Earnings Anticipation: Verizon, Zillow and Ellie Mae Need Good News
In this segment from the Market Foolery podcast, host Chris Hill asks Million Dollar Portfolio's Jason Moser, and Stock Advisor Canada's Taylor Muckerman what companies most need a solid win in this quarter's earnings season. Muckerman picks Verizon(NYSE: VZ), which has had to correct its course on a lot of moves it made back when it felt more secure. Moser, after noting that retailers, in general, need some good news, shifts over to Zillow(NASDAQ: Z)(NASDAQ: ZG), which he feels is less in need of a great report and more of a business expansion, and mortgage processor Ellie Mae(NYSE: ELLI), which could face issues as interest rates climb. Plus, the guys consider what Under Armor(NYSE: UA)(NYSE: UAA)really needs.
A full transcript follows the video.
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This video was recorded on April 17, 2017.
Chris Hill: Who needs a hit, Taylor? There are a bunch that need a hit. In your view, who needs a hit?
Taylor Muckerman: I'mlooking atVerizon,and not because,people are probably going to askwhy did they callAOL andYahooOath, but because --
Hill: Oh, God ...
Muckerman: -- inFebruary, they announced that they're going back to unlimited data. I was a Verizon customer years ago and left because they stoppedgrandfathering people into unlimited data that had it previously. I jumped toT-Mobile, loved it.I'm withGoogleFinow, love it. So, there'sother options out there. And then you seeAT&Tjump on the unlimited databandwagon shortly after. You look at T-Mobileover the last year, shares are up64%. Verizon is down 5% over the last year. They have a lot going on, and I just want to hear them concentrating on what got them to where they are, and that's the mobile market. T-Mobile added a million customers in the fourth quarter, versus 200,000 for Verizon.I want to see what they're doing this quarter and how they're going to handle the increased data demand now that people can use unlimited data. Theyobviously have one of the largest networks andinfrastructure,but they have to pay for that somehow. Andif people are using more datawithout the increased cost,I want to see what analysts and CEOs have to say there.
Hill: All of these companies arespending so much money on television advertising. And maybe it's just the television that I'm watching. But I can't go one or twocommercial breaks unless I'm seeingSprint, Verizon,AT&T, T-Mobile.
Muckerman: And they're everunimaginative. You see Sprint takingVerizon's old spokesman, thecan-you-hear-me-now guy, and being theirspokesperson wearing a different colored t-shirt. And they both drop the mics now. It's silly.
Jason Moser: I just don't know how loyal customers are to any of those. I think,generally speaking, you have what you have, and you have it for whatever reason, when you bought your phone, orhowever that worked out. But, at some point,it's kind of like a bank account. You just don't want to go through having todeal with switching stuff over. It's really a nightmaredealing with any of those people at any level, because they're so big, the service suffers,customer service, I mean.
Hill: What about you, J-Mo?
Moser: I'm looking, there are a lot. Any retailer not namedAmazon,[laughs] I think, needs a hit. When you look at the numbers today, at least,by the beginning of April, there were nine retail brands, at least,that had already filed for bankruptcy this year alone, which was --
Hill: Equal to all of last year.
Moser: Which is really amazing. And then, if you go driving around, and you see the landscape that thesestrip malls or any kind of big shopping mall,you recognize that the world really doesn't need a lot of these retailers. They just don't. It really, again, goes to show the work that Amazon has done, the bets that Amazon placed early on, and how those are paying off. I think the one retailer that we continue to follow, that is about as close to Amazon-proof as I can imagine, isHome Depot. They don't need a hit,because I think they keep on knocking it out of the park.
Muckerman: Yeah, they'remore than just a single out of that company, every quarter.
Moser: Right. It'sa retailer and a wholesalerrolled into one. I thinkprofessional contractors make up about 3% of their actual customer base, butrepresent about 40% of overall revenue. That's to say, yougo to Home Depot on a weekend and get something, that's fine. Butif you're hiring somecontractor to come do some stuff at your house, they'relikely getting their stuff from Home Depot, as well. This allleads me back to housing. I've hada lot to do with the housing market this past quarter, Chris.
Hill: America thanks you.
Moser: Yes.I look atZillowand I still can't figure out what their ultimate plan is.I feel like they need to step up and turn that business intosomething more than just a real estate advertising business,because that, at its core, is what it is today.
Muckerman: Andthere's more of those out there today online.
Moser: There are. Andit's OK, you can exist just fine that way. Butyour growth is going to be very capped,because the real money is in the transaction, in the process, in all the little points from A to B to C and connecting thattransaction and getting it all completed. I'd like to see, at some point, maybe Zillow taking thatbusiness a little bit deeper andbecoming more than just a real estate advertising platform. Onthe flip side of that,Ellie Mae,another business we follow, we own it in MDP,I own it personally, it's been aphenomenal performer,it's the mortgage software side.Ellie Mae has been on a tear recently and the big question there is, with interest rates going up, slowly, but they're still going up, and with the fact thatmaybe the housing market has hit this point where, I don't know how much volume we can expect, at least, on the purchase side, compared to the refinancing that Ellie Maehas witnessed over the past seven to ten years,are they going to be able to make up for that lost refinancing volume? I don't know. The stock price today isindicating that maybe the market thanks it will, ormaybe that's just accounting for the fact thatit's a very quality business with anawesome competitive position. Either way,those are two companies thatI'll be watching this quarter.
Hill: Anythoughts onUnder Armour? Because that's the one that I look at and say holy cow, do they need a hit.
Muckerman: Iwould love to see a hit from them.
Moser: I thought about that, andthe reason why I say they don't need a hit is,I think they pretty much got everythingout of the way these past couple of quarters. I don't expect a hit from them immediately. I think we know, it's going to take a few quarters for them to reset expectations and paint a realistic picture of what we should expect from this company in the coming years. So, I don't think they're in need of a hit. WhatI think they're in need of is,I feel like they've thrown everything plus thekitchen sink at us,and we just don't need them to throw another kitchen sink. If they go in there and say, "All of these investments in digital technology, we're just writing that whole thing off. $750 million wasted,"that would be a big problem.
Muckerman: That'sMapMyFitness and all those.
Moser: Right. I don'texpect that to happen. If that did happen,I think that would be a crisis of epicproportions for that business. But I think they've gotten most of the problem out in front of investors, wherewe shouldn't really expect any kind of surprise on that front. I think it's justgoing to be a bit of a road to get back to the performer that we have come to know and love.
Hill: It was over a year ago, it was March of 2016 thatSports Authority announced they were shutting down. Was it this quarter last year, or the summer quarter where Under Armour came out and said --I want to say it was the summer quarter -- they said, "Actually, the Sports Authority thing was worse than we originally thought it would be."
Muckerman: "That means something to us," yeah,I can't remember exactly when.
Hill: I remember it hit them in this upcoming quarter that they're going to report in a few weeks.
Moser: Yeah,I'm not sure about the timing. To that point, they've justrecently started this new deal withKohl's, wherethey're going to have more Under Armour gear,selling through more retail channels like that. That's good. But then, also, Kohl's is one of thosephysical retailers that,I would put that in the group of,does the world really need a Kohl's?I don't know, maybe. But, I thinkNikeand Under Armour continue to investa lot of money in their direct-to-consumer businesses. And I think that's good. I think theUnder Armour app, whichyou can use to order directly from Under Armour, is pretty sharp. I just used it the other day to get a pair of golf shorts for theupcoming member guest, Chris, just about a month away now,I'm getting kind of excited. But yeah, I think, when you look at retail in general, thebusinesses that are still investingin those direct-to-consumer operations are doing the right thing by doing that, and I thinkUnder Armour will continue to do that for theforeseeable future.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon and Under Armour (C Shares). Jason Moser owns shares of Ellie Mae, Nike, Under Armour (A Shares), and Under Armour (C Shares). Taylor Muckerman owns shares of Alphabet (C shares), Amazon, Home Depot, and Under Armour (C Shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Ellie Mae, Nike, Under Armour (A Shares), Under Armour (C Shares), Verizon Communications, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends Home Depot, T-Mobile US, and Yahoo. The Motley Fool has a disclosure policy.