Motley Fool Money - TikTok Under Fire

Episode Date: March 24, 2023

The Fed's quarter-percent interest rate hike went as expected. The CEO of TikTok's testimony on Capitol Hill did not. (0:21) Emily Flippen and Ron Gross discuss: - Fear of a recession vs. fear of a banking contagion - Whether social media giants like Meta Platforms and Snap stand to benefit from the drama around TikTok - Ford Motor's plan to go from losing billions on EVs to being profitable by the end of 2026 - The latest from Block, KB Home, and Accenture (19:11) Emily and Ron continue their analysis of the week's big investing stories, including: - Recent struggles from three pet companies: Chewy, Petco, and Trupanion - Apple's plan to spend $1 billion per year on theatrical releases - The latest from Nike, Ollie's Bargain Outlet, and Darden Restaurants - Two stocks on their radar: Globus Medical and Donnelly Financial Solutions To get your copy of our free report "Top Stocks For Rising Interest Rates" just go to fool.com/interest. Stocks discussed: SNAP, META, GOOG, SQ, KBH, F, CAN, CHWY, WOOF, TRUP, NKE, OLLI, DRI, SBUX, IMAX, CNK, AMC, AAPL, GMED, DFIN Host: Chris Hill Guests: Emily Flippen, Ron Gross Engineer: Steve Broido Learn more about your ad choices. Visit megaphone.fm/adchoices

LinkedIn is pretty amazing at helping you grow your small business. We cannot stop your new clients from emailing you at 3 a.m. We can help you sell, market, and hire in one place. We cannot help you be in three places at once. And while we can't help you organize your calendar, LinkedIn can help you land more clients so you have a calendar to organize. Grow your small business on LinkedIn. Learn more at LinkedIn.com slash small business.

We got a packed show, so let's get to it. Motley Full Money starts now. Everybody needs money. That's why they call it money. The best thing in life are free, but you can get them to the money. From Fool Global Headquarters, this is Motley Fool Money. It's the Molly Full Money Radio show. I'm Chris Hill joining me in studio, Motley Fool's senior analyst, Emily Flippen, and Ron Gross.

Good to see you both. How you doing, Chris? We got the latest headlines from Wall Street, including retail, restaurants, entertainment, and more. And as always, we got a couple of stocks on our radar. But we begin with the big macro. On Wednesday afternoon, the Federal Reserve raised interest rates by a quarter percent, a move that was widely expected. But Ron, the aftermath was not as expected, exactly, in part because there was a dueling press conference with Fed Chief Jay Powell that was competing at the same time with a Capitol Hill hearing. featuring Treasury Secretary Janet Yellen.

It seemed like there were some competing soundbites in terms of what the federal government was willing to do in terms of the banks and assistance. But in terms of the interest rate move, this was one of the few times over the past year. And it's been a year now where, like, yeah, this was what we were all expecting to have happened. For sure. The market had mostly priced it in. And there's a lot going on here. There was a lot going on before the banking crisis. So in case you wanted more, you've got more here. After hiking the 25 basis points, Chairman Powell, he signaled that the situation in the banking sector might end its rate increasing campaign sooner than previously thought, which in general, Wall Street likes, right?

Sooner the better to stop raising interest rates. He said officials even considered skipping a rate hike this time as the banking situation worsened, which is just an interesting data point. Powell hinted Wednesday's increase could be the last one, depending on how significant the lending pullback is based on the bank run earlier this month. So a lot going on. The Fed removed the phrase ongoing increases from its statement. Everyone watches the Fed statement really carefully, and they compare this one. one to the last one, literally line by line by line to see what the Fed changed. In this case, ongoing increases removed. Again, Wall Street likes that. As you said, Janet Yellen was testifying

at the same time all this is going on. And she said she wasn't considering, the administration wasn't considering ways to provide broad guarantees to uninsured bank deposits. The markets did not like that. The markets would prefer a bailout, although there's obviously tons of of problems with that. Google Moral Hazard, if you want some more information. On Thursday, she walked it back a little. She said they'd be prepared to take additional actions if warranted, and that seemed to calm people down. So a lot going on here. The bottom line is, what are you going to wish for? The banking crisis tightens lending. We get a credit crunch, and therefore the Fed can stop raising interest rates, or the banking crisis goes away quickly

and the Fed still has a little more interest rate increases to go, and then things get back to normal. Maybe even we start to see rates coming down later this year or next year. That would be wonderful. And, of course, the wildcard is recession. Yeah, Emily, as Ron indicated, for anyone who is wondering what role the banking situation plays in the Fed's decision, it was pretty clear, both from the statement and from Powell's press conference that inflation is the North Star. I would say that's true, but I would actually say it played a bigger role than people were possibly expecting. Heading into this before the banking crisis, before SVB's collapse, people were pricing in a 50 basis point hike. Inflation data

was still hot. And the moment that bank collapsed and fear came into the market, suddenly 25 basis points was the almost foregoing norm. It was that halfway point. between what they had previously expected around the 50 basis points versus the alternative, which is we're really concerned about the markets right now and the banking sector. So we're not going to do anything, a 0% hike or a zero basis point hike. I think the 25 is saying we still see inflation as our North Star, but we are not so unconcerned with the rest of the economy that we're willing to blow up the banking sector for the sake of getting inflation down.

Yeah, I would say as an analyst and just as a regular human being on this planet, recessions don't really cause me to lose sleep. Down markets don't cause me to lose sleep. Higher interest rates don't cause me to lose sleep. Banking crisis and even the word contagion, Chris, gets me a little bent out of shape. Then why'd you say it? And I do get a little bit worried about how this can flow through the system and things can crumble very quickly, hopefully not like we saw back in the great financial crisis.

This week, the CEO of TikTok testified on. Capitol Hill that employees at TikTok's parent company in China may still have access to some U.S. data from the app, but that a risk mitigation plan is being put in place to stop that. The hearing before the House Energy and Commerce Committee showed the rare occurrence of unity between Democrats and Republicans, as both sides seemed very interested in banning TikTok here in the United States. In what cannot be a coincidence, shares of SNAP, meta-platforms, and Alphabet were all up during and after the hearing. Emily, one analyst called this and quote, unmitigated disaster for TikTok. What do you call it?

I call it a nothing burger. I think it's so interesting that there is so much fear around what's going to happen to TikTok. And I understand, you're right. It's a rare bipartisan decision or move to want to ban TikTok in the United States, but that move is unprecedented. It would be a massive change in policy, and it would isolate a huge number, especially of young voters, who actively engage with TikTok on a daily basis. So I actually think it's a nothing burger, because I don't think the most likely outcome from this is a complete ban on TikTok in the United States. So when you mentioned SNAP, meta, Google, all up on the news, I think there's an expectation that one of two things will happen, right? There's a TikTok spinoff. This would be the most complicated

option. I think it'd be the least likely option, given its complexity, but basically, you know, they Hey, got Bite Dance, takes TikTok, turns it into its own company entirely based in the U.S. That wouldn't be that ridiculous, given the fact that they are, in fact, building the Project Texas, which is their U.S.-based data storage to remove any connection from the Chinese mainland, but it would still be very complicated. The alternative could be a sale of TikTok. So potentially, Meta, Snap, Google, one of these companies coming in and actually buying up TikTok's assets, in which case you retain the people who like to use the platform and it's a benefit, presumably, to whichever company.

is acquiring those assets depending on the price. But what I think is the most likely solution is actually that nothing happens here. Given the fact that TikTok has already achieved the scale it has, this is mostly political posturing. If you listen to the questions that are representatives asked, they were almost embarrassing. I know people in China are getting a laugh from the types of questions that the TikTok CEO is being asked. But I think the end solution is perhaps more robust U.S.-based privacy laws, which negatively impact all of these social media platforms equally. Yeah, there was a certain irony to TikTok videos being created from this hearing of members of Congress struggling to understand things like how Wi-Fi works and that sort of thing.

The idea that a company like meta-platforms or SNAP or certainly a company the size of Alphabet would buy TikTok, there's no way something like that gets by regulators, does it? I mean, regulators are incentivized. They're part of the U.S. government, right? And so if they perceive to be the biggest risk to consumers actually being the fact that it's owned by a Chinese company, that I don't think it's impossible. I think they'd rather see them go out of business and get all the customers for free, as they have nowhere to turn. How have I not seen a headline, time is ticking for TikTok? I mean, journalists, please feel free to use that.

So what happens here? Project Texas, I just think that's funny, happens. So we store data here in the U.S. As far as I'm no techie, but as far as I know, that doesn't necessarily stop information from being used around the world. But it's a start. We ban TikTok already from government phones and other devices. And perhaps additional regulation, you think, comes in. What would additional regulation even look like?

I think there's two parts to it. The additional regulation I see coming in the form of changing privacy laws, we've already seen a lot of pushback from our U.S.-based large tech, companies about the way they handle consumer data and privacy. And largely, it's very negative. Consumers don't like it. The organizations themselves like it because they make a good amount of money from selling this data.

But regulators are aware of the fact that there probably needs to be some type of robust privacy overhaul to prevent a situation like this from happening again in the future. But I also think there's this impact that is much more political. It's not about data or it being stored in the U.S. It's the fact that there is a Chinese-owned social media platform that has a lot of influence over the way that Americans, especially young Americans think. And even if it's not to the point where we are actually selling American data, it could be used to bubble up divisive topics. We've seen that happen in the past with foreign governments, kind of stirring up division in the United

States and causing conflict. That's what I think politicians are mostly worried about. And there really isn't a good data privacy reason to make that happen. So that could be part of the reason why they're trying to force a sale of this platform or a complete removal of the platform from the United States. After the break, we've got the latest in automotive home building and the war on cash. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Emily Flippen and Ron Gross. This week, Block, the digital payment company, formerly known as Square, found itself in the headlines after short-seller Hindenberg Research announced that Block was its latest short position. Hindenberg's report accuses Block of a

among other things, artificially inflating user numbers. The company issued a statement calling Hindenberg's claims, quote, factually inaccurate and misleading. Emily, shares a block down nearly 20 percent. It's a hard position for a block to be in when you're the subject of a short-seller report, because as a business, you have one of two options, which is you ignore the claims or you make a statement about the claims. And it's one of those situations where a business can be perceived as damned if you do, damned if you don't. And in this case, Block did come out and say that they are exploring legal action against

Hindenberg as a result of this. A lot of investors didn't take to that favorably because they perceive any comment as a comment that is defensive as opposed to what many perceived block should do, which is just go on and continue business as usual, prove people wrong through virtue of having a strong business and posting strong results. But my biggest concern, just for me as an investor, coming out of this, wasn't necessarily the way that Block responded to the report, but rather what that report is claiming. In particular, the allegations that Block doesn't have these robust anti-mundering money laundering laws or internal controls that could prevent fraud. And the reason why this is my particular concern as an investor

is because in 2019, Australian regulators had looked into afterpay, which is the Buy Now Pay Later platform that Block actually acquired because they had their own concerns that afterpay wasn't complying with these AML laws. So those concerns were ultimately remediated and all was fine moving forward, but there is some precedent that regulators have looked at a business that Block owns under the same guise of concern. So for me, as an investor moving forward, that's kind of where my focus is. And while we don't know what's happening, my opinion of the stocks wrap a downturn, and it's only about between 15 and 20 percent, which is not crazy for these types of reports. But part of that, in my opinion, is investors reacting out of fear.

KB. Holmes' first quarter results were highlighted by profits beating Wall Street's expectations and a $500 million share buyback plan. Shares of KB. Home up 12% this week and pretty close to a 52-week high, Ron. Yeah, the stock has held up well, and they did beat both Wall Street expectations and their own guidance. But despite that, results are actually pretty weak. So it's interesting that the stock is holding up. I think it's probably because it's not surprising their week in the current interest rate environment we're in. It really should not have taken anyone by surprise. But just to look at some of the metrics, total revenue was down 1%. Homes delivered down 3%. Average selling was up 2%. So that helps a little bit. I was a little surprised to see that, but that helps a little bit. And margins were down 50 basis points. And that reflects. what you would expect, you know, lower profit margins on the housing side, offset slightly by expense improvements as they try to stem the tide a little bit and make the best lemons out

of lemonade, if you will. They also took a little bit a hit on their mortgage banking joint venture as higher interest rates kind of took a hit to that business as well. You boil that all down and net income fell about 7%, which actually isn't that bad, which is probably why the stock is holding up nicely. Earnings per share were actually flat because the company, as you mentioned, has been an aggressive buybacker, repurchaser of stock, and so that helps the earnings per share figure. Ending backlog was down 40%. So let's keep that in mind for future quarters.

Don't be surprised if you see weak numbers going forward. On the call, CEO said interest rate, economic uncertainties pose a large risk to near-term demand. Duh, right? Yeah, that makes sense. But they are going to buy back stock when appropriate. Selling about eight times only, but these home builders only really sell for six to ten times, so don't let that number fool you into thinking it's cheap. Ford Motor says it expects to lose $3 billion this year on its electric vehicle division, but that it also expects it to be profitable by the end of 2026.

Emily, you like Ford's chances? I actually do here. Speaking of companies that always trade very cheaply, if you look at Ford, this is a business that trades for less than six times earnings, has a 5% dividend yield. So it's easy to look at that and look at the expanding opportunity for electronic or electric vehicles, hopefully they're also electronic, but electric vehicles in particular, and say, oh, this is a good opportunity. And I don't mean to imply that it isn't.

But Ford does have a lot of hurdles to overcome. As you mentioned, they suspect they're going to lose around $3 billion in terms of electric vehicles just this year. And that's after dividing up their business. into basically three new segments. Their legacy Ford Blue segment, which is the traditional vehicles, Ford Pro, which are their services and their products. And then, of course, the Ford Model E, which are their electric vehicles. And as we noted, that's not a profitable division right now, but by 2026, they're hoping to get to an 8% operating margin, which would be less than businesses

like Tesla. But to be frank, Ford doesn't need to be Tesla to be successful when it comes to electric vehicles. And they don't need to produce as many as Tesla does to sell a fair number and to have that be accretive to their earnings. It's definitely their fastest growing segment. They're the second EV brand in the United States last year. They're approaching break-even with the segment at the end of this year. So I actually, I'm a bit excited about what this means for Ford's business. The downside of them breaking their divisions up like this does mean that we're losing some color about their financing, though. When you look at the Ford F-150, how meaningful that is to the business.

business and sort of the electric version of that. They had some problems with that earlier this year, essentially had to halt production. It seems like if they are going to get to profitability with the EV division, that's got to be a leader for them, right? Oh, certainly. And as much as they may brag about the talent that they've been able to pull over from places like Tesla, they have had operational issues and getting these electric vehicles off the ground, issues in manufacturing. There is definitely a steep learning curve, but the F-150 is going to be critical for them to do successfully to build up that brand trust with existing consumers.

Accenture's second quarter results took a backseat to the announcement that the global consulting firm is cutting 19,000 jobs. That is roughly 2.5% of Accenture's employee-based. Ron, it's not just the big tech companies that are getting lighter. Right. And I still am a big fan of Accenture, but it's hard to fight the decrease in IT spending that is going on right here. And you see it not only in their results. but in the announcement of additional layoffs. All in all, though, the business is holding up. We'll watch future quarters.

Revenues were still up 5% in U.S. dollars, impacted negatively by 4% for foreign exchange. It would have been about a 9% increase in revenue. Consulting revenues down 1% but their managed service revenue, which was previously known as outsourcing when companies come to them for certain tasks, was up 12%. And so that held the business up. North America up 5%, Europe up 6%. Not too bad under the circumstances with new bookings up 13% in U.S. dollars.

So we're okay and margins are actually up slightly, which is encouraging as well. Earnings up 6% on an adjusted basis. Pays a 1.7% yield on the dividend, just increased that 15%, 18 consecutive years of increases in that dividend. I very much like it for that as well. They did reduce their revenue guidance, but just a little bit, trading it 24 times EPS guidance. Not cheap, not too expensive either. Right in the middle. People love their pets, but this week, investors were not loving pet stocks. Details after the break, so don't touch that dial. You're listening to Motley Full Money. Welcome back to Motley Full Money. Chris Hill, hearing studio with Emily Flippen and Ron Gross. Big week for the pet industry. Both Chewy and Petco issued fourth quarter reports, but they couldn't have been that great since shares of Chewy fell more than 10 percent and Petco down more than 20 percent. That paled in comparison to pet insurance provider Trupanion, whose stock fell 30 percent on the news that Chief Financial Officer Drew Wolf is stepping down.

Emily, there's a lot there. Where do you want to start? Well, let's start with the fact that our fur baby, they're getting really expensive. That's the overarching trend across all of these stories is the fact that we all love our pets, but man, they're pricey little buggers. And over the course of February, pet inflation was actually sky high. If you thought inflation was coming down, pet inflation is actually still accelerating. And February, inflation for all pet goods and services was up nearly 11%. Pet food itself up more than 15%. So very expensive. That is showing up in both Chewy and Petco's results. In fact, if you look at Chewys just their fourth quarter results, they were really strong. The business grew sales.

meets profitability goals, actually posted a profit of more than $6 million in the quarter, which was a surprise to the markets. But they did have a decline in the number of active users on their platform, which I think scared some people. Okay, so maybe people are getting rid of these really expensive pets. They're no longer using chewy or they're getting their pet food elsewhere. Those are the things that are weighing on on investors' minds. And the same is true for Petco.

They had guidance for their same store sales to actually decelerate and for full-year sales over the course of the next year to only be in the low single-digit. So all of those things are causing some concern for investors. But I will say, if you look at spin for things like pet health care, of which Petco and Chewy do have strong presence, that's still growing really rapidly. So good for those businesses. And to really, really bring this story to an interesting conclusion, we have Trupanion, which partners with both Petco and Chewy to underwrite their pet insurance.

But Trupanion had some bad news this week. Really not a good week for these pet care companies. But they had to announce the departure of their CFO, although it does seem like they're going to be around for a while. Say his last name was Wolf? Yeah. Yeah. I can't make it up. They're real.

I think that's a requirement at Trupanion. Executive need to have some sort of animal. CEO Canary, let CFO Wolf go. Well, if CFO Wolf was the only departure, I think the market reaction would have been different. But part of the reason why Trupanian shares were down more than 20 percent was because they had a departure of Truponion's EVP of pricing and their EVP of legal and regulatory. So some senior leadership here, departing, presumably disagreements happening internally at the company, maybe around long-term strategy. We don't have a lot of color.

But needless to say, investors, we're not happy with any of these pet care companies this week. Well, just real quick, I mean, you mentioned the tie-in between Trupany and these other retail businesses. But it really seems like Chui and Petco are trying to become not just pet retailers, but pet health overall companies. Well, you can understand why they want to be perceived as pet health companies. If you look at Petco, like I mentioned, there are sales growing in the low single digits. But over the last quarter, the segment that focused on pet health care grew 14%. So, of course, you want investors, hey, look over here. Don't look over here at the other goods, the discretionary goods that are falling. But in the case of Chewy, my biggest concern, I'm a big Chewy fan. I use Chewy. I'm a Chewley shareholder. What really concerned me in the most recent quarter, I mean, not the decline in active customers, but the announcement that Chewy is particularly, potentially moving forward with international expansion. This took me by surprise because my impression is they haven't even yet reached scale in the U.S. So why you think about potentially spending so much money to build out distribution and different continents, foreign countries, that's a really expensive endeavor. And we don't have a lot of color about why management made this decision. I hope we'll

get that color in future quarters. But my fear is that it's in response to a declining active customer base where they're having to go internationally to acquire those customers amidst a broader slowdown. and that could potentially be a really expensive endeavor for Chui right at a time when Joey was just beginning to expand their margins. Nike's third quarter profits in revenue came in higher than expected, but shares were flat this week. The inventory situation is improving for Nike, Ron, but it is not where CEO John Donahoe wants it to be. Yeah, this was a solid report. And I think that stock was a bit expensive at 32 times earning. So some investors took the opportunity to maybe sell down the

stock, and it ended up overall being flat, as you mentioned, so not too much damage there. Overall, I think it looks pretty good, but as you say, they're working through their inventory problem, and it's not over yet, but they're doing a nice job. Revenue is up 14%, but 19% on a currency neutral basis. Again, that pesky strong U.S. dollar impacting many, many companies. Nike direct up 17 percent, wholesale revenue up 12%. In China, Nike did see a rebounded traffic in stores in January and February, but overall, sales in Greater China fell about 8%. Important to mention, though, they were actually up 1% on a currency neutral basis. So if you're looking at, is China improving?

Is it hurting the business in general? You do have to look through some of the currency there. Usually we tend to ignore it. But if you're just focusing on the operational health of the business, it's important to take a look. Strong demand for sneakers, Jordan Retro, LeBron 20. The apparel continues to be weak. That's where they need to work through some of the inventory levels. But they're getting there.

Ended February with $8.9 billion of inventory down from 9.3 in November. They're increasingly confident that they'll exit the year with healthy inventory levels, according to the CFO. But I think you're going to continue to see some of that. The higher markdowns, hurt profit margins, gross margins were down. As a result, earnings per share were down 9%. But they're making their way through. They raised full-year revenue outlook. Very important, but they did warn margin pressures will continue as they work out their inventory.

Well, and you got the new movie Air, the Ben Affleck, Matt Damon movie about the creation of the Air Jordan. That's got to help, right? Can't hurt. Shares of Ollie's bargain outlet up more than 10% this week. Fourth quarter profits and revenue came in higher than expected for the discount retailer. Emily, this is one of those businesses that flies under the radar. You tell me, is this a time for a business like this when we're seeing inflation in other areas? Do discount retailers like Ollie's get more attention? Well, you would think so. And in this most recent quarter, it certainly looks that way, right? Same store sales rose 3%. Total sales were up 4%. And a lot of people using this as an example

to say, look, they're a discounted retailer at a time when inflation's really high. Consumers are really pressed. But if you look at Ollie's performance over the course of the last year, or two, actually a lot less pretty. If you were whined to this quarter last year, a same store sales had fell more than 10%. In fact, total sales were down nearly 3% in the quarter. And that was also at a time when inflation was still really high. And presumably, there were a lot of retailers that were gutting their inventory, right, potentially providing extra supply to discount retailers, Alley's included. I think part of the reason why this business has struggled is because there's more competition now in discount retailers. Allis used to be this kind of

special place. The only one of its kind, and it still is. If you've ever been in an Ollie's, it's unlike anything else in the world. It's a total blast. The inventory is constantly changing. You never quite know what you're going to get. But the downside about going to an Ollie's versus the T.J. Max is when I walk into a T.J. Max, I know I'm buying myself a T-shirt or a pair of pants or a dress. When you walk into an Ollie's, you're probably there for a discretionary purchase. You don't know what you're going to buy, but you're going on a little fun shopping trip, a little treasure hunt, and you're going to get some piece of merchandise at a markdown price. They don't exactly have clear merchandising that would drive somebody to say,

I need to go to Ollie's today to buy X, Y, and Z. So when consumers are feeling pressed, not only is there more options when it comes to where they're going to get their discounted items, but also there's really no incentive to go to Allies unless you are trying to spend money. And now a lot of consumers are actively trying to spend money these days. Darden Restaurants is the parent company of Olive Garden, Longhorn Steakhouse, and the Capitol Grill, and several other chains. Shares of Darden up a bit this week after third quarter results were highlighted by same store sales at Olive Garden rising more than 12 percent, Ron.

Not bad. I'm so happy our man behind the last Steve Broido is with us today, you know, the biggest fan of Olive Garden out there. Here, here. Yeah. And they are getting it done, as you say. This is solid reports, solid guidance. Their strategy of pricing below inflation, quote, pricing below inflation seems to really be resonating with consumers in addition to the breadsticks and the soup and the salad. And that translated into some pretty good numbers in this environment. Sales up almost 14%. Same restaurant sales up almost 12%. That was helped, the total sales number were helped by the higher same restaurant sales, as well as the addition of 35 net new restaurant. But Olive Garden, everyone's favorite, led the way, as you said, 12% increase. Olive Garden, interestingly, makes up about 46% of the company's sales and

profits. So while, as you mentioned, there are several other brands in their portfolio, almost half is Olive Garden at this point. Longhorn Steakhouse was the next biggest segment. They had the best positive comps up almost 11%. And then fine dining up almost 12%. Fine dining. Capital Grill, as you mentioned, one of my personal favorite steakhouses, even though it's a chain. and Seasons 52 is in that category as well. Inflation, not surprisingly, did impact expenses. Food and beverage costs were up. Labor was down, interestingly, as were some other costs and marketing expenses.

So operating margins actually widened here, which really helps bring the higher revenue down to the bottom line. Earnings per share up 21%. And that was aided by less shares outstanding because they too are buying back stock. So they raise revenue guidance for the second consecutive quarter. They see fiscal 2023 same-star sales growth of 6.5 to 7 percent, trading it about 19 times their new guidance. But for a company that's putting up 20 percent earnings growth, that's not too bad. And the company is paying a 3.2 percent dividend yield at this point. And they're really executing well. And over the past 12 months, beating the market by more than 25 percentage rate.

Really impressive. Yeah. Real, real impressive. This week, Laxman Nerissaman took over officially as the CEO of Starbucks. He was named incoming CEO last fall and has spent the last six months learning all aspects of the business, which included spending 40 hours of barista training. Narissaman says he plans to work a shift at Starbucks cafes once a month. Emily, for months, the company had said he was starting on April 1st, so I'm not entirely sure

why he started nearly two weeks before that, but I'm a shareholder. I'm rooting for the guy. Yeah, joining a whole two weeks early after the world's longest CEO transition. Needless to say, the market's not really responding to this news because this transition was expected. I do think that timing of the transition is interesting, though, given the fact that Howard Schultz, who is the interim CEO, had just been called to testify before a Senate committee about Starbucks labor practices in the next, I believe, week or two. So, you know, just some interesting timing there. You can't say of those two things coincide.

But around the same time, you know, governments looking at Starbucks, wondering about the labor practices. The company is also bringing in a new CEO. And actually, I like the idea of him working as a shift as a barista. I worked at Starbucks when I was in high school myself. It was still to this day one of the best jobs. I found it very relaxing. Relaxing.

Were you a barista? I was a brista. Granted, I was in a unit that was inside of a grocery store. So I got maybe five customers an hour if I was lucky. Again, like I said. Very relaxing. But I like that type of exposure for his CEO. I think the big question, though, is that is Narissaman just an extension of Schultz? And this long transition period, it kind of buys into the idea that Norissimann is just going to continue a lot of the practices that Schultz has laid out. In fact, they said he plans on continuing this growth journey that Schultz has put Starbucks on. And part of that is, is, I'm not going to call it union-busting activities, but it is something like, hey, we're going to incentivize our employees that are not part of unions, and an attempt to remind employees, hey, this is why we kind of serve you as a company. And needless to say, the government and employees haven't responded positively to those approaches by Schultz, but maybe it'll be different under Numerisinin. Coming up after the break, we've got a couple of stocks on our radar. So stay right here. You're listening to Motley Full Money.

money. Money, money, money is nothing like a newly minted pound. Money, money, money. Everyone must hang up for the bouchness of a banker. It's accountancy that waits the world around. 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. Welcome back to Motley Fool Money. Chris Hill here in studio with Emily Flippen and Ron Gross. We led the show with the latest increase in interest rates, and our investing team has a special report highlighting five stocks they think are worth considering in this environment. It's called top stocks for rising interest

rates. And the report is free just for trying out Motley Fool Stock Advisor, our flagship investing service, which comes with its own membership feedback guarantee. You get 30 days to decide whether the service is a good fit for you. And even if you cancel, you keep the free report. Just go to fool.com, to get your copy of the report. Again, that's fool.com slash interest. Shares of IMAX, Cinemark, and AMC Entertainment got a boost this week on reports that Apple plans to spend $1 billion a year on theatrical movie releases. It's one more way to raise the profile of the Apple Plus streaming service.

And let's face it, Ron, Apple's got the money. I was going to say, I'm a big fan of Apple, not necessarily a big fan of this report. But a billion, what's a billion? Right? For them, nothing. Yeah. So it's interesting, though. It's interesting to think that theatrical film releases will somehow accrue to Apple TV Plus.

That's the strategy. I'm not sure I'm there. It will be interesting to see how that plays out. It's still in the early stages, and this isn't even from Apple. This is a report, I believe, from Bloomberg. So it'll be interesting to see how it plays out. There's different potential releases on the table from Martin Scorsese. some other Ridley Scott

a drama and so we'll see how it plays out they don't have distribution in movie theaters so they will need a partner there and would a successful movie in the theater cause people to then want to subscribe to Apple TV Plus I think perhaps not I don't see the connection but Apple certainly does

I totally disagree I mean who is watching Apple TV I personally know very few Apple TV subscribers but I do know they produce great content. So I think this is potentially a smart move for them to say, hey, look, we actually have some really high-quality stuff. When you're consuming Netflix or other low-quality, low-budget entertainment, don't forget, go to the movies, experience high-quality film.

And then remember, hey, you can get that for a monthly subscription. Ted Lasso, two words. I'm just going to say Top Gun Maverick. You see that on the big screen. It gets you interested to watch it again on the smaller screen. Let's get to the stocks on our radar. Our man behind the glass, Steve Broido, the original man behind the glass, going to hit you with a question. Emily, flipping, you're up first. What are you looking at this week?

This week I'm looking at Globus Medical. The ticker is GMED. And I have to admit, I'm very behind on this company because the reason why I'm looking at it is actually because they are going through the process of merging with a competitor, New Vasive, and a $3 billion all-stock merger. Now, this is a company whose merger was announced last month, so I am very behind here. But the deeper I get into it, the more excited I am about this combination of businesses. The market does not appreciate it because spinal acquisitions and mergers in the the past have typically not been a creative for shareholders. They've struggled, but these are two smaller businesses that can avoid some of the challenges that Medtronic and Johnson and Johnson

have experienced in the past. And I do think that global medical's focus on the minimally invasive spinal surgery combined with new vases, screws and rods and other accessories, specifically for spinal surgeries, could be an interesting acquisition, not to mention that if these two companies combine, which regulators are still out on that, but if these two companies combine, they make the third largest spinal business in the world with 20% market share here in the United States. Steve, question about Globus Medical? Sure. When companies like this merge, would we be better off waiting until that merger actually goes through and everything lands and we know exactly how things are going to work out?

Or do we want to get in early? Well, it usually depends on the merger, right? And how you're feeling about the companies, how it's set up. In this case, this is an all-stock merger. So this isn't cash leaving Globus's balance sheet. And that potential dilution from the acquisition of new vases did result and a nearly 20% decline in Globus Medical Stock. So, in my opinion with these two companies, if you look at the acquisition or the merger and you like the end product and what it could be, there's no reason to not buy Globus shares today. Ron Gross, what are you looking at this week?

Going with Donnelly Financial Solutions, D-F-I-N, they provide cloud-based software that helps mostly their financial clients create and distribute financial communications. That's quarterly reports like 10Qs, annual reports like 10Ks. IPO filings, mergers and acquisition filings. It's largely been a turnaround story. Over the past six-ish years, they've invested in its software offerings, reduced headcount by 40%, shed their low-margin print contracts. It was a legacy print business and sold some non-core assets. They used the sale of those things to retire debt, repurchase shares. Software now accounts for 41% of sales. And my friends over at our Value Hunter Service, think the stock has meaningful upside potential from here. Steve, question about Donnelly Financial? When you see a company like this, what's their biggest moneymaker? Like, what is it they're serving financial documents for companies and companies have to do this by law?

What's the big moneymaker here? Well, the fact that they have to do it by law helps with demand. And then they have a software product that fulfills that demand. And those two things together are pretty powerful and can lead to pretty significant. revenue. What do you want to add to your watch list, Steve? I'm going with Emily. Oh, Emily. Emily flipping. Ron Gross. Thanks for being here. Thanks, thanks. That's going to do it for this week's Motleyful Money Radio show. The show is mixed by Steve Broido. I'm Chris Hill. Thanks for listening. We'll see you next time.