The Best One Yet - Charles Schwab cuts commissions to $0, GoPro’s new moat problem, and Masco recession-proofs itself

Episode Date: October 2, 2019

GoPro unveiled a couple pre-holiday cameras, but the move reveals how much it’s lost its moat. Charles Schwab announced it’s cutting stock trading commissions from $4.95/trade to zero, so we’re jumping into the history of fees. And Masco is our Midwestern institution of the day for focusing on paint over cabinets as it pivots strategy.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is snacks daily. It is Wednesday, October 2nd. Jack, how are we feeling? Well, stocks took a dip yesterday. It was kind of a fall. But this is still the best day.

It's actually the best snacks we've ever done. Jack, what's going on? GoPro is our first story. It just unveiled the Hero 8. I stopped counting after 6, Jack. But that doesn't fix its core problem. It's got no moat. Second story, Charles Schwab, aka Chuck Schwab.

Chuckie. It made a strategic move. It is cutting its trade commissions for stocks, ETFs and options. Commissions are out. To $0. We're looking at why the stock still fell, and so did all of its rivals, like, really big. Third and final story is the Midwestern institution of the day.

Around? It's about time we did this. We had a lot of Michiganers being like, what's going on here? Michiganers. I know. I was tricking you. Masco is the company. It's selling its windows and doors. You passed the test. So that it can focus on its sinks and cabins. Never thought we'd be saying that on snacks daily. It's going to be a lovely little Saturday. I'm glad we're saying it on Snacks Daily. Snackers, before we hit all that. We've got to talk about what's going on. You may heard last week, Beyond Meat, inked a deal with Mickey Deez. The burger is going to be called the PLT. Ronald's like smiling and he's going full vegan on this thing. So to make plant-based PLT, plant lettuce and tomato across all of McDonald's? Like what you did there. Beyondmeat is going to need a lot

of plant-based burgers. You got to have that if you're going to make the burgers. You got to have the peas and they've got to be specific type of pee. Peas are the key ingredients to the plant-based burger. Not just any peas. Like the green peas interned for the roll, they didn't get the job. It's going to yellow peas. Now, we're looking at the forecast here for Beyond Meat's growth. To notice, 80% of yellow peas are grown in just two states. Congratulations, Montana and North Dakota. You are the yellow pea capitals of the world. But as Beyond Meat grows, it could have a bit of a pee problem.

Are we thinking Peapocalypse over here, Jack? Maybe. It could be. The farmers are trying to transition to plant-paid peas. They're tweeting out, hashtag, it burns when I try plant-based peeing. So we got an idea for Beyond Meat. If it truly does have a yellow pea shortage and can't make more burgers, could be a problem.

Go beyond Beyond Meat. Exactly. They need to introduce a plant-based meat. with plant-based alternative plants. My head just exploded. So did mine. Let's hit those three stories. By the way, Nick and I both own stock up Beyond Me.

The snacks about to hear rain food is air candy. They don't reflect the views of the Robberhood family. It's all informational just so. You know, we're not recommending any securities. It's not a research report or investment advice. Not an offer or sale of a security. Snacks is digestible. Business news for you.

Robahood Financial, LLC, member Fenra. For our first story, GoPro just revealed a couple new cameras and an earnings report. We're going to focus on this. It's called the GoPro Hero 8. The team's getting creative over there. But I got to rewind this. I missed six and seven. Beep, beep, beep.

He's doing a little backup thing over there. Both of these new cameras are priced under $500, and you can pre-order them starting yesterday. So you know what that means. Yeah, but seriously, where did the six and seven go? I don't know. But it's just in time for holiday gifts. Critical. That's why you're seeing all these product announcements this phone.

Putting it together. There you go. Christmas was the best thing ever for the consumer electronics industry. I'll tell you what hasn't been the best thing for GoPro. Existence for the last few years. Sales are down 35% since its peak in 2015. The company used to be profitable. Now that is like a distant memory that like concussions can't even remember.

And for a second in 2016, shortly after the IPO, Nick, the stock was up at $80. It was beyond meat status. It was golden times over at GoPro. The holiday party, they'd strap them on and be like, hey, Tanya, can you pass the punch? You're being filmed. It's been a steady depressing decline since, and now the price is just above $5. Now, if you're not familiar with GoPro, this is like the dongle of a camera you can like strap to your helmet when you're going snowboarding.

A lot of different harness options. One for your bike, one for your helmet. Kind of doesn't matter what it's filming. If you got one in your head, people just kind of assume like, whoa, Brad's good. GoPro's problem. Or they're like, whoa, Brad's a tourist. GoPro's problem is mainstream versus X-Stream. I like what you did there, Jack.

Smartphone cameras have been improving. iPhones are like good enough now for all the mainstream people to just go for an iPhone camera. It's good enough for your instant needs. Case and point. Remember we went mountain biking like a few weeks ago? I do.

We put it on Instagram. Traumatic experience, just a series of extremely close calls. Now, we didn't have a GoPro. We just pulled over, pulled out the iPhone and took a few pins. We had six guys with us. We were fine with that. We weren't strapping cameras to ourselves

and then saying at the end of day, hey, let's all gather together and see what footage we got of you falling and be falling. The iPhone's improved camera is the bane of GoPro's existence. It's forced GoPro to say, hey, if we can't capture the mainstream audience, we're going to have to focus on the extreme audience. So listen to the specs of this new GoPro Hero 8.

14% lighter, 12% megapixel camera to improve low-light video. Hyper-smooth feature stabilizing for bumps. Don't you want the bumps in your GoPro video to prove how extreme you are? I have no idea. I'm not following any of these. I'm totally lost in the whole megapixel thing. Extreme customers, the one that GoPro has been forced to target, is a smaller market than the mainstream.

market that iPhone is targeting. Right. The mainstreamers not really caring about what a megapixel looks like. So Jack, what's the takeaway for our buddies who are radically doing things over at GoPro? GoPro has got no moat. Exactly. A moat. It's how you keep your competitive advantages. Picture the literal thing Game of Thrones. Dragons can get in, but like everything else can't. It literally protects the castle from the competition. Great example here. Viagra had a patent. It meant that you couldn't do exactly what Viagra did. When that patent expired, Viagra lost a lot of business. You'd think GoPro might have that because they're making cameras which requires factories. But guess what?

Huawei and Garmin made much cheaper versions of a GoPro. That are very, very similar. And then you've got Apple and Samsung who are still grabbing more and more of that mainstream audience. So GoPro is left with the few customers that need to buy a Christmas present for their extreme cousins. It's a quality product, but it's a niche product. For our second story, Jack, can we talk about Masco here because they just sold off their whole window division? Yeah, they're in recession prep mode. You never want to be in recession.

Do you always want to be in recession, Pramount? I don't think you want to be preparing for a recession. You never really want to be preparing, but I guess you always got to be prepared. But when you're in the housing industry like Masco is, you got to prepare for a recession. And they're based in lovely Livonia, Michigan, with a cool 26,000 employees. Yeah. Now, my old boss, Patrick Hartwaker, he and I had Masco as a client when I used to work in a bank. Great times.

And he said, Jack, someday you're going to own a home or you're going to build a home and get ready because those kitchen cabinets, they're the most expensive part of the home. Cabinets are like the unsung hero of homes. They're underappreciated. They're holding a lot of weight. Oh, they're holding all that weight. They're hanging out over the counter. But no one, like, says, oh my God, these cabinets are incredible.

How are you doing it? They are an expensive product. They're like that one guy at the gym who, like, just got his max bench press, and there's like, no one there to see him do the 400 pounds. And he's holding there for like 50 years. And then no one shows up. So let's get back to Masco. Masco is switching from new home company to home repair and remodeling company.

It's kind of like giving itself a makeover here. Okay, so it's got a division that it's selling off, or a few divisions here. Yeah, the divisions that require new home construction. So, like, if a new home is being built, there's some, like, key things you're going to start from scratch on that thing. Kitchen cabinets, doors, and windows. And it turns out, you pretty much don't ever replace kitchen cabinets, doors or windows. You only do it when the house is born. Standards, you got to have them in there.

They're for new homes. Now, what Masco is going to start focusing more on is divisions that are home improvement and repair dependent. We're talking like the vanity makeover kind of stuff here. The facelift, when your house just needs a facelift. Maybe you want to change the color that blue is kind of getting on you. Maybe you go with like a light dove gray. Yeah, like Julia Roberts, instead of doing the whole Eat Prey Love Shing, she could have just done a house facelift.

Boom. She could have just painted the place. That's what they want to focus on. Improved the lighting like sconces. Throw in some chandeliers. That's what they're focusing on. Upgrade the sink, the shower, the toilets. The whole thing, all you got to do is like revamp those.

And that's kind of thing you don't rely on a new home for. Mascoe owns top home improvement brands like Hans Groa. Great shower. Great pronunciation. Delta sinks. Yeah, great pronunciation on Delta. Bear. Yeah, that's pretty good.

Which is also a German paint company. Very true. And what they did on Tuesday was take action. They sold its window division for $725 million to a Pennsylvania-based company. So, Jack, what's the takeaway for our buddies over at Masco? Mascoe is trying to mitigate the biggest knock you can have on its stock, the cyclicality. Cyclicality. Let's talk about cyclicality for a second.

Cyclicality is when a business depends fully on economic growth. And when the economy is doing poorly, it does really. really poorly, too. For example, between 2005 and 2011, the housing market was getting crushed, and Masco got crushed along with it. Windows, cabinets, doors, those are cyclical businesses. Sales only happen when new construction happens, and new construction only happens when the economy's growing. So if you're the executives over at Masco, you're like, hey, I'm really sick and tired of Wall Street judging us and saying you're only important when there isn't a recession. Yeah, everyone's like, Masco's doing great now, but if a recession comes, it's going to get crushed.

All those new homes are not going to happen. Masco is going to be destroyed. So now Masco is selling off those divisions that are getting all the heat, and it's only keeping its more recession-proof divisions. A good recession-proofing. Midwestern prudence right there. For our third and final story, Charles Schwab. Charles Schwab just announced it's going commission-free trading. You run out of nicknames? And then the stock dropped 10% after Schwab made its own announcement. It was actually a wild day. We're talking about the 50-year-old online brokerage. So, starting October 7th, Charles Schwab is.

offering a 100% off sale. The signs are out for the trading of U.S. stocks, ETFs, and options. So let's say you wanted to go bri a share of something. It would cost you like $4.95 if you're going to do with Charles Schwab. Right. So let's say the stock you wanted to buy cost $5, the actual stock price. You'd be paying roughly $5 for the right to just trade it. Right. So you get a stock for $5 bucks, but you're paying a fee for $5 also. So $10 is out of your pocket and you only have a $5 stock. So Charles Schwab is coming around and saying, hey, we're actually going to not charge you anything when it comes to the commissions. The commission fees are going away for Charles Schwab to zero. Charles Schwab has been making a cool like roughly $400 million a year on the

revenues from those kind of trading commissions. But Schwab has been diversifying. Trading commissions only represent 7% of overall revenue for Schwab. So when the stock dropped 10%, people are thinking maybe this is like a bad move or something. It's actually a tradeoff. In the short term, they will lose revenues, those 7% that they make on commission fees. But in the long term, Charles St. Chab is saying, hey, we're going to gain trust, people are going to like us. Maybe we'll win customers from some of our competitors that are more expensive. And it'll make up for the revenue we lost on trading. Now, the fight against price gouging for stock trading.

Yep. Started 45 years ago. Jack, you know, I love a good history lesson here, all right? So this seemed to have happened really slowly starting the 1970s. In 1975, the average commission to buy or sell a stock was $49. $49 just to buy or sell a share or a few. So you'd have to pay 50 bucks for that $5 stock we were just talking about. Then some deregulation started happening and an entrepreneur named Charles Schwab in California

said, you know what, I'm going to launch a discount brokerage. He cut the fees in half. That was disruption number one happened back in 1975. Disruption number two happened a couple decades later when startups like Robin Hood started jumping into the game. Yes, Robin Hood is the zero commission app based on technology that started in 2013. And full disclosure, Robin Hood owns snacks daily and it produces this podcast. Exactly. Now, there are a bunch of stock apps that are doing this these days. And by 2015, the price to buy or sell a stock, the commission had come down to $10 on average from $49 in 1975.

Inching even closer to get more and more companies close to zero charge for commissions. The movement, the trend is towards zero. So, Jack, what's the takeaway for our buddies over Charles Schwab and a bunch of online brokerages? Companies and profits hate price wars, but customers love them. Have you ever heard the term like you can't win on I have. Or like, you win once, but you're not going to win again on price. Right. It's because when one competitor undercuts the price of the competition, then the other competitor will undercut them and quickly it's an undercutting race to the bottom. We're doing like a ninja like one hand below the other. We're on the floor at this point. You can't even see us. Case in point, TD Ameritrade stock dropped 26% yesterday. E-trade stock dropped 14%. They are rivals of Charles Schwab and they do the same thing. They charge. a commission when you trade with them. And that's because this smells like a price war. Td. Ameritrade and E-Trade, they're going to be under pressure to drop their commissions to zero, just like Schwab. And it turns out 25% of TD Ameritrade's revenues come from commissions exactly like these that now they have to eliminate. That's why this news hurt TD Ameritrade so much more than it hurt Schwab. It also shows us why competition is great for you and us, not as great for

companies. Yeah, I love not paying a commission. Everyone appreciates some good competition. Jack, can you whip up the takeaways for us over there? GoPro is a great extreme camera, but not great for mainstream buyers. It's a niche product that's got a moat problem. Masco wants to recession proof itself, so it's focusing on repair and remodeling home furnishes. Not those insanely expensive kitchen cabinets we know those Midwesterners are known for. Schwab is lowering commissions to $0 for U.S. stock, ETFs, and options trades. It's doing what Robin Hood did six years ago.

Snackers, time for our snack fact of the day. this one is a second submission from the well-known Justin Cramm of Fort Lauderdale, Florida. Justin Cramm, no relation to Cramer. No, but on a roll here, Justin, this one got us very interesting. Now, the Michelin man, who I think makes a cameo in Ghostbusters. It's like the marshmallow guy. Either way, he's scary. He's a scary guy.

He looks really nice. He is white and lumpy and looks like a stack of tires. And he was created 125 years ago. And the reason that he's white, because tires used to be white. used to be white. They were like purely rubber pretty much and that was a white substance. Yeah, apparently white is the natural color of rubber and it only became black. That's when they entered some three little carbon in there. When in 1912, they added carbon to the rubber to make it stronger and it acts as a preservative. Just an incredible history lesson from a hundred years ago.

Well played. The more you know. Snackers loved having you with us. If you haven't yet, we love you guys. Drop a five-star review in the app that you're listening to Snacks on. We'll be back for you tomorrow. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Markets, Inc. or any of its subsidiaries or affiliates. The podcast is for informational purposes only and is not intended to serve as a recommendation to buy or sell any security and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any investment decision. Robin Hood Financial LLC, member FINRA, SIPC. Thank you.