Motley Fool Money - Softness Ahead for Ads and Consumer Spend?

Episode Date: October 27, 2023

Big tech is still benefiting from the push into the cloud, but digital advertising might be slowing down a bit. Earnings from the credit card companies help explain why.  (00:21) Emily Flippen and Jason Moser discuss: - Big tech earnings – trends in cloud spend for Amazon, Microsoft, and Alphabet, and what ad market softness might mean for Meta. - Visa and Mastercard earnings, and why consumer spend might lighten up a bit in Q4. - Spotify’s fantastic past twelve months and what investors should think now. (19:11) Motley Fool co-Founder and CEO Tom Gardner caught up with Michael Lewis at ONE: NYC about FTX, SBF, and the investing dynamics of Silicon Valley. (30:37) Jason and Emily break down two stocks on their radar: Masimo and Okta. Stocks discussed: AMZN, META, GOOG, GOOGL, MSFT, V, MA, SPOT, OKTA, MASI Host: Dylan Lewis Guests: Jason Moser, Emily Flippen, Tom Gardner, Michael Lewis Engineers: Tim Sparks, Dan Boyd  Learn more about your ad choices. Visit megaphone.fm/adchoices

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earnings, earnings, earnings, you want the updates. We got them. Motley Fool Money starts now. That's why they call it money. The best thing. Global headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me over the airwaves, Motley Fool's senior analyst, Jason Moser, and Emily Flippen. Great to have you both here. Hey, hey. Hey, Dylan. We've got lessons learned from FTX, stocks on our radar, and an absolute parade of earnings reports. and that's where we're going to kick things off. This is one of the biggest earnings weeks,

because by sheer market cap, Jason, many of the biggest companies in the world reported, and we heard from some of the big tech companies this week. Let's start with Amazon. Shares up over 5% after its third quarter report, and one of the better market reactions we've seen. What jumped out to you? Yeah, nice to see that market reaction holding. It does feel like with this earnings season, like good results don't quite seem to be good enough, but in this case, that's the case. It was a good quarter. I mean, there was a respectable growth on the retail side of the business. Amazon Web Services continues to drive the profits of the company. And they are definitely seeing some benefits from restructuring of their fulfillment network. They're trying to whittle

that down, make it a little bit more efficient, get into fewer shipments and faster delivery. So it's helping. The numbers tell a good story. Net sales up 11 percent, excluding currency the impacts. AWS, $23.1 billion in revenue the quarter. That was up 12%. 6.97 billion in operating income. That was up 29%. So that gives us operating margin performance up 400 basis points from a year ago. AWS represented 16% of revenue, but 62% of operating income. So that just shows you the importance of it. In regard to AI, which is clearly a big theme with all of big tech, it's still very early for all of these companies. but with Amazon in particular, you know, they're investing in their own Silicon.

There's the partnership with Anthropic. They've got services like Amazon Bedrock and Code Whisper, which are gaining traction. I think something that's kind of sneaking under the radar, but becoming a little bit more obvious now, it's the advertising business for Amazon. It's just really impressive. $12.1 billion for the quarter exceeded the expectations there for the quarter. And if you look at the same quarterback in 2019, they chalked up about $3.5 billion in advertising revenue. So clearly, a big opportunity that they've capitalized on. It starts to make sense

now these investments that they're making on the entertainment side of their business. Jason, you mentioned the margin story there and the ad business, all told. That led to net income tripling year over year for the business just under $10 billion. A rosy quarter for Amazon, A slightly different story when we look over at Alphabet, Emily, shares of the Google Parent down over 10% since the company reported Wednesday. Emily, the biggest single-day decline since March 2020 for this business. Yeah, it must be nice to be Alphabet, though, if a less than 10% decline is your largest single-day decline in almost three years, right?

So it could be worse, let's say that. But despite the fact that both earnings and revenue did beat expectations, I think the cloud business really acted as an overhang. That has been their fastest growing segment and growth slowed quarter over quarter, which the market didn't appreciate. But as Jason was just mentioning, it's a strong quarter for ad sales. And the vast majority of Alphabet's business is ad-based monetization. And so affirming up the ad market is really a massive benefit for this company, and that's showing up in their financial results this quarter. Unfortunately, Alphabet doesn't really do anything to drive ad sales. They can make that more efficient. I mean, they can operate

on the margin. But in terms of whether or not companies are actually spending money to advertise, it really comes down to the state and feelings about the economy, which Alphabet, understandably, doesn't control. So I understand a little bit of the ding that they're getting just because the cloud business, which should be their strongest segment, was sequentially weaker. We're going to get a little bit of an update on what that consumer outlook looks like in our next segment. Emily, you mentioned the cloud slowdown for Alphabet. And when we see slowdown in one spot, that probably means that companies are benefiting elsewhere. Jason, I think that's probably the case when we look over at earnings from Microsoft. I think that was one of the big parts of the

quarter that stood out for Microsoft. Certainly the cloud performance. It's not the only one, though. I mean, the company all the way around continues to impress. I think the big takeaway right now for investors, at least early on Microsoft is seen as the leader in AI. You hear a lot about co-pilots. That's a major theme in this column. It was mentioned. 26 times. Co-Pilots is sort of their efforts in AI, helping customers infuse AI across every layer of their business to help drive productivity. So you've got, you know, for example, making coding more efficient with GitHub or transforming productivity at work with Microsoft 365 or aiding in search. Any of which way you cut it, it does feel like Microsoft has the early lead

with AI. And the numbers ultimately, I mean, they speak for themselves. Revenue $56.5 billion. It was up 12 percent, excluding currency impacts. Earnings per share up 26 percent. To your point on the cloud there, revenue $31.8 billion. It was up 23 percent. They are taking some share in that cloud market. That's a big deal, particularly when you look at the gross margin cloud that held steady at 73 percent.

They continue to return capital to shareholders. There was $3.6 billion in repurchases, $5.6 billion in dividends, and that share counts come down about 2.6% since 2019. So, yes, it's offsetting some stock-based compensation, but yes, it's also bringing that count then a little bit. But, Dylan, let's talk about really the elephant in the room here, right? What happened this quarter? That Activision Blizzard deal closed. And that, I think, is a big deal. It's not just cloud anymore with Microsoft. Gaming is something that's going to become more and more part of the conversation with this company. They had better than expected subscriber growth. Minecraft, I can't believe this. It's surpassed three years.

hundred million copies sold. And with the deal closed now, with Activision Blizzard now, part of Microsoft, they now have 13.1 billion-dollar-plus gaming franchises from Candy Crush to Diablo, yet Halo, World's of Warcraft. I mean, it just goes on and on and on. This is a big company. They do a lot of things very, very well. It's not just about the cloud with Microsoft. It's also not just about the cloud with our tech earnings update here, Jason. We're also going to check in on results. from Facebook and Instagram Parent Meta. Emily, you did the dive on this one, and we've talked a little bit so far in this segment about tech companies focusing on efficiency. Seemed like

Mark Zuckerberg and Meadow were kind of early to the game on that one, and that was what we were seeing pay off in some of the results from this business. Yeah, what did they call it? Their year of efficiency? Efficient it is, because this quarter was a blowout quarter for beta. their revenue rose more than 23%. Daily active users and average revenue per user also positively surprised the market. Net income up a whopping 164% compared to the third quarter last year. So all of this just highlighting the cost cutting, the effective kind of controls about where they're spending their money, focusing on strong return on investments. Plus, obviously, the turnaround in the ad market, all really benefiting meta. But engagement has been a relatively bright spot for the company,

despite the fact that there's so much competition for eyes and ad dollars, you know, meta, mostly their Instagram and Facebook platforms, just really continue to shine as a pretty reliable place for companies to spend their money and get a decent return on their investment in terms of advertising dollars. But really the area to watch here is the billions and billions and billions of dollars that meta continues to burn and their ambitions to be part, or the leader, I guess I should say, of the Metaverse. And earlier this year, they launched the Quest 3, which is an iteration of the

Quest Pro, their virtual augmented reality headsets, and has a much lower price point at around $500, which is great in terms of increasing accessibility. But here's the problem with that. Who has a use case for this thing? If you're not playing games, which I totally understand, I'm a gamer myself, but if you're not playing games, who is using this platform? I don't think they've made a really great use case for it for the average person. So until they do that, I'm looking at the $25 billion in operating losses.

segment has stacked up as a weakness for this company. To your point, Emily, I am not a gamer. And I think if someone gave one to me, it would sit and collect dust somewhere in my closet. I think that's probably where it would wind up. Let me just jump in your local because I can speak to this a little bit, right? We have one of those Oculus headsets we bought for our daughter. I've said this before. We bought it for our daughter for a late birthday present.

We thought it would be just, you know, an extra little fun item. And it was neat for a few weeks. It starts to collect dust. And, you know, I was reading through the call there. And the thing that stood out to me in regard to Meta's in Zuckerberg's particular, his language in regard to the Metaverse, I mean, the Metaverse barely mentioned in this call. AI just got all the love. Metaverse, no love whatsoever.

So this must be a really, really long-term bet. But the language that you hear in regard to these glasses and these headsets, it's just eerily familiar. It's eerily similar to the stuff that we would hear from Snap. Back when Snap was rolling out their spectacles, right? in sort of the use cases and why these could be revolutionary. I mean, it all sounds great on paper. The technology is amazing. It's fascinating. But they've not come up with the core use case. And I think that really is the problem. It's not going to be just a SNAP problem. I think it's a meta-problem too. There perhaps is an endgame there. It does sound like it still has a ways to go

before they really figure out how to make this something that appeals to the masses. Zuckerberg didn't mention AI too too much in the conference call. But I'm going to take the bait here, Jason. If people are looking for AI as it shows up in company conference calls, especially with respect to Big Tech, is the cloud segment where we need to be looking? I mean, you know, that's certainly one part of it. Again, I kind of go back just to Microsoft. And I think Microsoft has the most fascinating way to sort of get this out in front of people because they're not only utilizing it to make their business better as far as efficiency, but they're also coming up with ways to ultimately make it better for their users and

manifesting through that co-pilots program, which just covers virtually everything that Microsoft does. Emily, taking a step back here before we wrap up this segment, anything else that you're really struck by looking at earnings results from these four companies. Yeah, I'll just highlight the AI thing. Look, if you want to follow AI demand, look at Nvidia, look at cloud demand for companies, but don't bake too much into the value that can be extracted from investments in AI quite yet. We might get there, but we're still very early on in this lifecycle. So understand. that this entire industry, the demand that exists today, can very easily fall off a cliff if and when and not saying it will happen, but it could happen that these investments pull back

if the economy worsens. All right, coming up after the break, we've got the latest update on how often consumers are pulling out their credit cards. Stay right here. You're listening to Motleyful Money. These days, I'm all about quality over quantity, especially in my closet. If it's not well-made and versatile, it's just not worth it. That's honestly what I love Quince. The fabrics feel elevated, the cuts are thoughtful, and the pricing. actually makes sense. Quince makes high-quality wardrobe staples using premium fabrics like 100% European linen, silk and organic cotton poplin. They work directly with safe ethical factories and cut off the

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slash Motley. Welcome back to Motley Full Money. I'm Dylan Lewis, joined again over the airwaves by Jason Moser and Emily Flippin. We're going to keep rolling with the quarterly updates. Big Tech reports together. So do two of the largest credit card companies out there. Jason, we have new numbers from Visa and MasterCard this week, and really, I think, a critical look at consumer spending. Yeah, yeah, exactly. I mean, these are very similar companies in what they do, obviously, and very similar results. Visa, they saw revenue of $8.6 billion. It was up 10%, excluding currency impacts. Earnings per share, $2.33.3 up 18%.

You know, they do such a great job of translating, you know, modest top-line growth into better than modest bottom-line growth. As investors, you know, we love to see that. Payments volume was up 9%. They said they, over the course of the quarter, they saw payments volume growth tick up from July to September, and that was driven ultimately by improvement in ticket-sized growth. There were higher gas prices. some easier year-over-year comps that sort of helped that as well. They did note in Visa's

call that October spend, while it's been stable, it's been feeling some pressure from primarily declining fuel prices, but product mix as well. Ultimately, at the end of the day, with companies like these, you know, you're looking for them to return value to shareholders. These are big businesses that do something that, you know, a lot of other companies can't really do. Share repurchases and dividends, $5 billion for the quarter and they increased their dividend visa did by 16%. which is always nice to see. They authorized, again, a new $25 billion share repurchase program. It's worth noting. Share counts down 7.8% since 2018. And that really is kind of part of the thesis with a company like this. You want to see them kind of keep on doing that. I think one of the interesting things with these businesses is,

as we've seen fintech really become front of the conversation, right? Everybody's talking about fintech, fintech, fintech, and Visa and MasterCard, they're going to get disrupted. They're doing a really good job of kind of finding their way. into this value chain, right? Establishing new positions. They signed over 500 commercial partnerships with Fintechs globally over the course of the quarter. That was up 25% from a year ago. So I think it just speaks to their ability to find new and compelling positions in that payments value chain as a partner as opposed to a competitor. And ultimately, their top 265 largest clients use 22 products on average now. That's up 8% from a year ago versus their average clients who just, you know, use 11% or 11 products on average. So it just, it tells me that Visa's

doing a lot with their biggest customers, which is a good thing to see. Let's switch gears and look over at results from MasterCard. My high-level take here, Jason, is you mentioned these companies are pretty similar. The numbers look good, but one of the things that jumped out to me was the company disclosed sequential growth slowdown for the month of October, which seemed to spook investors. Yeah, that was the one little difference there. You know, Visa said that that that, that spending sort of stabilized MasterCard, their language is a little bit more glass half empty. So I don't know if that's a leadership thing. If they're just trying to sort of set expectations a little bit differently.

But, I mean, it was a good quarter regardless. Revenue of $6.5 billion up 11 percent. Earnings per share up 29 percent, gross dollar volume, up 11 percent. They did make the same mention of kind of October and fuel prices there. But they are also experiencing success in new flows, new partnerships with Thintech. firm, so they're doing a lot of the same things that Visa is doing just at a little bit of a smaller scale. During the quarter, they were purchased 4.8 million shares at about $1.9 billion. They paid $538 million in dividends. And to the point on share account, share account for MasterCard,

it's down 8.5% since 2018. Listen, I own both companies. I think I've always made the argument, why own one or the other, you can really own both and just win either way. It feels like they just continue to do what they say they're going to do, and that's what we want to see. All right, rounding out our earnings update. We've got new numbers from Spotify. Emily, the music streaming service raised prices earlier this year. Didn't seem to bother users too much. Yeah, finally some appreciation for Spotify, but even more so than the great numbers they put forward in terms of both monthly active users, but also paying subscribers.

More importantly, the market was focused on their gross margin, which continued to tick upwards. And that's really where the tension with Spotify has been is when they went public, they communicated to members these goals for a gross margin around 30%, a little bit north of 30%, but their investments in the podcasting and the weakness in the ad market as a result have kept those gross margins muted. But this quarter was a step in the right direction, in part thanks to those price increases that you just mentioned, those also help margin, although those were mainly for North American users and didn't seem to get a lot of pushback.

They came at the end of the quarter. So really next quarter will be the big question mark in terms of whether or not there was any churn thanks to those price increases, but also as we continue to talk about the firming and the advertising markets, their ability to monetize those users continue to improve. And their ad supported gross margin was 8.3% of the quarter. And that might not sound impressive, but just the last quarter, that margin was 1.8%. So it's a 600-something basis point improvement quarter over quarter. So a massive jump in the right direction here for Spotify.

I want to take a step back with Spotify's results. I think we can kind of lump meta into this conversation. Two companies in particular, but there are several others out there that have gone on incredible tears over the last year. I think Spotify's looking at almost a double meta, looking at almost a triple over the last year. And there are some other beat-up tech names that have had a similar path. When you look at some of these names and some of these returns recently, Emily, do you feel like some of the easy money maybe has been made with these stocks and we're back to something that feels a little bit more normal for where they should be? Yeah, I promise you, if you were whined a year ago and say that,

and Spotify are, quote, easy money. You'd get a lot of pushback from the market because to have the hindsight, right now it's 2020, but in the moment, these were much riskier investments. We didn't know where the ad market was going. We didn't know the strategic investments those companies would make. So in hindsight, sure, but the reality is that both those companies are still well off their highs. So if you're looking at these companies and liking the direction they're headed, in my opinion, there's no reason to anchor to the previous price and think that you somehow miss the boat. Jason, what about you? Similar thoughts? Yeah, well, you know, one thing I do, when it comes to Spotify, at least, one thing I keep on wondering about it,

it's there's not maybe another acquisition in their future to try to sort of expand that growth a little bit. I'm a subscriber at nugs.net, live music. I'm a big fan of that stuff. I just wonder if maybe that wouldn't just be an excellent little addition to their Spotify universe. I don't know the user base there, but Nug's not net. Keep an eye on that one. If you're listening, folks, at Spotify, there's a free one for you. Jason, Mozer, Emily Flippen. We'll see you a little bit later in the show. Next, we've got a look into FTCS and Sam Bankman-Fried from one of the greatest business writers of all time. Stay right here. You're listening to Motleyful Money. I'm Dylan Lewis. This past

week, we were in New York City with our Motley Fool One members for our event, NYC1. And while we were there, Motley Fool co-founder and CEO, Tom Gardner, caught up with Michael Lewis about how one of the other big events in the Big Apple is shaping up, the trial of FTX's Sam Bankman-Fried. Bankman-Fried was the focus of Lewis's latest book, Going Infinite, and Lewis, shared his wild insights from following the crypto kingpin, as well as the dynamics of Silicon Valley, and whether investors would really change how they approached investments like FTX in the future. Let's put you in a new role in life. You're the chief compliance and risk management officer for Silicon Valley. And actually, I'll expand that role if you'd like to have an even broader set of responsibilities,

and that is for all of our investors at the Motley Fool. All of us is investors, you're now our chief compliance and risk officer, because you've spent the time to study the most recent, most significant collapse? So where are the holes that allow this train wreck to happen? What are the, that's mixing metaphors? But it's, it's, one of them is that a lot of, the big accounting firms wouldn't audit crypto. So you already had, not that the big accounting firms aren't capable of presiding over a disaster, but you already had a situation as a, still, Silicon Valley investor, where you're looking at firms that are not conventionally audited. They might have some little auditor you've never heard of if they have one.

Or they might just sketch out there balance sheets like a third grader on a piece of paper and fax it to you. In retrospect, it wasn't obvious in the moment, right? Because 120 people invested it. If you go back, you say, what should have flagged? We have flagged is just like, we're not going there. Well, I would say no board of directors is a pretty good sign that is a problem. that there's absolutely no one else who knows what's going on inside the business. Added to no CFO, added to no organization chart, like you can't actually know who works here.

That was a pretty telling moment in Go Infinite when SBF simply asked, why would I have a CFO? Why would I have a CFO? And actively hostile to organization charts and lists of employees. The fact that this, you know, you have the book there, right? take the jacket off the book. If you take the jacket off the book and just hold it up, look on the inside of the jacket. Sam, because there's so many emotional problems

and psychological problems in the company, so inside of the jacket, right. So that is the only organization chart known to exist for FTCS, and it was created by the company psychiatrist. And it was Sam's and Caroline's personal psychiatrist, who they moved to the Bahamas to deal with all the unhappiness in the company. and the shrink can't get his mind around the problems people have unless he knows where they are in the organization. So in therapy, he starts to tease that out, and he creates the only organization chart, sticks it on a thumb drive, and gives it to me, and he vanishes.

But Sam didn't know that existed. So you're asking for compliance. So those three things are kind of tells. You know what else is a tell? It's this fear of me. And I don't know what to say about this exactly. So if you're a venture capitalist, your biggest fear is not that Sam Bankman-Fried takes your money and you lose $30 million. It's that FTCS is the next trillion-dollar company, and you weren't there. And you're perfectly, that's the calculation they're all making, is that this thing looks like a rocket ship. It actually, actually has gone in revenues from 20 to 100 to 950 to a billion. And the revenues are going to be a byproduct of, like, how many people want to? want to gamble in this casino. The VCs I talked to, and I interviewed them before, everything

went bad and after. Before it went bad, they said they thought Sam might be the world's first trillionaire. So they're thinking like that. Now, whether that's right or not, they're thinking that scale. So what I would say is compliance officer, whenever you come to me with a fear of missing out story, and it's just like, we got to do this because it's going to be, that's where you've got to be the most deal. Let's see if they have a board. Yes, let's see. Let's see if they have a board. You know, it is funny. It is funny. We had meetings with a venture capitalist in San Francisco when we took our learning and

development group at the Mali Fool to meet a bunch of companies in San Francisco when they graduated the program, and one of them presented the challenge they had faced at the firm, which is that they had decided to take the next incoming group of analysts and teach them about the mistakes that had been made in terms of the losers. They went through a whole process, and they were like, it would be great just to remove a few of these. And that analyst group ended up having the worst performance because they did remove the most losers and they removed the one, you know, the one Tesla or the one Airbnb.

And the math crushes you if you do that. So they went back and said, we are now training our analysts to make mistakes to keep going as boldly as possible. And that does open the door on investing in something, a business that doesn't have a board or a CFO and ends up being a total collapse. This is also a story of the lure of crypto, right? that got me interested in this in the first place was not like Bitcoin. I was kind of like assaulted by crypto people for 10 years to try to write a book about them. And I never could get that interested. But when all of a sudden the market cap of cryptocurrency is a $2 trillion, you're looking and you're thinking like, this is starting to have, this is getting to the

size where this is going to have social consequences. That isn't just like, oh, a funny little gambling side show. And, and, uh, And so the VCs are looking like, how do we get into this? Because it got so big. And you can't really blame them, although you can sort of ask them, like, why you didn't insist on some insight into the business. But if you didn't insist it, you would have been left out. You know, I mean, it's that.

But so you're saying I'm the compliance officer, I would just say those are the moments where you were actually at the biggest risk of doing something. dumb. It's that, it's that, oh, I got to be there. I got to be at that part. We had a wonderful conversation with a professor at NYU business school named Dr. Melissa Schilling, and she was talking about a book Quirky that she's written and really assessing the patterns of the great founder leaders of companies, I think, not entirely companies, innovators, and the changes that they drove. And she was identifying that they often wouldn't probably be high on the

list of EQ. They might have been very high. IQ, but they didn't do a good job of collaborative work efforts and building consensus because they were separate from the group and they were thinking differently and they didn't have a filter to understand how they were being perceived by others. So I'd like to hear from you a little bit of the SBF balance of IQ, EQ, and how you think about that, how we evaluate leaders and what we should be looking for, knowing that neither one or an emphasis on neither one is going to automatically give you one winner after the other. But how should we, in evaluating leaders of private or public companies that we invest in,

evaluate somebody along the continuum of EQ and IQ? Well, in the case of Sam Back and Free, he defines one end of the continuum, right? He's wanting that he is, this is a totally socially isolated kid who knows he doesn't feel empathy or pleasure and is unable to make facial expressions until he's 20 years old and does not feel your pain. and knows it like born with these qualities. And people around him are always compensating for the fallout from his lack of interest in your emotional state and lack of sense of emotional intelligence. Nishad, who just finished testifying, Nishad Singh, who just finished testifying against him,

said to me once, back when things were good, he said, you know, my job here has been to be Sam's emotional intelligence because he doesn't have any. But I watched him, he was kind of patting him on the back saying in the last six months, he subcontracted some of his IQ to use it as EQ, and he's gotten a little better. But I think that to answer the second part of the question is like how you take that into account when you're evaluating someone who's doing something, creating a business. I mean, you can't create an organization of people without keen emotional intelligence. it's going to survive. It may be the person who creates the organization doesn't supply that, but the absence of it should be something that puts you on red alert, I think. And I thought, one of the ways I saw this story right from the beginning was this is what happens when you

exalt a certain kind of intelligence and pay no attention to other kinds of intelligence. And they're constantly talking about they're only interested in really high IQ people. They're really only interested in people who are kind of mathy-sciency. They don't really, Sam, like, at age seven, begins to think anything in the humanities is all bullshit. Makes arguments how Shakespeare is an idiot. You know, it's that kind of thing that this isn't smart. This is a blind spot.

It's a blind spot that you need to compensate. It probably ends up being ultimately more about evaluating the full team. And if everyone starts anchoring at one end of that continuum or any particular skill becomes so emphasized in an organization that the other side isn't represented, you start to get imbalance and things, blind spots emerge potentially all over the place. Michael, if you were to testify, if you were to testify, do you think you would be helpful to the prosecution or the defense? Probably the prosecution, because the fact, what gets into a courtroom is pretty sterile.

Like you're not allowed to introduce context, emotion, feeling, all that stuff, really. and the facts that I, the sort of the facts of the book that would find their way into the court, all would just be damning. I mean, I could list them, but I, but at this point, I don't think the prosecution needs a lot of help. And also at this point, you know, it's funny. Lawyers, they don't like uncertainty. And I think what I'd really be is a little ball of uncertainty, that I create a kind of odd climate in a courtroom, and I don't expect to be asked to testify.

Michael Lewis's book, Going Infinite is out now. If you're waiting for the book but want to see the org chart Michael mentioned in the interview, head over to our Twitter feed. We'll be posting it at Motley Fool Money. Coming up after the break, Emily Flippin and Jason Mozer return with a couple stocks on their radar. Stay right here. You're listening to Motley Fool money. As 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 by Jason Moser and Emily Flippen. Normally, we wrap up our radio show with something fun and food-related for our final segment. But before we head over to our radar stocks, it was a busy earnings week. And so we're going to kind of split the difference and talk about Chipotle earnings and maybe have a little fun with food as well. Jason, what did you see from the King of Guac? Well, I mean, this is what my radar stock last week, I think. And the big focus has been on these price increases.

It seems that the price increases right now are not scaring customers away. revenue to $2.5 billion. It was up 11% with comps, up 5% for the quarter. Digital sales normalizing, I think, getting back to kind of normal this company, 37% of sales. You go back a year ago, it was around 37%, but a year before that, it was closer to 45. So I think that just speaks to store traffic kind of coming back, which is, of course, good to see. Nineteen percent growth in earnings per share, transaction comps, up 4%. I think it's interesting. They're still standing buy that 7,000 store target there, Dylan. You know, I mean, they're like halfway there. That's a big, that's a big goal. I'm not saying they can't do it, but the restaurant business is a

very competitive one. So I think 7,000 stores, I'd probably, I do as an investor. I discount that a little bit. Even still, I mean, it just, it speaks to me the growth opportunity that's still there for this company. I think it's really neat to see that they continue to experiment with all this automation, man. I mean, you've got the, the autocado, right, that's peeling and pitting out of You get chippy that's making the chips. Now they're partnering with hyphen for digital order make line and helping make those bowls a little bit more of an automated process. So it feels like this is a company that really is enjoying thinking about how technology

can make their business better. Emily, I feel like Chipotle is one of those companies that has continued to defy what people expect it can do. Jason talked about the gaudy or impressive location growth goals. It has. I have doubts sometimes when it comes to their extended pricing power, just in wondering how much more they can charge. What do you look at when you look at the business these days?

Well, let me put it this way. It's a lot easier for Chipotle to succeed when they're selling burritos, rice, chips, and salsa. The demand for that type of food, I think, is pretty resilient, which is why they have these ambitious goals, but I do agree with you that I think, I always wonder kind of what's next for the company, because at this point, when Chipotle reports earnings, I'm bored. I can tell you what management's going to say before they said it. If they've instituted price hikes, they're going to spend most of their time talking about

the price hikes, their pricing power, how resilient they think the customers are. And if they haven't instituted price hikes, like they didn't in previous quarters leading up to this quarter, they're going to talk about their new menu items, like the Karnayasada launch, which is, you know, why they don't have price increases, they're going to get customers to spend more money by buying into these more seasonal or limited time offerings that cost more. And it's an interesting strategy. It's been incredibly successful for the business.

But you have to wonder, how long does this go on? waiting for that shoe to drop. I'm waiting for the customer pushback to be there. It hasn't happened yet. I want to give props to Chipotle that they perform so well so consistently. But I have to wonder if the economy continues to turn, how much pricing power, how much Karnay Asada can the consumer really afford? I think to your point, Emily, I think you're spot on. I think that's why this next quarter that they report is going to be so crucial because that's going to reflect some more recent price increases that they're pushing through. And like I was saying last week, at some point, the customer does start to push back on that. I mean, I can make burrito bowls at home for a heck

of a lot less than they're selling me for. So, yeah, at some point or another, you feel like they have to maybe take a break because right now those price increases are just offsetting inflation more than anything else. But we'll see, I think, next quarter, really how the consumer is sort of reacting to this because, yeah, they've got some price increases that are flowing through now. Jason, when we were together earlier this week, you said that you had a homemade quack recipe that rivaled what you could get at Chipotle. Does the chain have something to worry about? Are you going to start franchising, doing some locations?

In full transparency, I mean, my guacamole recipe, I essentially lifted from Chipoli. So let's just be very clear. You're getting Chipotle's guacamole when you get mine. I added a couple of things to it from their recipe that really kind of rounded it out. But, yeah, I'm a Chipoli guac fan. All right, let's get over to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Emily, you're up first. What are you looking at this week?

The stock on my radar this week, which is not on the radar for a good reason, is Octa. They're the authentication management security platform, and they had yet another security breach through their systems, company support systems, which led to the compromising of a few of their key major customers. This is not the first time the company has faced this type of pushback. Earlier this year, they had some systems that were compromised that resulted in massive losses for a couple of casino companies a couple of years before that. A third party of theirs was hacked. It's a status of life that I think if you're the go-to authenticator, that you are going

to be the subject of hackers looking to conduct malicious actions. But how you respond to that is critical in being a well-received security business. And in both cases, OCTA received flak that they didn't respond quickly enough to these breaches. and, more importantly, ignored notifications from their customers that these breaches had happened. So, this is a great business. It's unfortunate timing because their quarterly results up to this point have actually been incredible. They've been expanding their financial scalability a bit, expanding their bottom line. But if they lose trust, then they lose everything. Dan, a question about ACTA.

You know, Emily, I'm glad that you're talking about ACTA for the wrong reasons this time. Because to me, this is one of those kind of companies that Bill Mann would say, if it disappeared tomorrow, most of the world would be. not notice. I mean, we use Octa here at the Fool, but if Octa went away, would we stop producing our content here at the Fool? Well, a lot of people would probably be able to get access to our systems in a lot easier fashion, so possibly, quite possibly. Jason, what is on your radar this week? If Octa disappeared, that would result in a lot of password reset emails. I'm just saying that up front. I know I'd be on that list. Taking a look at Massimo, one we've talked about before, ticker M-A-S-I. On Thursday evening, there was an interesting news break there. There

was a previous ruling that Apple violated Massimo's rights and light-based technology for reading biomarkers like heart rates and blood oxygen levels. That's Massimo's specialty. So, that ruling that Apple violated Massimo's rights that was upheld this week by the ITC. That's resulted in some optimism in regard to ITC and some question marks in regard to Apple in their watch. Apple is included a sensor of a pulse oxymeter in their watch and that Apple watch since 2020. And so the commission found that Apple was in violation of this trade law. And ultimately, it could result in banning the import of Apple watches into the U.S. Now, this is a bigger deal for Massimo than it is for Apple, clearly.

And it's not the end. I mean, the Biden administration has 60 days to overrule the Trade Commission. Apple could make changes to the watch. They could settle with Massimo. Who knows how this turns out? But it's just an interesting potential win for the little guy there. Dan, a question about Massimo. Yeah, Jason really seems like Massimo is punching above their weight this time.

Well, you know, there's a long and sorted history with Apple. I'll tell you, read up on it. It's amazing. All right, Dan, which one is going on your watch list? Despite the fact that a password reset is just about the worst thing to happen to anybody. I'm going to go with Massimo this time. Sorry, Octa, a business that I really, really appreciate, obviously. The tough week for Octa gets even tougher, it turns out. Jason Moser, Emily Flippin, thanks for being here.

That's going to do it for this week's Motley Full Money Radio Show. This show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.