Motley Fool Money - Starbucks' China Challenge and Decoding Meta's AI Push

Episode Date: July 9, 2025

Starbucks is looking to sell a stake in its China business, Hershey has a new CEO and Meta hits the gas on AI. Jason Moser and Lou Whiteman discuss: - Starbucks' move to sell part of its China business. - Hershey hires a new CEO. - Meta moves for more talent and invests in eyewear. - What should be on investors' radar this coming earnings season. Tickers mentioned: SBUX, HSY, WEN, META, TWLO, NET, CRWD, PANW Host: Jason Moser Guest: Lou Whiteman Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Starbucks Pivotts in China and META makes some big investments. You're listening to Mali Fool Money. Welcome to Molley Fool Money. I'm Jason Moser. Joining me today, it's Motley Fool analyst. Lou Whiteman. Lou, thanks for being here. Great to be seen. On today's show, Hershey has a new CEO. Meta's making some big investments in AI.

And earnings season is, believe it or not, right around the corner. But today, we begin with the King of Coffee. Reports are that Starbucks has garnered quite a bit of interest in its China business, is it possibly selling a majority stake in that business? And the company said, I quote, we remain committed to China and want to retain a meaningful stake in the business. Any deal must make sense for Starbucks business and partners, end quote. Lou, China has been a bit of a challenge for Starbucks as of late.

Do you think this is the right move to try to sell the majority stake in this business? I do. I like this a lot. New CEO, Brian Nicol, he's got a lot on his plate. He's articulated a plan, the back to Starbucks. He's going to revitalize the domestic business. But look, it's going to take time. It's going to take resources.

Finding a partner to work with China, it would allow Starbucks to retain some of the upside. But, yeah, it is a massive market. I get it. But it would provide a cash infusion and take one thing off of that plate, off of that daily agenda. It feels like a win-win. Yeah, and it seems like there was a lot of interest. I mean, something close to 30 equity firms and whatnot actually submitted.

Big money. Yeah, big money, valuing it anywhere from like $5 to $10 million I saw. You talk about sort of the growth opportunity in China, and that's been part of the story, I think, with Starbucks for many of us, for many years. It's not to say they haven't grown there. They have almost 8,000 stores in China to date. But, I mean, they're talking about really going so far beyond that. I mean, it's 10% of overall revenue right now.

So, I mean, it's meaningful, but it seems like it could be more meaningful. how big do you think they can grow this part of the business? So they talk about 20,000 locations, right? Which is more than double. And that, honestly, I don't know about that. And that's part of why I think I'm okay with them, at least finding a partner or kind of keeping some upside, but not all of it. I think the Chinese consumer, like the American consumer and most other consumers,

I think they're going to lean into domestic brands over international ones as that market matures. And I think, you know, to some extent it's happened. And, you know, so maybe refocusing the operations, finding a partner, kind of growing that way and kind of doing it, not just rubber stamping what Starbucks is here. I think there's probably room for growth, but I don't think maybe it's what we were talking about a few years ago, and I don't think it's priority one right now for them either. Yeah. Yeah, this seems like a little bit like history repeating itself. I mean, you remember in the early days when they were growing internationally.

And they kind of had in most places they were taking that company-owned approach to the stores. And then it turns out not every country is the same. The cultural clashes, the differences, I mean, it was all very different in so many different ways and so many different locations. And so they kind of pivoted to partnering up with local partners in those respective markets. So I'm with you. I think this is a good move. I actually like it. I think it gives them the opportunity to participate in the upside without having to devote.

so many resources to it. So I like the decision. I feel like this is something that Nickel has been mulling around for a while. I'd be curious to know. He's closing in on a year in September with the company. What grade, what kind of grade would you give Brian Nickel to date? So forget what I think. Howard Schultz seems brought in. And I think we can all agree. I mean, Howard's very smart and also, you know, can be a meddler. So I think Howard Schultz giving him an A is is very important. But, you know, I don't think Howard's wrong. I think Nichols' plan to refocus Starbucks kind of give us back the experience we fell in love with and also adjust the menu so we're not waiting in line for 40 minutes in the drive-through. It all makes sense. It's a strong grade. It's an

incomplete grade because, you know, it's one thing to say it. We have to execute and do it. But I like where they're going with. So the stock is basically flat since Nickel took over. I didn't think it's just up a couple of percentage points, but it still boasts a premium multiple at 34 times earnings. Do you think this stock from today, do you think this is an outperformer in the coming five years? I think so. I'll be honest. The valuation gives me pause, and I don't think it's going to be. I think maybe the hypergrowth days are over. But look, the brand resonates. I think you'll see operational improvements under nickel, which will boost results. You have, what, a 2.5 percent dividend yield to kind of boost your total return. So, yeah, maybe it isn't what?

the growth was before, but yeah, it still, I think, has the bones of a market beater of just a top operator. Yep, I'm with you. I'm hanging on to my shares too. Well, next up, Hershey has a new CEO. 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. It combines a dynamic sporting personality with elegance to deliver a truly instinctive drive. Inside, you'll find true modern luxury with the latest

innovations in comfort. Use the cabin air purification system alongside active noise cancellation for all new levels of quality and quiet. Whether you prefer a choice of powerful engines or the plug-in hybrid with an estimated range of 53 miles, there's an option for you. With seven terrain modes to choose from, terrain response to fine-tuned your vehicle for the roads ahead. The Rangerover event is on now. Explore enhance offers at Rangerover.com. The Hershey Company has a new CEO. Wendy's CEO, Kirk Tanner, will replace Michelle Buck, who's retiring after almost eight years as CEO of the company. Tanner will take over on August 18th and previously served over 30 years at Pepsi. Lou, I was talking with our colleague, Aunt Chavone, who follows Hershey closely.

He said, while Tanner definitely has the resume to BCEO with those three decades at PepsiCo, he had a short stint at Wendy's. It started in February 2024. It was a bit shaky. It shares down around 40% during his tenure. They had to cut the dividend earlier this year. The aunt noted that was likely to happen regardless who was CEO. What do you think his biggest challenge right off the bat is going to be taking over for such a, I mean, this is just a legendary, iconic American brand? I mean, they're going through some tough times. What do you think the biggest challenge he's facing is?

And a brand that has always, are mostly promoted from within, too, which I think is interesting too. Yeah, right? Yeah, it's, I think you said it well. It's hard to judge the time at Wendy's, both because it was so short and he did step in at a difficult time. but it feels like Hershey's is more similar to what he did at Pepsi. And he was successful there. You know, Wendy's is more retail-focused, right? So I think that that's a positive.

I suspect his biggest challenge is kind of to continue the pivot away from chocolate, from cocoa prices. Hershey's has quietly built up this roster, what, pirate booty, Gats pretzels, skinny pop. It feels like there's further opportunities to go in that direction. and bringing someone in from Pepsi, suggests to me at least, that that's where the board is focused. And so that's his challenges to execute there and make that happen. Yeah, I think you're right.

You've got to broaden that portfolio up because we've seen this over the last several quarters. I mean, years, the cocoa prices have really been hammering Hershey. And it's always fun to kind of pay attention during Halloween to see what kind of candy is selling. And last year, we definitely saw a trend towards like the fruity, sugary candies. chocolate a little bit less so because it was getting more expensive. And then the dreaded shrinkflation came into play. They're making the candy bar smaller loot. Not cool, but I guess I get it.

My doctor likes it even if I don't. Exactly. We talked about Brian Nicol. Now we're talking about Hershey here with Kirk Tanner. When you see new leadership in play here, how long do you typically give new leadership to start delivering? It's so hard because obviously every situation is different. You have to factor in macro, you know, what situation does a new leader drop into? But look, generally, I think at least a year,

we talk about this a lot. We're long-term focused investors. Yes. We understand that quarter-to-quarter fluctuations happen and they're part of the business and we don't panic. We don't freak out with one quarter. We don't get too excited. I think we have to give leadership the same understanding, the same philosophy. In a case like this, the challenges, the consumer, the coca prices, perhaps maybe you need more time, but I'll tell you what I do want, JMO. And what I'd like to see is, within a year, what Nicol gave us, I want to hear our leadership articulate a plan. And I want something I can evaluate from here. You may not be able to solve the problem in a year, but I want to hear how you're planning on doing it within a year.

Yeah, I like that. One of Tanner's go-to moves at one. was offbeat collaborations. They did a Girl Scout, Thin' Mint Frosty. Tried that one. It was good. Spicy, Taki, chip chicken sandwiches. Hey, man, I love Tockeys and I love chicken sandwiches. Spongebob Branden Burgers. Let's play Armchair CEO for a second year. What brand collaboration would you recommend for Herschons? The company that brought us peanut butter and chocolate. They have to get collaborations, right? This is a no-brainer, but I love Dotspretsles. Looking at the website, they have cinnamon season. They have barbecue. They have honey mustard. They don't have chocolate covered pretzels.

You know, that crossed my mind. That crossed my mind. I'm a little bit. It seems so obvious. I have more of a salt tooth than a sweet tooth. I was thinking, like, I love dots pretzels. I have them here in the pantry at home. I also like Skinny Pop. That's pretty good stuff. I was thinking, hey, you get Skinny Pop and you partner up with McCormick for some old day Skinny Pop. And I mean, you can cheat and put the stuff on at home, but I guarantee you the stuff in the bag is going to be way better. I mean, you're bringing two, two, two, world's together right there. I'd be all in. My Baltimore roots are speaking to me right now. Yeah, I'm in for that. Mr. Tanner, get on that. Last question on Hershey, do you think Tanner is still

here in five years? I do. I do think fit matters, and I think the resume implies a better fit, like we said, to use the Willy Wonka. I think maybe this is a golden ticket, and I think it can work out well for Tanner and for Hershey shareholders. Well, Louv-Metta continues to make big, big investments in AI. Founder and CEO, Mark Zuckerberg, is spending big to recruit AI talent. I mean, we're talking tens, hundreds of millions of dollars from reports. And now we also saw that the company's taking a minority stake in Rayban Maker, SLOLuxatica. And that really plays into these rayban AI glasses that they're starting to get out there. I'm interested to see how this holiday season, how those are received. Now, as we saw with the Metaverse, Zuckerberg's play.

is to go big or go home, right? Three and a half billion dollar investment in RayBan, reportedly hundreds of millions of dollars in recruiting bonuses. I mean, that's a lot. What should investors make of all the spending? So, usually I find interesting. Back in January, Meta committed to what, spending $70 billion in CapEx, mostly to build out AI. And our focus was on chips at the time. And certainly, you know, Chips is still getting, and Vividy is getting a lot of love here. But it feels like we're hitting that next step where what do we do with all that capacity, making the magic happen. And, you know, look, if you think chips are hard to come by, and they are, just how hard

is it going to be to get the right talent and the right partners and all of that? So I think be aggressive makes sense. Zuckerberg likes to be aggressive, but focus on the big picture, try and be a first mover here. I get what they're doing, and I think it makes sense, because at some point, we've got to use all these chips for something. and it better be neat, right? Yeah, I mean, this is an arms race like we haven't seen in some time. I mean, all these companies is just foot on the gas, and they're spending a lot, but clearly that's telling us something.

I mean, I think we're in the middle of something big here. Now, the Metaverse spending, right, that led to the year of efficiency, if you remember that. Investors became worried about return on investment. Do you see this playing out the same way? Or, like, how long of a leash does Meta have here to ultimately? ultimately build out their A-O shops and demonstrate real return. I'm curious what you think.

I think here the difference is last time they were out on their own, right? I mean, they were, I mean, they literally changed their name to Meta. They were the Metaverse Island. For better or for worse, it ended up worse. They owned that space. And there's a lot more there with AI, I think. And if there's not, we have a lot of people going along for the ride. I think as long as everyone else is spending, I think it's a much longer leash.

Yeah, I think so too. I mean, I think you said it perfectly. There's a there there, right? AI, it just seems so much bigger. And when we're looking at augmented virtual reality in the metaverse, it's, I mean, it's fascinating technology, but it certainly is more niche. And it's really not quite developed the obvious use cases that we're seeing play out with AI. The stock, let's talk about the stock. It's had a good year to date.

It's up almost 25% outperforming the market nicely. And at around 28 times earnings today, is this something you're interested in? Do you think this is an outperformer over the next five years at today's levels? So 28 times earnings, what? That's second most affordable among the MAG 7, which, you know, for what it is. But look, for all the talk about AI, we kind of, you bury the lead when you don't talk about that core advertising business and its ability to just generate. I'm excited about AI, but just that core business, I don't see a disruption on the horizon here.

And with that business, I think the stock beats the market. I mean, that is the engine. Yeah, and I think AI is really ultimately making that core business even better. And that really is kind of the point. I mean, they're going to do ancillary stuff with it. But it is making that core business better. And, man, they really own a big slice of that ad market, like you said. Next up, burning season is right around the corner.

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Lou, believe it or not, earning season is upon us again. J.P. Morgan unofficially kicks things off on Tuesday, July 15th. What's something that you'll be paying close attention to this earning season? I mean, a trend, policy-specific company and industry? What you got? So we just talked about META's year of efficiency. We want to talk about so far this year, and we're still kind of early into this year, it has been the year of uncertainty, right, for public companies.

And investors largely gave management teams a pass last quarter when they said, I don't know when it comes to guidance. And I think that's understandable. I was one of those investors who, yeah, I don't know what's going on either, so that's fine. Two related big picture questions I have, as I'm watching now, is A, is there more clarity now than there was three months ago? Is there more management teams that are willing to kind of stick their neck out? And since I'm guessing the answer is maybe not, will investors continue to be patient? And will the I don't know answer?

Will that be acceptable now the way it was last quarter? I think probably, but I do, I'm curious to see how things play out just kind of. We're always forward-looking. And as investors, it's kind of scary when it's hard, when there's clouds forward. So it's a weird time. Yeah, it is. Well, yeah, I think in just regard to your points there, too, we're seeing a lot of headlines coming out here again regarding tariffs.

It's leading right in earnings seasons. I mean, it would be understandable if you hear that sort of uncertainty language. But I don't know. Do you feel like maybe, you feel like, you feel like. folks are just kind of getting tariff exhaustion. Like, I mean, it's, it's just day after day after day. So you kind of know that it's happening. And at some point, you just got to kind of, just got to let it go and keep running your business, you know? Yeah, it feels like it's going to net out as a drag on earnings kind of indefinitely that we're just going to have to grin and bear it with.

And yeah, which is kind of a terrible medium because it's just going to be a slog. Yeah. Yeah, I was, you know, you asked what I was looking at. And for me, it's in regard to enterprise spending trends, over the last several quarters, there's a phrase that we've seen on a lot of these earnings calls, whether it's Twilio or Cloudflare or Crowdstrike, Palo Alto, I mean, you name it, these big enterprise servers, the phrase elongated sales cycles, kind of to your point about uncertainty, right? their enterprise customers are just simply not quite certain what the future holds, so they're spending with some trepidation and maybe not fully committing.

So we saw just elongated sales cycles on so many earnings calls over the last several quarters. I wonder if that's kind of starting to come to a close. I wonder if we're going to start seeing some more bold spending from a lot of these big enterprises. And so I'm going to be following a lot of those companies like, I just mentioned those earnings calls. That will be one key term that I'll be searching through all of those calls. Elongated sales cycles. That's just telling you they're just not spending as much as quickly,

and we want to see that turnaround. It's a great point because putting it both together, there is so much uncertainty. It's understandable not to want to make bold moves, but at some point business has to go on. So where are we in balancing that? That's going to be fascinating to say. Well, we'll leave it there. Lou Whiteman, thanks again for being here.

Always a pleasure. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So, don't buy ourselves stocks based solely on what you hear. A personal finance content follows Motley Fool editorial standards and are not approved by advertisers. Advertisements or sponsored content are provided for informational purposes only to see our full advertising disclosure.

Please check out our show notes. I'm Jason Moser. Thanks for listening. We'll see you.