney will be buying the remainder of Hulu from Comcast. They will pick up the final third of Hulu's ownership for at least $8.6 billion. The final price will depend, I believe, on a valuation exercise. How do you think about that in the grand scheme of this business? Because we know they already have some streaming ambitions and they've had some success there.

This adds to that, but I think also it probably complicates things a little bit. Well, they see the death of linear TV. We've been talking about it for so long now. That continues to shrink. It's a profitable business for them, but it is declining year-over-year and quarter-over-quarter. So Hulu has been a massively successful investment to this point. Most of their expending constant costs have come down to Disney Plus. So the idea, I think, is less about let's reduce Hulu spend.

Hulu's been successful for them and monetizing, especially with the turnaround in the ad market, has been great for Disney, but more about managing how much money they're spending on Disney Plus, with the goal of getting to that free cashful level that they were at pre-pandemic. So they can potentially do something like bring back their dividend, which investors are really going to appreciate. But as much of the narrative is around the amount of money they're spending on streaming, I still think the story here is still the parks. That was the area that is driving the majority of operating income growth for Disney right now. That was up something like 30% in the most recent quarter. Incredible growth as people who returned to parks.

And as somebody who was actually at Disneyland for the first time of my life a couple of weeks ago, I was shocked about how expensive a ticket was. And it made me want to not buy Disney tickets, but buy more Disney shares. Andy, Bob Eiger said there are four key building opportunities that It'll be central to our success. Emily just mentioned one of them. Turbocharging growth in the parks also called out improving output and economics of the film studios, looking at some of their digital sports platforms and the profitability of their streaming business. Is there one of those four that you're specifically paying attention to or zooming in a little bit more?

Well, I think that the streaming business is the one that I think gets a lot of the attention, and rightly so is so much pushing to the streaming. We'll talk more about streaming offerings throughout the industry. So I think the streaming side of their parts, they have to get them all right. And Emily mentioned one thing that has kind of, I think, gone under the radar, which is the potential return of a dividend. Like I own Disney shares, and I was excited to hear like, oh my gosh, maybe they will actually see a little bit of a dividend as they start to return some capital to shareholders. Hopefully it has been a very tough row for many of us who own Disney shares. that return of the dividend, if they do it, they got to recommend to the board and get it approved.

But if they do it, I think can actually open up more and more shareholders to look at, re-look at Disney, which suspend the dividend back during the COVID day. So that was kind of exciting offering I saw from, I heard from the company this week. All right, we're going to stick with entertainment. Pretty strong response to Disney's results. I think 7% pop for shares. Different story over at Warner Brothers Discovery. shares down 20% this week after the company posted larger losses than expected, Andy, seemingly

pointing to weakness in advertising. Dylan, this is like a turnaround of a battleship inside a Barbie Dreamhouse bathtub that continues to hit the bathtub walls. And unfortunately, it's just a tough market for Warner Brothers. When you look at their core business, so they have the network business, the CNN, that that core kind of their business. Then they have the streaming business, the HBO and Max Plus, that they've been building out too.

And it's that slowing on the network ad spending. That's what really, I think, is the concern for shareholders looking ahead. Their network advertising sales of $1.8 billion fell 12%. Now, the direct-to-consumer, the streaming ad part, was actually quite robust. That was up 30% for the quarter, but that's about the 12th the size. That advertising business is about the 12th of the size as their network advertising. So you really want to see more gains on the network side than on the streaming side. And speaking to streaming, like their overall subscribers, they lost 700,000 in total during the quarter.

They lost 1.4 million here in the U.S. The revenue per user was up a little bit. But that drop in the subscribers, when you compare that against what we're seeing from Disney, what we saw from Netflix, is really not an encouraging sign from Warden Brothers. I do think the drop in the stock price was a little bit aggressive. They continue to generate lots of cash flow to be able to pay down that debt. They have more than $40 billion in debt, so they need to pay that down. Unfortunately, they did say the slowing ad market means that the goals of reducing that

debt level and the amount relative to the amount that they can generate in profits won't reach the target they had recently. They had set before. So that was a little discouraging. I think that was a little bit of the reason of the big sell-off. But I think that was a little bit too dramatic. And so I still think Warner Brothers has brighter days ahead. We have to get through the ad side on the network side,

and they have to figure out the streaming business to really get that growth back on the subscriber side. Andy, CEO David Zazlov of Warner Brothers Discovery, said that they're going through a generational disruption. Based on everything you just said, that feels like an appropriate description for the state of the business? I think it is the switch that when they've made this merger of all these business that he's brought together, and they look at the size of the business, the opportunity in streaming, but also trying to make sure the cost on the cost side for streaming, as we talked about with Disney and what Bob Iger has dealt with and certainly what Warner Brothers

is dealing with too is very important to be able to drive those profits on streaming. The strike that has been going on, the strikes that have been going on, has actually reduced a lot of the costs on the production side for many of these studios, so the profitability in some of that area has actually benefited from that. Now, of course, that will not always be the case, and so they have to have those costs that will come back to the studios. But hopefully so will the revenues, and they'll have a better slate to be able to offer to their streaming subscribers and perhaps offer to their network side. But they are in this generational shift that we've got to get right. And that's what shareholders are looking for from one of others.

Coming up after the break, we've got another read on the digital ad market and the streaming ad market. Stay right here. This is Motleyful Money. The old adage goes, it isn't what you. say, it's how you say it, because to truly make an impact, you need to set an example and take the lead. You have to adapt to whatever comes your way. When you're that driven, you drive an equally determined vehicle, the Range Rover Sport. The Range Rover Sport blends power, poise, and performance. Its design is distinctly British and free from unnecessary details, allowing its raw agility to shine through.

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terrain response to fine-tuned your vehicle for the roads ahead. The Range Rover event is on now. Explore enhance offers at rangerover.com. Welcome back to Motleyful Money. I'm Dylan Lewis. joined here in studio with Emily Flippen and Andy Cross. We talked entertainment and streaming before the break, and we aren't quite done with that conversation.

We've got an earnings rundown, a couple different companies, and we're going to stick with streaming and look at the ad business side of it. Andy, shares of ad tech company Trade Desk down 20% after posting what, in my view, seemed like fairly strong results, but they were warning that they're seeing some transitory cautiousness in certain ad categories. Can you help me unpack that a little bit? What is transitory cautiousness? Just when we thought we were done with the word transitory,

Jeff Green brings it back. So the trade desk, the leading demand side programmatic advertiser, which means they deal with clients like ad agencies. They reported actually a very strong quarter. So it's just very quickly, Dylan, on the quarter. Revenues were up 25%. Now that was a slowdown from 31% a year ago, but that still was within guidance.

It was up 27% if you back out some of the political spending from a year ago. Their earnings before interest, taxes, depreciation, amortization, EBITDA was up 23%. Their margin was 40% down a little bit from a year ago from 41%. And their adjusted earnings per share was up 27%. Retention rate still very high at 95%. That quarter was very strong, much in line with expected. They continue to see all success on a lot of their initiatives that they've been building out. As you mentioned, the guidance was what really has spooked these investors because If you look at what they talked about with some of these transitory headwinds, $580 million in revenue next quarter versus estimates of about $611,

at that $580, that would be the slowest growth rate. They've had pretty much ever, except for maybe one period during COVID, but almost ever, that's 18%. So that's below that 20, 25% that I think growth investors really want to see from a company with trade desk. The ebid dollar margin will actually be a little bit lower as well, too. So when you think about that kind of growth perspective, where they are seeing some of that weakness, when you talk about some of the verticals and automotive, median entertainment, the strike having some impacts until that kind of gets rammed up. So the ad market for the trade desk, they still have massive market share.

They're still making these investments. They're growing far higher and faster than the overall market. But on the margin, they do see some agencies just maybe being very more cautious on how they're spending, and that's going to impact their fourth quarter. We saw some headwinds in the ad business. We're also seeing some headwinds earlier this year, at least, over on the software side, Emily. And it seems like looking at results from Datadog shares up 25% after reporting earnings. Maybe some of those headwinds and those reduced customer budgets are starting to peel away a little bit.

Well, there's a good question here, which is why is Data Dog succeeding when everybody else is struggling? But comparing something like the trade desk, which up into this quarter had an amazing year, right? to saw something like 70% plus share growth versus a company like Data Dog, which has been a lot more conservative with expectations. It doesn't paint the full picture just looking at the post quarter pops or in this case decline in the case of trade desk. So comparing those two isn't exactly apples to apples because the headwinds are still impacting both these business. It just comes down to how is managing, how is management handling those expectations heading into a fourth quarter that is typically really hard to call, not only with general fourth quarter headwinds, but also

with the environment we're in today. But in the case of Data Dog, a lot of the concerns that investors are worried about. In this case, slowing spend on their usage-based business model did not manifest. In fact, they actually looked pretty resilient. And believe it or not, I can't believe I'm about to say these words. Some of that resiliency can be attributed to AI. Put it on the bingo card. Yeah, I know. I hate myself for it. But two and a half percent of their annualized recurring revenue now is coming from AI customers or AI generated demand. And that's interesting because management noted that that tends to be a little bit more, multi-cloud, which is an area that they've historically succeeded in in terms of their observability

software. So, AI is actually having a positive, tangible impact on demand for Datadog software, at least in the third quarter. We see Datadog may be playing the earnings expectation game well. Andy, I think based on what's gone on so far this year, Adyen, the Dutch payment company, maybe taking a slightly different approach to how they try to manage expectations? It's probably the only company that tightens up and lowers a little bit their long-term growth forecast, and the stock jumps more than 30%. But just a few months ago, it was a different story when the stock got crushed after they reported

a worsening financial picture. So European companies, so it reports on that half-year, Dylan, and they gave an update for the third quarter that showed very strong growth in their volumes up 21%, and their revenue up 22%. But importantly, they maintain their long-term guines. They actually tightened it a little bit. They lowered the revenue side,

but they improve some of their operating margin expectations for the year. And I think just that consistency being more conservative with investors, more communicative with investors is what the investing community really wanted to hear from Adyan after just a few months ago, which was a really surprise. So that was a nice benefit, and that's really what got the stock moving, that long-term forecast, both growth and profits for Adion. We're going to stick international for our final earnings update. Shares of Ku-Pang, South Korea's largest online retailer, down 10% post-earnings, despite posting, better, top line, and a record quarter for active customers. Emily, this is probably a company

that some of our listeners know, some of our listeners don't know. What's the story with this business? Oh, this is a stellar quarter for coupon, which, as you mentioned, is kind of like the Amazon of South Korea. So if you're looking to buy something online, looking to get food or restaurant delivery, streaming services, fintech, all of that's offered by coupon, and they have dominating market share in South Korea. But looking at that 10% decline, you may think, oh, well, you know, what's going wrong? In reality, a lot is going right. Revenue. far surpassed expectations and active customer growth was up in the double digits, which is great when you consider how saturated they are, especially in the South Korean market. The reason why

earning slightly missed expectations was actually because management's investing in that first-party inventory and continuing to build out their third-party systems because demand has been so high. So they had guided for higher margins because they expected demand to be a little bit lower, but then they said, hey, no, people are shopping more. You got to invest in this inventory. So all in all, painting a pretty positive picture for coupon. As an investor, the one thing I keep watching, those, their expansion into Taiwan. They attempted to expand to Japan a couple of years ago, recently pulled out when they realized they weren't scaling there the way they thought they were. Management's still speaking very fondly about their investments into Taiwan, saying it's exceeding their expectations.

They're the number one downloaded app in the country over the course of 2023 so far. But whether or not that ends up being something that's accretive to their bottom line, I think there's still question marks for investors there. Emily, you mentioned the app there. Is that what you're paying attention to primarily for their international expansion and traction? Definitely, because Taiwan's already a pretty saturated market. People don't need coupon. There's already other alternatives on the market. So the amount of engagement they're getting from new downloads in that country, I think, is pretty indicative of what demand could shape up to be in Taiwan over the long term. All right, Emily Flippin, Andy Cross, we're going to see you two a little bit later in the show. Up next, we've got an interesting way one CEO tried to deal with a short seller. Stay right here. You're listening to Motley Full Money.

Welcome back to Motley Full Money. I'm Dylan Lewis. If you are a CEO, how would you handle an aggressive short-seller? To find out, we asked Brad Jacobs, former CEO of XPO Logistics and acquirer and creator of several more companies. Motley Fool contributor Lou Whiteman spoke with Jacobs about embracing a problem, how a short-seller targeting his company led to a great capital allocation decision and other lessons from his book, How to Make a Few Billion Dollars. Let's talk about the book a Little. Let's dive in a little. It's called How to Make a Few Billion Dollars, very straightforward title.

You know exactly what you're getting. But talk about, you know, you've done so much, why did you write a book? Why did you want to write it? Who are you writing it for? What was the thought process of getting all this down on paper? Well, I originally was writing it for myself in the sense that I had a little downtime, not a lot of downtime. I had a little bit of downtime because I had stopped being CEO and now I was just chairman of GXO, RXO, XPO. So I had more, and it wasn't doing the day-to-day.

And I hadn't had a chance in the 44 years that I've been a CEO, It's the only job I've had since I've been 23 years old. I hadn't had a lot of time to, like, reflect and step, because it's all just been one big blur, very fast and very, very busy. And so I wanted to step back, and I wanted to think about an honest appraisal of, what did I mess up and what did I do right? Because I definitely messed a bunch of stuff up. And I wanted to think about what was the biggest mess ups I did,

and what was the education from that, what did I learn from that, what did the takeaways, and how did I change? as a result of that. And then I wanted to think about what's really worked for us, what's been really spectacularly helpful in creating the tens of billions of dollars of value we've created for shareholders, which is unusual for vast majority of companies.

And then I started putting that together, and then I had to get an audience. I said, okay, that's good for me, but what do I... Who's going to buy this book? Who's going to be interested in this book? And then I thought, really two audiences were attractive to me, and that's how I tailored the book. One was CEOs or other C-level executives who are trying to build a big business.

And maybe they're trying to create a multi-billion dollar business. Maybe they're trying to make billions of dollars for themselves. Maybe they're on a different scale. They're just trying to make millions. Or maybe they're just trying to make hundreds of thousands. But they're trying to create something which for them is big, something huge. So people who are very ambitious, thinking big, and would like to benefit from, what's worked and not worked for me. The other category I designed the book for was just regular old

people, not necessarily in the business world, who have a goal that's huge, enormous. And how can they think differently? How can they rearrange their brain? How can they change their perspective? How can they think in a different way than the same old, same old, so they don't get the same old, same old results? And those are really the two audiences that I wrote the book for. Very good. Yeah, no, there's a lot of self-help element in the book or kind of just our self-reflection, which I was very interesting for a business book. I really appreciate it, yeah. So one of my favorite parts, though, is when you're describing some of your conversations with,

I think it's your mentor, Ludwig. Jesselso. Yes. And you talk about the idea of leaning into problems and treating a problem as an asset, not something to run away from. And I think that is so profound as far as you're trying to navigate in the business world. I invite you just sort of to expand on that what it is, what it means. and kind of how that concept has helped you in your career.

Well, as Mr. Jesselson inspired me and motivated me in that respect, problems, looking at problems in the way you just described it, Lou, which is they're your friend, they're not your enemy, they're your opportunity, they're not your stressor, has two big, big benefits to it. One is it puts you in a good frame of mind because in the business world, there's problems every day. I mean, you come into the office in the morning.

there's so many unanticipated obstacles that came your way or things that you didn't want to happen or people issues or competitor issues or legal issues or the market issues or geopolitical issues, things outside of your control, for the most part. And then when, so the benefit is if you're looking at those problems as your friend, as things that are opportunities to solve and create business or address and create very positive, profitable business from, that puts you in a good frame of mind all day long, instead of being afraid and scared and anxious about, oh, what problem is going to come next? Oh, my God, I got to be anxious because such and such could happen. Oh, my God, this catastrophe could be the, I wonder about,

instead of being so negative all day long, you're in a positive frame of mind. You're in a positive frame of mind of thinking about, yes, what opportunities are going to come my way today that if I can address them, if I can solve them, I can help my shareholders make money. So there's a mental benefit, there's a psychological benefit. There's also a business benefit to have a positive expectancy from that. And, you know, a related thing, which I took, which I wrote in the book on the same concept of positive psychology, so to speak, as Martin Sullivan, another mentor of mine wrote quite a bit about, spoke quite a deal about this positive psychology is when my wife and I, I mean, our kids are all grown up now. They're in their 30s and 40s. But when they were kids,

we did like, like most parents, we put them to bed and said, how was your day? And you would get from them the good, the bad, and ugly. And you'd get a lot of bad and ugly because, you know, people are, you know, we're humans. You're kind of a program to remember all the traumatic stuff. And then we saw a lecture that Dr. Seligman gave, and he said, you're just, when you put your kid to sleep, ask them, what was the happiest point of your day? Well, we were. You're just, you're, just, when you put your kid to sleep, ask them, what was the happiest point of your day? the happiest moment in your day. This slight change, this slight reframing in the question that we put our kids to bed with made all the difference in the world because now they went to sleep thinking about the time that their teacher compliment to them or their friend did something

great with them or when they won in sports or whatever, whatever was real happy for them that day. So put them in a good move before going to sleep, which is a very important thing. The second thing it did, Lou, was it put them in a mindful. all day long of thinking, gee, I wonder if the next moment's going to be my happiest moment. I wonder if this afternoon I'm going to find a happy thing. Because they knew at night we were going to ask them, what was the happiest moment of your day? So they were always expecting, they're keeping their intentions up for the happiest moment. So put them in a positive framework.

So there's a section in your book that I really wanted to dig in on for a second. It's kind of to go dark here. But it's a story, you tell the story about a short attack against XPO. And this was interesting to me. I mean, we have an investor audience. And I'll confess, I have very mixed feelings about short sellers. You know, I mean, some are better than others. But the interesting thing for this to me was your playbook for how you dealt with the situation.

And to me, I mean, I was just sitting there reading it like, yeah, I wish more CEOs would follow this instead of sort of the way it goes. I would love for you to kind of just quickly talk through what happened there and how you reacted because I do think it's a great lesson, sort of in positivity, but sort of like, you know, focusing on the right things. getting through a situation. So please. Well, first of all, I like short sellers. I think short sellers keep the market honest. Short sellers bring liquidity to the market. Short sellers point out things that the bulls will either debunk and show a wrong or see that they didn't see before because we all have our biases. And when you're when you're long only and you're buying stocks and you own a stock, you tend to look at it with the lens of discounting the stuff that's bad and emphasizing the stuff that's right. Short seller just pokes holes in your thesis.

And you always want to be poking holes in your beliefs, in your hypothesis, in my opinion. You don't want to be rigid and tight and think you've got it all figured out and don't change. You want to be open-minded to change. You want to be flexible. You want to be agile. So we had a short-seller come into us. I wouldn't say it was the most reputable of short-sellers, but okay, there's a short-seller. I think subsequently got investigated.

I don't know how that investigated ended by the SEC and U.S. attorneys and so forth, but that's okay. Free country, he shorted the stock and leveraged up quite a bit before he shorted the stock. And then he put out a press release and put out information that was almost entirely wrong. Like 90% of it was nonsense. But the market doesn't know that. The market just sees all these headlines and boom, sells down the stock. So our stock went down a lot.

I think went down 26%. in one day. This was 2018, if I remember correctly. So this is a good example where we can apply and where we did apply the principles that you and I've just been talking about. So short seller comes to the market, says all kinds of trash talk smack about the company that's Poloni. It's all over the news. Stock is way, way, way down, so down that the New York Stock Exchange has to stop it now and next is going down so fast. Big volume. You can react to that in two ways. You can say, oh my God, poor us. We're such a a victim. This is unfair. This is unjust. I'm going to sue that guy. I mean, just a bunch of

talk that maybe, yeah, let that come for about five seconds and then change your mind. You have to get a hold of yourself and get into the right frame of mind. And the right frame of mind, which we, meaning the board and management and I got into was, okay, look, we have to radically accept that this has happened. We're not going to change that. Some crazy short guy has smacked us, and now we have to figure out, so what do we do? How do we, to use the cliche, how do we turn lemonade out of these lemons? And we said, okay, the stock is way down. Well, it's down for the wrong reason.

It's down just for, because there's weird publicity out there that's incorrect. Let's buy the stock. We had not been planning to buy the stock. We've been planning to keep using our money for acquis and for CAPEX and so forth. Here we said, the stock is so cheap, we'd be nuts not to buy the stock. So then we said, well, how much stock do we want to buy? the bankers were saying, I don't know, why don't you buy $100 million, $200 million, which is a percent of flow would be kind of a normal stock buyback.

We said, well, why can't we buy $2 billion? If it's so undervalued and we're not going to find an acquisition that lowly, price that low, let's go buy $2 billion worth of stock. And that's what we did. It took us two board meetings to walk it through and think it through and analyze and discuss the pros and cons of that. And by the end of the day, we had a resolution unanimously on the board is, Let's go buy back $2 billion of stock.

Of course, the stock went up 3X over the next two or three years. We made like $6 billion. It ended up being worth rather than the $2 billion. So it was a very, very profitable trade. And we made that because we stayed cool. We accepted the problem. We embraced the problem. And we acted on it.

Brad Jacobs' book, How to Make a Few Billion Dollars, is out in January of 2024. Be on the lookout for that. And if you're on the lookout for stock ideas, the analysts you hear on Motley Full Money have a whole other day. day job, providing premium coverage and recommendations for the Motley Fool suite of investing services. We're giving our listeners a discount on our flagship Fool service, Stock Advisor. If you're interested in more analysis from our team to stock recommendations per month

and access to Stock Advisor's full scorecard of recommendations, visit fool.com slash MFM discount. That's fool.com slash MFM discount. If you're listening to this week's radio show as a podcast, we'll put the link to that Stock Advisor discount offer in the show notes. after the break, Emily Flippin and Andy Cross return with a couple stocks on their radar. Stay right here. You're listening to Motley Fool Money. Always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear.

I'm Dylan Lewis, joined again in studio by Emily Flippen and Andy Cross. We've got stocks on our radar coming in a minute, but first, our final news story of the week. The weight loss drug market has another name. The FDA approved Eli Lilly's Zepbound for chronic weight management joining Wagovi. We now have those drugs, plus OZempic and a lot of other movement in the space. Andy, there's been a lot of excitement around the weight loss drugs. There's been a lot of interest and enthusiasm. We've seen some interesting market moves as a result.

How do you begin to even figure how a drug like this plays into the business for a company like Eli Lilly? Yeah, fascinating. So Eli Lilly, when you think about the size of it, more than $500 billion, in market cap. They do $32 billion in sales. Trulicity is their largest selling drug, which is, I think, the only one above a billion dollars in sales larger than that. So the Mujaro, the one that is treat diabetes, is having a great year. And now they come out with Zepbound. So first of all, you want to think about what is the impact to a $500 billion company that you're going to see from this new drug. Now, so many of these companies have benefited in the market,

place in the stock marketplace over the past few months, their stocks have really been on fire, and their earnings multiple and their valuations have actually gone, I've obviously gone ahead with it, too. So there's lots of investors' expectation baked into this drug. Now, it is exciting. Zepbound, as you mentioned, Dylan, is targeted and approved by the FDA to treat chronic weight loss management, where Zempic is not exactly, is used more as a diabetes drug that can also treat weight loss management. So this is specifically for weight loss management. You have to understand what is the impact to a $500 billion company.

And when you see the impact of just the thought of maybe weight loss management drugs for these big companies and the impact it has had in the stock prices, you got to have it with a little bit of skepticism. Is there too much baked into these expectations? And will these drugs have so much of an outperformance that's going to drive the stock price higher from here? Emily, speaking of skepticism, I have seen a, A lot of these drugs come up in earnings results and management commentary for companies that have nothing to do with the pharmaceutical industry.

I'm thinking specifically about the snacking industry. How do you think about some of the explanations we've been seeing from management teams that relate to this stuff? I think there's a human tendency to, if you've given the opportunity, blame somebody else for your own shortcomings. And I think that a lot of these quote-unquote weight loss drugs are going to be that blame for a lot of businesses. and I hate calling them weight loss drugs because that implies that there's some sort of cure-all that taking these drugs is going to cause weight loss when in reality something like Zepbound is approved alongside a calorie deficit and exercise as part of a holistic weight loss strategy and practice what Zepound does and other hormone adjusters is change your appetite.

So when you reduce your calorie deficit, it makes you hungry and people want to eat. This is supposed to help curb some of that appetite. So the idea that people's inherent behaviors are going to change, I think, really outstated. And I've seen some really crazy commentary, both from analysts as well as management teams about the impact of these drugs, all the way down to saying businesses like Peloton are going to be negatively affected because people aren't going to need to lose weight anymore. Again, it's supposed to be used in conjunction with exercise. So if anything, you think this would reflect positively on those types of businesses. But I've also heard some crazy things. I mean, the CEO of

Nestle, North America said that these drugs could create an opportunity for lean cuisine meals, because since, quote, that kind of meal is exactly what you end up eating on these kind of drugs, as if it will change people's habits. But again, what this does is change your appetite, does not change your habits. I've also seen some Bank of America analysts theorizing that these drugs could reduce cravings and addictions across the board, reducing demand for tobacco, alcohol, and even gambling or gaming. I mean, it's hilarious. This is not a cure-all.

This is an appetite suppressant. It will have impact, but I think the impact that people are extrapolating is growth. overstated in many cases. So maybe limit expectations a little bit and don't necessarily bet against big behavioral changes. Are those the takeaways here? All right, let's get over to stocks on our radar. Our man behind the glass, Rick Engdahl is going to hit you with a question. Andy, you're up first. What are you looking at this week? Team, I'm looking at Gartner symbol IT, one of the most respected research and advisory businesses serving more than 15,000 corporate clients has one of the strongest brands in tech consulting and research. It's famous for its

Gartner Magic Quadrant. Finally is back to hosting their conferences as a smaller part of their business. Their research advisory subscription business is really the strongest one. Outstanding profit profile with margins of more than 20% in free cash flow margins in the mid-teens of the last five years. It's grown revenues 8 to 10% but profits more like 30 to 40% per year. The recent quarter, they raised the guidance and the stock spiked up above 400. So I'm looking for a little bit of a pull back back down to that.

380 before I get really excited, but Gartner has been a long-term winner because of the business and because of the profit picture. I like it going forward. Rick, a ticker that Stephen King would love, IT, a question about Gartner. Yeah, so Gartner's famous for its hype cycle illustration, and our SEO team, I'm pretty sure, would like you to talk about AI a little bit more. So where does AI sit on that hype cycle? Oh my gosh, no, I think we have a long way to go before it gets really hyped up. I'm actually pretty excited about the benefits of AI long term. All right, Emily, what is on your radar this week? On my radar is Axon. That's AX-O-N. They're a producer of tasers, software, and body cameras, mainly for the public sector and police forces, not only in the United States,

but across the world. Axon's business has been incredibly resilient, way more resilient than I ever expected. They've just recently had their seventh quarter of 30% plus revenue growth at a time when so many businesses are still struggling, in part thanks to really successful rollouts of international expansion. Basically, any new product they released just gets eaten up by their customers. They have incredible market share.

So I'm consistently impressed with just how resilient this business has been quarter after quarter. I'm a shareholder, so I'm happy to see it as a radar stock. And I'm curious, Rick, what is your question about AXon? Emily, would you rather

wear a body cam every day for a year or get tased once? Wow. This is an embarrassing answer. I've always wondered what it would be like to get tase. Now, am I going to go out of my way to do it? Probably not. But if forced in this situation, I would have to say, I'm curious about what it would feel like. I'll do it once, never do it again. I'm with you. Short-term pain once. That makes more sense than me. Rick, which company is going on your watch list this week? I'm going to double down on Axon. I already own it,

but that's okay. That's perfect. Even better. Emily Flippin, Andy Cross. Thank you both for being here. And thank you for bringing your radar stocks. and your insights this week. That's gonna do it for this week's Motley Full Money Radio Show. The show is mixed by Rick Engaulall. I'm Dylan Lewis. Thanks for listening. We'll catch you next time.