Motley Fool Money - The 1st Trillion Dollar Company

Episode Date: July 29, 2016

Alphabet, Amazon, and Apple report big earnings. Panera serves up strong growth. Verizon buys Yahoo. Twitter tumbles. And Whole Foods slips. Our analysts delve into the week's top business stories and share three stocks on their radar. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hill and joining me in studio this week from Million Dollar portfolio, Matt Argusinger and Jason Moser, and from MDP and Supernova, Simon Erickson. Good to see you, as always, gentlemen. Hey, yes. Last week's show, we had two guests. This week, we've got no guest, and that is because it is earnings paloosa, so many companies to get to. And as always, we'll give an inside look at the stocks on our radar. Let's start with the company formerly known as Google. Alphabet's second quarter results came in better than expected, and Simon, these were already some pretty robust. expectations that they leaped over. Robust indeed, Chris, but they just continue getting it done.

Let's not forget that Google is the most visited website in the United States. YouTube is number three. In addition to those two, they've got five other products that now have over a billion users globally. So all of that together contributes to ad revenue growing 19% to $19 billion during the quarter. Paid clicks on Google sites were up 37%, even as the cost per click was down 9%. But again, they're continuing to get the traffic that's extremely powerful for the advertising

part of this business. I thought this was supposed to be the time when Google was losing to the whole app culture and Facebook and all this stuff. I'm just amazed, Simon. I mean, we looked at each other last night and I said, I can't believe from the base they were at, the growth that they just put up for the quarter. Suzanne Fry, one of the executive at Google, is on our board of directors. Got to get that out there for disclosure purposes.

But you mentioned on the apps, Alphabet is now this holding company that does give us, Simon, greater insight into the various departments. One of the things that did come out of this quarter, though, the whole other bets part of the Alphabet business, they're really starting to spend some money. They are. And, you know, that's still a rounding error compared to $19 billion of ad revenue. I think they pulled in $185 million from other bets. But keep in mind, this is based on milestone performance.

This is operationally your business is getting more important and better. rather than contributions to the top or bottom line right now. But they've got some really interesting stuff that they're working on in that group. I think Nest for the smart home is going to be very interesting. They now have over a million miles from the self-driving car and the costs of that just continue to come down. To Matt's point, I think that the core search of this business at some point is becoming less and less relevant as people are installing ad blocking software. They're going and spending their time in applications rather than on search to figure out what's on the Internet. because they already know what the favorite websites are out there.

Google's got to find ways to continue to be into our daily routine every single day, and I've got a lot of those other bets to address that. All right, let's move on to Amazon. Amazon shares hitting a new high on Friday after posting record profits. It is the third quarter in a row that they have posted record. That's a nice streak to be on, Jason. It's a very nice streak to be on, especially with a business that quarter in and quarter out, they give such a range in guidance as to the profitability.

of the business. I mean, it's pretty easy to kind of see where the top line is going. And I think it's phenomenal to think about how big this company is today. They're still growing that top line at 30 plus percent rates of growth. It's just amazing. And there's no real sign of slowing down, which is really a testament to the two biggest drivers of growth of the business. It's prime and growing selection for customers. And they continue to invest very heavily in that. We've seen how that is played out domestically. We're seeing how that's playing out internationally. And I tell you, one thing I really am interested in with the business, we talk so much, not just us, I think everyone in the financial media, talk so much about the China

opportunity, and that being kind of the pot of gold at the end of the investors' rainbow, so to speak. And there's such, it's just a really difficult market to figure out. It's extremely nebulous. You just don't have the transparency that we have here. I'm really excited about what Amazon's doing in India, and Amazon's really excited about it, too. They're talking a lot about it in the release, a lot about it into the call. They continue to invest a lot of money in building out their e-commerce operations there, rolling out prime there in India. They're going to start producing a lot of video to roll out prime video there. So I just think that, again, everything goes back to the prime relationship for Amazon. It's proving out domestically.

It's proving out internationally. It's really starting to show some promise here in India, a very big country, 1.3 billion people. A lot of reasons to be optimistic for Amazon here. in the coming decade. Yeah, and it's nice to see them really finally, I don't know, focusing on profits or at least putting up nice profits. But Amazon, on an operating cash basis, has been very, very profitable for a very long time. And I just noticed that in this past quarter, three and a half billion in operating cash flow, you strip out the cap X from that, and it's still about 1.7, 1.8, roughly, billion in free

cash flow, which is about double what they did a year ago. So this is a company. I mean, this is now turning into a bit of a cash register that investors probably didn't expect. And let's not forget to talk about what's driving a lot of that cash flow right now, which is web services, right? I mean, the cloud business that Amazon's partaken on just a couple of years ago is now a $2.9 billion revenue business for the quarter, up 58% year-over-year, turning out about a 30% operating margin. So, I mean, that's a good chunk of cash that they can redeploy. They're getting some really big wins with customers like the CIA and Salesforce and Netflix,

and that's just going to continue to get larger in the future. And you can expect those margins of that part of the business to continue to expand here in the coming years. It is interesting, though. I mean, Simon, you mentioned that the other bets that Alphabet is starting to make in things like the smart home. You look at Amazon, they are also making their own other bet in the smart home with Alexa, their voice recognition device, where you can get news and stream music and ask questions and all that sort of thing. I've heard of it. Every once in a while, I just walk around and ask.

I'm like, Alexa. Boom. Just say thanks. Alexa, thank you. Thanks for being here. She's like, you're welcome. My pleasure. Don't you also play Motley Full Money on Alex?

Absolutely. But it is interesting. These are smaller bets that these very large companies are making, but you can see that they are on a collision course in that sense. All right. Let's move on to Apple. Shares on the rise this week, despite third quarter revenue coming in lower than a year ago, of course, many in raw numbers.

When we talk about their quarterly revenue, we're talking about more than $42 billion. Oh, my. Gargantuan. And we expected revenue to be down this quarter. I mean, iPhone 6 was so huge for them last year. They don't have a, I mean, the iPhone SC is out there. It's a lower price model. So really, it's all about ramping up to the iPhone 7 this fall.

I think that's when you're going to see a resumption in year-over-year growth for Apple. But I'd say the one really awesome thing about the last quarter here was the 19% growth in the services business to about $6 billion. It's now about 15% of Apple's overall revenue. This is iTunes, the App Store, Apple Pay. And really, in my view, and I think Apple would probably disagree at this point, but I think the iPhone is slowly, maybe even rapidly becoming just another device, a portal, that gets you into the Apple ecosystem.

And there's various ways to do that. You don't necessarily need an iPhone. But the better that Apple can do with the software side of the business, I think that's ultimately the sticky part of Apple long term. And so making the iPhone's great, hey, it's still 60% of the business. But I like to see that the services side, the business is growing faster. So for a while, there was talk of, well, they've got the iPhone. What's going to be the

next big device? And some people thought, well, it's going to be the watch. It may still prove to be the watch, but right now, that's probably not the way to bet. For investors, is the service side of Apple's business? Is it possible that that is the next big hit for the company that drives revenue growth? Not in the near term. I mean, it's still so small, but I think ultimately, yes. Five years from now, I'd say if we look back and determine whether Apple was a successful investment from today, it would have to see serious growth in that services business because that's where you're going to maintain the long-term customer loyalty. I will point out this, though, I mean, just from an investing standpoint, they returned about $13 billion last quarter to shareholders in buybacks and dividends.

Still have $232 billion on the balance sheet in cash and long-term securities. I have to see that $13 billion number cranking higher in the quarter to come. So, from a dividend perspective, from a share-by-pack perspective, you should be pretty happy about being an Apple shareholder. Talking about the device being kind of the gateway, right? Because I think you're right. That's what they need to do is make sure that customers realize this is the gateway. I was thinking about it the other day. And I came to the realization that in our house, we have as many Amazon devices as we do Apple devices. So my wife and I use iPhones, and we have an iPad. But we have just as many Amazon devices with Kindles and Alexa. in the Amazon TV. And to me, up to this point at least, Amazon has proven to be better, at least on the service side and sort of the repeat purchase side because of the e-commerce nature of the business. So I think that's where Apple probably has a lot of work to do. It's not to say they can't get there. And I think that what we saw here with the recent Pokemon Go-Kraise,

that was just a great example of how really Apple benefited tremendously from that. And they didn't really have a whole heck of a lot to do with the first place, didn't it? Well, I think that's such a good point, Jason, because Amazon, at least from the get-co, could say, look, we're not interested in making any money off these devices. These are devices that we want you to use so you can buy more Amazon stuff or download more content, things like that. And I think Apple, of course, is still at the level where, no, we're still making substantial profits from these phones. And that's not going to change anytime soon, but it is a different mentality that might even enable Amazon to be a little more successful.

I think so, too. I think that's really a concern that we need to keep an eye on as investors for Apple, that they do not fall behind what the next big thing is. is out there. We always say, what's the next big device to replace the cell phone? Not as important as that ecosystem that you talked about, Jason, maybe transitioning out from, oh, I used to have a Mac and I had an iPhone and everything else like that. If you're starting to replace those with Amazon for the devices that you're using on a daily basis, if Apple is losing relevance, they're losing that ecosystem advantage that they've built for decades now, and I think that's something we've got to keep an eye on. Well, for a very long time, Amazon sort of held back on

offering up that rich app ecosystem. that was accessible on Apple devices, right? I mean, you couldn't just go into your Amazon cloud storage and check out pictures or videos or whatnot. That's changed now, and you can pretty much access whatever you keep in your Amazon cloud via your iPhone or iPad or Apple TV, which has proved to be very beneficial for a household like ours, where we're not committed to one brand device or the other. We like to really kind of be able to take advantage of all of the great technology that's out there

and be able to kind of cross platforms. One last question on Apple, Maddie. Insofar as a company, as huge as Apple, can surprise Wall Street. I feel like this quarter was a little bit of a surprise. I feel like there was already some looking past this quarter to the fall anticipation about the iPhone 7. And because they put up these numbers, despite the lower revenue than a year ago, I feel like the surprise factor benefited Apple shareholders this week. I think so. I think investors were probably surprised at how well the iPhone SE is doing. I think the fact that the average selling price of the iPhone didn't fall as much as expected and that they shipped more units than it was expected. I think they're saying like, hey, maybe Apple's core business, main business is fine. And now we get to look forward to this exciting next six months. And so, yeah, reasons to cheer Apple stock. Second quarter profits for Facebook came in much higher than expected, and revenue for mobile

ads is now making up 84% of the pie, Simon. That's enormous. Yeah, and let's not forget it was up 81% year over year too. So growing incredibly quickly. You can do things on mobile devices you can't on desktops. You've got a lot more voice recognition. You've got location awareness. So the queries and the searches that you do, and this is a trend for alphabet Google as well, are better. There's more information that Facebook can use off of a mobile device than it could off of just a regular desktop. And I think they're using that to their advantage in the ads that they're able to place and how they're able to target those to users. We're seeing more and more video ads now coming up where people are able to hit the demographic that they want. And in the first couple of seconds, they really grab your attention by a really relevant ad that's in a video form.

And, of course, Facebook's getting higher costs and prices for those video ads. and they are off of text or off of picture ads. But again, this is just a company that's gotten it right on mobile, has gotten it right with targeted advertising. And now the 1.7 billion users that they have across the globe, when you think about the number of people that have the Internet, they're at about 50% Internet penetration for those around the globe. And they're bringing more and more people that are not onto the Internet.

The first experience they'll have with the Internet might be a Facebook page. So the story is going to get even better, I think. Yeah, it was very interesting to watch the stock, behave after the earnings release and during the call. I was listening to the call, and I think they always are very insightful because there's so much to talk about. But Zuckerberg was talking about the fact that they are investing heavily in video. They see Facebook is becoming video first and sort of the natural evolution of communications, but that they are going to be hitting the higher end of their projected forecast and capital expenditures for the year.

And they foresaw that revenue growth in the back half of this year is going to start to decelerating based on really just tougher comps from a year ago. And the stock really still held up after those comments. Fast forward the next day. It seemed like it was a pretty good day about closing up. The stock started kind of pulling back to even. And it seemed like it was kind of a wash after this quarter. So it was a good quarter. It was a good release. But you can see in the coming quarters, we're not going to have a whole heck of a lot of expectations here because we know they're coming up on some tough comps. They're going to be investing heavily. But I think it is for the right thing for the long-term success of the business.

Chris, the thing I'm excited about is watch for them to start monetizing these other platform properties that they have. I mean, the first one that we're going to start seeing more and more out of is Instagram. Now, it's 500 million users, about 200,000 advertisers. Now, again, that's a small piece of the 3 million advertisers that Facebook proper has got, but that's the next platform. After that, you've still got WhatsApp. You've still got Messenger, which are 1 billion user properties.

And I'm really looking forward to seeing where it comes with VR in the next couple of years, So with the rise of Facebook and Amazon this week, both of those companies passed Berkshire Hathaway in terms of overall market cap. So you throw in Apple and Alphabet. We have four of the largest public companies in the markets. Which one gets to a valuation of $1 trillion first? Or you can go off the board. You can take the field, as they say, in your favorite sport of golf, Jason. You can pick one of those four. You can take the field. What are you going with? Who gets to $1 trillion first? Yeah, I'm going to go with the most useful, to my mind, of all of them.

I feel like Amazon is the one that is by far and away the most useful on a regular basis. I mean, they garner more and more repeat purchases as time goes on. Bezos approaches this business with a sense of urgency every day. And it's not to say anything bad about these other CEOs. They're all great leaders. But I just think Amazon really has the clearest. path to it. Simon? Yeah, good point on visionary leadership, and they're all in tech space, right?

I got to go with Facebook, because I feel like they're just getting started. I mean, as big as this company is, consider 3% ad load and just the number of users they have that are coming on these new platforms. I feel like we're not even halfway there. I've been on the Amazon bandwagon. I don't think I'm getting off. I still think they're the first to get there, but I have to say, when you look at Facebook, the growth, the 40% operating margins, which Amazon could never get to. It's, I think. Facebook might get there first. Ah, you're all wrong.

I'm taking the field. You guys are betting on single companies. I got 10,000 I'm betting on. There you go. From big tech to big media, earnings paloosa rolls on. This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in studio with Matt Argusinger, Jason Moser, and Simon Erickson.

Comcast shares hitting a new high this week after second quarter profits and revenue. Both came in higher than expected. Simon, what happened to cord cutting? I don't know, Chris. I'm concerned about the capital allocation personally. I mean, movie revenue was down 40% in NBC Universal, but they just acquired DreamWorks for $4 billion. CapEx was up 15% as they're investing in Xfinity, but everyone's cord-cutting these days. And they bought back a billion dollars of shares at all-time highs.

I'm just a little bit nervous as an investor by their allocation. Second quarter profits for Under Armour fell 58%. Part of that was the ripple effect of Sports Authority closing its doors. Maddie, we knew this was coming. We knew it was coming. I'm not surprised at the profit drop. What I am very impressed by, though, is the revenue. The overall revenues were up 28% a billion in the quarter.

But two really impressive numbers to me, especially international net revenues, up 68% year-over-year. This is a place, Under Armour kind of struggled in recent years. And the fact that they're really seeing that kind of growth outside of North America, it really speaks volumes for the brand. And then, of course, the footwear up 58%. We know Steph Curry is having a big impact there. But that's, I mean, again, several years ago, really thought Underrumber would not be a factor at all in the shoe market. And here they are on pace for a billion in revenue over the next month.

Summer Olympics starting up next week. Do you have an event you're looking forward to? Oh, come on. It's the modern pentathlon. I mean, come on. Horse riding, shooting a pistol, swimming? I love it. Simon, what about you?

Trampoline. That's an event? Exactly. Underrated. I've been shuttling my daughters back and forth, the horseback camp all week, and it's just really just reminded me how much I love animals. But horses in particular, they're just unbelievable when you get up close to them. I'm going with equestrian.

I got to go to decathlon. I just, you know. Oh, okay, yeah. Mine's got horse riding and fencing and shooting. Okay. That's a good point. Sounds like an accident waiting to happen. Earnings Paloosa continues.

Stay right here. You're listening to Motley Fool Money. This episode of Motley Full Money is brought to you by Rocket Mortgage by Quicken Loans. If you've ever bought a home, you already know how frustrating and time-consuming getting a mortgage can be. Rocket Mortgage brings the mortgage approval process into the 24th, first century by taking all the complicated time-consuming parts of applying for a mortgage out of the equation. With Rocket Mortgage, you can easily share your bank statements and pay stubs at the touch of a button, helping you get approved in minutes for a custom mortgage solution that's been tailored to

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There's still a lot of stuff to get worked out before this gets finalized in early 2017, Maddie. This is one of those situations where all along the smart money was on Verizon, and that's why it was the smart money. Yeah, we'll see if it turns out to be a smart acquisition. I think it makes a lot of sense for Verizon. I mean, they're really trying to move beyond just providing services to people, wireless or broadband or cable. And that's just being, it's a highly competitive market.

So they think there's this big pie out there for digital advertising, which we know there is, looking at results from Facebook and others. buying Yahoo, which, by the way, it's amazing. There's still about a billion people who use Yahoo on a very regular basis, whether it's just on the sites or email. So they've got a huge audience. They've got ad-targeting technology that Verizon's going to combine with their AOL acquisition that can help the company. I just think this is remarkable, though. Yahoo at its peak was worth about $125 billion. And Microsoft, in 2008, I believe, almost bought Yahoo for about $50 billion, And here is Verizon paying less than $5 billion for the core business of Yahoo, which is just astounding to me.

And even at that price, which some people are saying is a bargain for Verizon, and of course they're a huge company, so it's kind of a drop in the bucket. I'm very hesitant to say that they're going to get a lot of value out of that. Well, you mentioned AOL. So once upon a time, Yahoo, worth $125 billion. AOL, once upon a time, worth $160 billion. And Verizon in the past year has bought both. of those companies for under $10 billion. It's like they went in a, you know, they got in the time machine or like, what was big in 1998? That's what we want to buy. All right. Let's move on to Twitter. Second quarter revenue was amiss. Their guidance for

Q3 was terrible. And let me hit you with this quote, Jason Moser. They said the reason that the second quarter was so bad was because, quote, there was less overall advertiser demand than expected. That's pretty bad. Yeah, that's very bad. That's not good. Because as we talked about earlier with Alphabet and Facebook, it's not that companies aren't spending money on digital ads. They just don't appear to be spending that much of it with Twitter. Yeah, not yet at least. And it's a big question mark as to whether that's going to happen. I mean,

if Twitter is going to pay off as an investment. And at this point, I mean, that is a big if. This investment in live streaming video is going to be the pathway to success. They're going to have to take advantage of these live streaming deals, utilize these deals to grow its audience and grow revenue along with them. Now, I will say in regard to the numbers, it's important to know they, Twitter management hit their guidance as far as revenue and profitability went. It was the guidance going forward, this next quarter, this current quarter that were in, that I think really took the market by surprise. And that's understandable. I think for a long time, their advertising product has been priced at a little bit of a premium.

And what they need to do is really bring that back down more on par with their competitors, namely Facebook and in its properties and be able to demonstrate the ROI longer term for their clients. Now, again, this investment in live streaming video is going to be a big deal. And I'll refer back to Facebook's phone call or Facebook's earnings call when they released earnings. And again, Zuckerberg talking about Facebook wanting to become video first and making a lot of investments in video. If that is the case, if they're making the right move there, and we think they are, then that bodes well at least for, Twitter in that they are ideally investing in the right area as well. Whether it pays off, that's another issue entirely. We're cautiously optimistic, but by the same token, I think

we have about two quarters really to see some fruits of their labor. If we don't see growing audience, growing revenue, or at least signs of that to come in the next couple of quarters, then I think really the board is going to take this issue into their own hands and start seeking out bidders to try to roll Twitter into something bigger. It's interesting because late last year, one of the things we talked about was how the macro events of 2016 were setting up nicely for Twitter. In 2014, they surprised in the middle of the year with a profitable quarter because of, and gave public credit to the men's World Cup soccer tournament and how much activity that drove. And we looked at 2016 and said, gosh, we've got the Summer Olympics. We've got a presidential election here in the

United States. This is really setting up nicely for them. And to your point, they're not waiting for that stuff. They're looking to strike deals around live sports because clearly they're looking at their data saying, you know what? The macro events that we have no control over aren't going to be enough for us. Yeah, and it's not just live sports. It's playing into the verticals that they really complement, whether it's politics, finance, or sports. And we're seeing those investments. I mean, they just announced a litany of deals here in the past, probably month or so. It's important to note that in the current quarter run now, they're only going to witness two of the NFL

Thursday night football games. The presidential election, we know, won't take place until November. And really, the Olympics, we won't even have an understanding of how they've really been able to profit from that. So there's a lot of testing that's going into this live streaming product right now, and that's really why these next two quarters will be so crucial, because they are going to give us all of the signs as to whether this is actually gaining traction or not. Shares of Twitter down 10% this week. Do you like it at this price? I think that it's an attractive investment from the perspective that I think the downside is relatively limited. I think that if this doesn't work, it is going to be acquired. I wouldn't invest in a business with acquisition as a thesis. So I would put it in that sort of highly speculative at this point. But again, I think as a platform, we obviously know how powerful it is. And we know that there are properties out there that would love to be able to roll it into its operations as well. Panera Bread shares hitting a new high this week after a blowout quarter.

And Simon, the company-owned stores are really driving this. Well, anecdotally, let's start with this, because we've got a Panera right across the street from Full HQ here. How many times have you gone in there and there is a line of people waiting to go to the cash register? No one's waiting at the cash register. Never, ever. Everyone's always at the seats. They've gotten their food. It's very highly automated. It's very efficient. And that's exactly the story of Panera 2.0.

The company's investing in the company-owned stores to get that traffic as, as, as, as, very, highly, as efficient as they can through the stores. And you've seen a 4.2 percent same-store sales growth in the Panera 2.0 stores, I'm sorry, in the company-owned stores, majority have now converted, versus 0.6 percent for the franchises that have largely have not converted yet. So I got to applaud management for the investment they've made into their business. I think it's paying off for the company right now. Yeah, personally, I say I love the rapid pickup option. I mean, we have one right across the street, as we've said, and you can literally sit at your desk, or you can literally sit at your

desk, order food, 10 minutes later, walk over there, pick up your food. Do you want to talk to anyone? I hate talking to people. Paying people. I mean, it's just all online. It's very impressive what Panera's done, because this is something they set out to do a few years ago when the CEO called the store as a mosh pit, I believe. They've taken some very aggressive actions, and it's paying off. Ron Shake, all credit to him and his team for calling out the mosh pit executing this plan. I'm wondering, Simon, how much color the company has given in terms of a plan to buy back some of these stores. I mean, it's not unusual to see a difference between the results you get from a company-owned store versus a franchise store.

This is a pretty stark difference, as you indicated. I'm wondering if ultimately the plan is let's get 100% of these to be company-owned. You know, that would be the plan that makes sense. Interestingly, they're actually converting a lot of their company-owned locations to franchisees. this quarter, which was one of the operating losses that they had, which is kind of going backwards from the strategy that you just laid out, Chris. I think, though, this is more of a demonstration of, hey, we're on to something with this. If you are a good franchisee, and you want to get on board with investing on yourself into the franchise store that you have, we've demonstrated that it

works, and let's get you on board. You put the money up front, and you'll also get the fruits of that as well. Another disappointing quarter for Whole Foods, co-CEO John Mackey, also sits on the board of directors here at the Motley Fool. Same store sales for the third quarter fell even more than expected and not surprisingly, Maddie, the stock down 10% this week. This is a tough one, I think, for foolish investors, especially because this is a company I think we've talked about and loved for many years. And I do think now there's enough evidence to suggest that the company now is in a position where they might just be another premium grocery chain, which, you know, as an investor, you have to be worried about that because that

the high price of sales or high price to earnings multiple that Whole Foods has gotten, for most of its history, probably it shouldn't get that anymore. I saw nothing in the results for last quarter or in the guidance going forward that suggests that there's any kind of big turnaround. They've launched the 365 stores. They opened their first one last quarter. They opened another one just recently, and they're going to be focusing on that. They're opening about a dozen new stores for the remainder of the year. They still think they get into 1,200 stores from a base of roughly 450 today. I mean, there's a few silver linings here. in the story, but I have to say, I'm not, I have probably the least, I'm the least confident

I've ever been in Whole Foods as an investment. And, you know, my only personal silver lining in that is that maybe I'm just way pessimistic right now, and that's usually the time of stock can turn around. But I have to say there's not a lot to like about this company right now. I tend to look at you, look at this the way you are, Maddie. I'm trying to sort of take my pessimism and turn it around and try to identify the catalyst that brings this story back. The problem is they've been caught kind of going down this rabbit hole of value, discounts, cutting costs, price investments. I mean, that was the theme of that call, really. You can tell that they're really getting hit on the pricing side of things. Now, once you go down that rabbit

hole, there really is no coming back because that is, in fact, the proof that you don't have any pricing power. And they used to have that when they were a bit more differentiated than their competitors out there. Their competitors have quicked. caught up. And even tougher really is that Whole Foods doesn't have the scale that some of their competitors out there have today. And a good example would be seen in Kroger, which made that acquisition of Harris-Teter, which now looking back, that was extremely shrewd because that gave them sort of that upper sort of clientele there that typically shops at the Harris-Teter over other places. But so many other competitors out there really doing the same thing, just

a tough position. Right. And even in spite of all, the focus on value and pricing that they've done. Transactions were still down very sharply. Average price per item was down. They did get a small increase in basket size. So, of course, cheaper prices, people are generally buying more. But the fact that comparable store sales were still down shows you that that's traffic's not going to Whole Foods store. It's going elsewhere. And that's clear evidence of that. And a big challenge there, I think, is the crossover consumer. Whole Foods is just not the place

for the crossover consumer. I want to get my Diet Coke and my organic goat meal at the same place. and I can't do it there. Shares of Buffalo Wild Wings up more than 17 percent this week after second quarter results. Jason, the revenue was pretty good, but same store sales fell. This was a fine quarter. There was nothing really spectacular here. Why is the stock spiking like this? Well, expectations were already very low going into the quarter. Management set this up earlier in the year that we could expect negative same store sales basically for the rest of the year.

And then they were hopefully going to bring them back to flat by the end of the year. I think they've had a bit of a tough time dealing with sort of a restaurant market that is witnessing some headwinds right now. I mean, the numbers don't lie. We've seen that really has been kind of a theme all earnings season long. But I think that Buffalo Wildlings are making the right moves here, at least, to deal with one threat we've talked about more and more. It's the takeout consumer, right? The person that ends up, they're kind of want to stay home and watch the game. So they're firing up their takeout sales, and takeout sales were 15.7% in the quarter, growing 25% over the prior year.

They're seeing some tailwinds there in wing costs. They're really doubling down, so to speak, on that blazzen rewards loyalty program that should roll out to about a quarter of all U.S. Buffalo Wildwing stores by the end of the year. I think what was very interesting to see was earlier in the week there was an activist investor in Mercado Capital Management. They acquired a 5.1% stake in the company. Typically, when you see that happen, they acquire that stake thinking that either there's a nice looking value proposition there, or maybe they can go in and kind of help shore up the operation a little bit to spur the stock price along. And Buffalo Wild Wink does have a history of being an excellent operator. Sally Smith, we know, great CEOs. So it's just been a tough year, but I think expectations were pretty low.

I was just going to say, you look at Sally Smith's track record. I would be stunned if any activist investor who was sane, would look at that and go, oh, yeah, I can do better than that. I don't want to get on a bad side. They got 21 levels of hot sauce at Buffalo Wild Wings. Scale of 1 to 21. Where's your spice level? So I actually researched this because I wanted to make sure I could give you a number to go along with my ranking here. I will.

I will go all the way up to 19. That 19 is Mango Habanero. Now, Mango Habanero is a spicy one. I've tried like the one higher, and I just, it wasn't worth it. Painful. The reward wasn't worth the risk. 19 is where I draw the line. Simon, what about you?

I'm going to go with 14.7. Way to be different. Thank you. Maddie? I don't know the scale of the ranking here, but I think I'm probably 16 or 17. I'm a spicy kind of guy. Yeah, I'm somewhere in probably the low teens in terms of the spice. All right, coming up next, we will dip into the full mail bag.

Stay right here. You're listening to Motley Fool Money. As always, people in the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. Welcome back to Motley Full Money, Chris Hill here in studio with Matt Argusinger, Jason Moser, and Simon Erickson. Our email address is Radio at Fool.com from Cody Terrell,

who writes, a longtime fan and just wanted to get your opinion on the recent Netflix drop. Yeah, Netflix taking a little dip last week. Taking a little dip. Cody, we've taken a very long look at Netflix in Million Dollar portfolio. It's on our watch list. And, you know, it's a full favorite. It's a great company. And I can talk about the accolades for, and I love the service.

But the thing with Netflix that's difficult to understand right now from an investor, difficult to see, is the amount they're going to have to spend, they are spending on content, but the amount they're going to have to spend going forward with not only just generating original content, but, of course, licensing content from elsewhere. because unless the subscriber and the subscriber kind grows exceptionally well, it's doubtful whether or not they're ever going to be able to scale the business as well as we think they are because they're going to have to spend so much on content. So a little bit of a risky play right now.

I mean, the stocks come down, so you're getting a good price here. But gosh, the risks are certainly there for Netflix. I think that question was asked of Reed Hastings on the call. Basically, is there a point where you feel like you're going to be able to pull back on content spend? And I think he may have said infinite or something to that effect, and that they are going to have to always just spend a lot of money on it. That content just doesn't live forever anymore.

Question from David Goldberg. When talking about the future of autonomous cars, you often speak of Uber, Tesla, and other car manufacturers. But what about MobileE? They're a leading producer of the sensors used to create autonomous cars and have recently announced partnerships with Intel and BMW. What do you think, Simon? Well, yeah, I don't know.

I mean, this is a risky one right now. Tesla just phased out, mobilized IQ system out of the future developments of the Tesla, which was one of their biggest wins early on when they were getting a lot of wins with the new bids that they were getting with the automakers. But let's hear it straight from what Elon Musk had to say about. He says that their ability to evolve their technology is negatively affected by having to support hundreds of models from legacy auto companies. So basically, he's saying Tesla wants to take control of this all themselves, and he thinks that it's going to just be too hard and too expensive for MobileE to try to make a self-revehom. driving version of every automaker's car out there. I do think that will be a challenge. All right. Let's get to the stocks on our radar. No Steve Broido this week. He is at the beach. But, Maddie, let me start with you. What are you looking at this week?

Sure. I like Proto Labs, ticker PRLB. I've liked the company for a long time. They had a bit of a rough quarter like a lot of companies. This is a prototyping company, low-volume manufacturer. Small cap, you know, and subject to volatility. But there's been a bit of industrial slowdown in North America and Europe, and that's kind of impacting them. But so many great things for this business. I like the niche they're in. I like the fact that really for companies that want to outsource a lot of their low-volume manufacturing, this is where they're going to Proto Labs. And I think it's got about $4 in earnings power within five years. If that's true, I could be very wrong, and I am often, this stock is pretty cheap today.

All right, Simon Erickson, what are you looking at this week? Because I'm going with Universal Display, ticker O-L-E-D, which is appropriate, because they own the IP after decades of developing organic light-emitting diodes. These are the lighting elements that are thinner, flexible, and more energy-efficient, that have made them very popular for consumer electronic devices that want good lighting, but also battery performance, too. I just see, I mean, stock's hitting all-time highs again, but I just think there's a lot of opportunity, whether it be in the upcoming iPhone, which is rumored right now, or a lot of virtual reality stuff.

It's going to be a huge one for this stock. All right, Jason Moser. We've got about a minute left. What are you looking at? I think you need to isolate that ion, off and sound-by-perman. We'll give it to his wife for Christmas, right? So I'm looking at Zillow, Zillow, Tickr Z, and also ZG because of the stock split. This is a holding a million-dollar portfolio.

Their earnings are coming out next week. So Marketplace is the key driver for the business. It makes up about 90% of total revenue, and most of that is the Premier Agent count. It's an interesting strategy shift they've taken in really not trying to grow that Premier agent count, but rather focus on just the high performers. And we've been kicking this around in MDP a lot, trying to figure out if that doesn't put a cap on their market opportunity at some point. So that's what we'll be focusing on with earnings coming out next week. All right, guys. Jason Moser, Simon Erickson, Matt Argusinger. Thanks for being here.

Thank you, Chris. Keep the emails coming to Radio at Fool.com. And if you want to check out past episodes of Motley Fool Money and all of the Motley Fool's podcast, you can go to podcast.com. You can check us out on iTunes, Stitcher, Spotify. Anywhere you find podcasts, you can find the Motley Fool. That's going to do it for this week's edition of Motley Fool Money. Mixing the show this week is Dan Boyd. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening.

We'll see you next week.