In today's episode of Market Foolery, Chris Hill talks with Million Dollar Portfolio's Jason Moser about the biggest stories on the market today. GoPro (NASDAQ: GPRO) dropped by a whopping 30% on a flurry of uninspiring announcements, and investors are wondering what the path forward could possibly be for the company.
In other news, Snap (NYSE: SNAP) snapped up its second downgrade of the week from Jefferies after failing to meet last year's expectations, and Kohl's (NYSE: KSS) is hitting a 52-week high after reporting fantastic holiday sales. The guys also talk about how younger investors can start to invest outside their 401(K) and discuss a few cheap and informative apps for new investors to check out.
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A full transcript follows the video.
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This video was recorded on Jan. 8, 2018.
Chris Hill: It's Monday, Jan. 8. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio today, from Million Dollar Portfolio, Jason Moser. Happy Monday!
Jason Moser: Howdy.
Hill: Good weekend?
Moser: A great weekend! A lot of indoor time, as we were talking about. It's chilly here.
Hill: It is. It's about to warm up, though.
Moser: Yeah. But "warm up" is, what, 38 degrees?
Hill: You know what? After the cold we've had, that's absolutely warmer. We'll take that.
We're going to dip into the Fool mailbag. We're going to talk retail; the holiday retail numbers are starting to come out. We have to start, though, with GoPro. Holy cow! GoPro announced preliminary fourth-quarter results, and all of them appear to be bad. The revenue for the fourth quarter is going to be much lighter than expected. GoPro is shutting down its drone business. They're cutting more than 20% of their global workforce. Shares of GoPro, which were not that high to begin with, dropping up to 30% this morning.
Moser: Yeah. I hate to call the cutting of the workforce actually good news, but honestly, for a business that's in the condition that GoPro is in, it's actually good news. And it's unfortunate for people who have a job cut in the coming weeks. But I think that really is as bad as it looks. When you issue weak guidance for a holiday quarter that's seemingly been pretty good to this point for a number of businesses out there, you know you have big problems. They're guiding down, they're cutting prices on their flagship product, they're leaving markets that were essentially once parts of an investing thesis. That's a trifecta of badness, Chris.
Hill: So, what is the path forward for this company?
Moser: Or is there a path?
Hill: Maybe that's a better question. I'm not looking to bury them just yet. They have a great brand. The CEO was on CNBC this morning talking about, if nothing else, the fact that they went public gave them a level of visibility that they probably would not have had if they remained private. That being said, it's hard for me to imagine that they right this ship in the next 12 months.
Moser: I don't think they do. Nick Woodman, the founder and CEO of the company, he seems to be ever the optimist. And I do appreciate that about him, because I feel like if you're leading the company that you started, you'd better have that take on things. You need to always be trying to see the light at the end of the tunnel. And it's not that easy to see at this point, because this all basically goes back to our concerns when the company went public, is this, bottom line, it's just a hardware play.
And it's not to say the technology isn't cool. It is. They've obviously helped change the face of how we get certain forms of content. It's introduced new forms of content that we didn't have before. But that doesn't necessarily make it a good investment.
When we were looking at GoPro when it was going public, we would go through the S-1 and see they ultimately had this vision of becoming a content company where they would use that hardware to develop content that they could then monetize, and that's really been blown out of the water.
Leaving the drone market, that's another story. It's not to say that they can't do something to turn the business around, but they're basically falling back to that old "We're just a hardware play at this point." And when you see a company like this and they're cutting prices and margins are falling and they're burning through cash, it's just really difficult to see what the next path is.
Hill: Let's move on to Snap, which got its second downgrade in just a week, this time from Jefferies. Something tells me you have your own downgrade of Snap.
Moser: I was going to say, I'm downgrading them as well. I'll jump on. I'll pile on here.
Hill: Not going to put out a white paper like the people at Jefferies, but...
Moser: No, I think we've been pretty critical of Snap and Snapchat since they went public. And this may seem harsh, and this really isn't even a reckless prediction, but I don't see how this stock price isn't cut in half from today's levels. And I think by the end of the year, we will actually see that.
I don't know why the market would still be willing to pay this kind of a multiple for the company today. Remember, it wasn't all that long ago that we saw projections for Snap to bring in more than $1 billion in revenue in 2017. That's not going to happen. Now, we're looking at, they're going to be doing well if they break the $800 million mark.
This was a really neat growth story when it went public. The narrative turned very quickly. And again, like with GoPro, it's really hard to see what changes the conversation for this company, at least in the next year or two.
Hill: I was reminded of something that you pointed out a couple of times last year when I went to Google Finance just to pull the quote. Shares of Snap are down about 5% this morning, presumably on the Jefferies downgrade. But who knows. By the time --
Moser: By the time we're done with it.
Hill: -- this gets published, maybe it falls a little further.
Moser: Dozens and dozens of listeners.
Hill: And that's the first line of information about any public company when you pull up a quote, is, how does the company choose to describe itself? In this case, it's "Snap Incorporated, formerly Snapchat Incorporated, is a camera company."
Moser: Yeah. Well, we were just talking GoPro. And that's the camera company too, right?
Hill: I was like, actually, GoPro is a camera company, and that's not working out well at all.
Moser: No. And I hope I don't sound like I have some sort of a grudge with Snapchat. I don't. I don't use the platform.
Hill: No. Mark Zuckerberg has a grudge. Zuckerberg has the grudge with Snap.
Moser: Right. It could disappear tomorrow; it wouldn't matter to me at all. But when you look at the math, when you look at the numbers and you try to understand what exactly is going on here, we have to look at it from a price-to-sales perspective here, because Snap is not profitable yet. But the market is paying 25 times revenue for Snap today. It's paying 14 times revenue for Facebook, and it's paying seven and a half times for Twitter.
Now, Twitter is on the cusp of profitability. And Twitter has obviously had a lot of problems to this point as well, but the feeling is that that tide may be turning a little bit. Not to mention the fact that Twitter brings in at least 3 times the revenue that Snap does today.
And when you go back to the core purpose of the platform, it's a messaging platform. It's a neat messaging platform. It does what it does well. It's just very difficult to monetize. And I think the proof is in this survey of ad buyers here recently, when they were asked to rank all of these social-media platforms by metrics like return on investment, user targeting, and campaign measurement. And unfortunately, Snapchat comes in dead last. So you'll hear some stories out there about how they're gaining some relevance in the ad spend, and clients are wanting to invest more in having a Snap presence, but it doesn't look like that's actually the case. And at the end of the day, the numbers tell the tale.
So for right now, they had a major, major problem in that they are not doing a good job improving their case yet. And do you know what? We've seen this before. We watched Twitter go through this over the past three years or so. So let history be your guide. That's not to say that Snap can't be a good investment one day. I just don't think it's there yet.
Hill: Let's move on to retail. Shares of Kohl's are hitting a 52-week high this morning. Holiday sales up just under 7% year over year. They raised their earnings for fiscal year 2017. And good for them. I don't remember if you were on the episode when we talked about this in December, but I remember saying that, in January, the two retailers that I was the most interested to see how they did in the holiday season were Kohl's and Macy's, in large part because I thought they both had pretty compelling television advertisement campaigns. And it paid off for Kohl's.
Moser: On the flip side of that, I think it was a couple of years ago or so when RadioShack really made that push. They had a pretty compelling TV advertising campaign. I have to say, I liked it. It unfortunately it didn't bring the results they were hoping for. But it looks like, at least in this case, maybe there was something to it for Kohl's.
I think for me, this is that old saying -- if you can't beat them, you join them. And when you look at what Kohl's has done over the past year in forging relationships with companies like Amazon (NASDAQ: AMZN) and Under Armour and Nike and Adidas, those are clearly bringing results for the company. So whenever you build your store or your concept, to bring more touch points in for the consumer, you stand to do well. So it's not the everything store, but it's a "we have a lot more than we used to" store. And I think it certainly paid off.
I think it's also coming off a pretty easy comp from last year. Last year was a brutal holiday season for a lot of retailers. But that said, this was more than just an easy comp. This was a good performance from Kohl's. So maybe retail isn't totally dead yet.
Hill: It was a flat-out good performance, and the stock is up almost 40% in the last 12 months. I have to say, I don't think you and I have talked about this in terms of our holiday retail experiences -- for the first time that I can think of, Amazon kind of let me down this year.
Hill: And it was bricks-and-mortar retail that ended up getting my businesses --
Moser: To the rescue.
Moser: And why is that?
Hill: I don't know if Amazon ended up having inventory problems or that sort of thing. And look, I'm not the most proactive shopper in the world. That's partly why I use Amazon.
Moser: I was going to say, they're there to save your bacon. [laughs]
Hill: Yes. So in this case, it was Dec. 21, and I thought, "OK, two-day shipping, no problem." And it was the morning of the 21st and I was putting things in my cart and that sort of thing. Like, "OK, great, I'll get this on the 23rd." And If I had just been smart enough to click the buy button then, no problem. I go back a couple of hours later, it's still December 21st, early afternoon, I go, and all of a sudden, stuff isn't going to arrive until after Christmas Day. And I thought, "I can't pull that. I have to go find it."
Moser: Yeah. It sounds like, perhaps, maybe both parties were at fault? Or maybe you just had really high expectations. And now, we're in the new paradigm. Amazon is going to be able to start commanding a little bit of more of their own terms, as opposed to being so customer-centered.
Hill: Maybe. Although it wasn't Christmas Eve. They had a couple of days to spare. So I'm curious to see. Maybe I'm a one-off. I'm not going to stop shopping on Amazon.com, but it wouldn't surprise me if a story came out in the next week or two about some type of inventory issue.
Moser: I don't think you're a one-off. I think this is the difficult part of Amazon's success. They've done such a good job in such a short period of time in building out this Prime offering, and really conditioning us as consumers and shoppers. They have to figure out how to accommodate for that massive increase in demand, as more and more people use it and they're shopping all day, every day, it seems.
And come holiday season, that's the crutch: "I'm going to go get it on Amazon, and at least I know, when it comes to the last second, I still have Amazon." You still have to get stuff from point A to point B. And I think that's a really difficult part of the equation that they still haven't been able to fully master.
Now, I think they're really working hard at it with partners like UPS, FedEx, United States Postal Service, and really trying to figure out that last mile. And they're leveraging Uber-like systems, where they can get delivery guys at all times of the day. So yeah, I think we're going to continue to see sorts of situations like that, where you just have to figure -- how long is it going to be before they nail down that last mile? I don't know.
The shipping and logistics side of it is really, I think, the most difficult part of the business. And that's why we're seeing them make so many investments in that. Because it's really difficult. It's also a massive market opportunity. And the more they can own that, the more they control the experience, and the more opportunity you're going to have to go ahead and order that gift on Dec. 23, Chris, and know that it's going to be there by Dec. 24.
Hill: [laughs] Our email address is firstname.lastname@example.org. From Jake Johnson, who writes, "I'm a recent college grad with a job and a 401(k) plan. However, I cannot shake the idea that I need to take the risk of a personal portfolio aside from my 401(k). To generalize this question, is it advised, under the age of 30, to only feed the 401(k)? Or is it worth it to separate capital to diversify with a second Investment portfolio of my own? And if so, what companies are platforms are recommended for low capital entry into personal investment? P.S. Thanks for being an innovative source of financial news, and the family of podcasts at The Motley Fool has really given me a larger interest in the financial world."
Thank you for that. So, a couple of different questions here. One is the idea of, if you're a young or younger person and you have a 401(k) -- first of all, great that he has the 401(k). That's the first step. If you have a 401(k) plan, max that out. And if your company is matching, even better. That's free money. Go ahead and take it. If you have the capital to do something separate, and specifically, he's using the word risk. 401(k) plans in general aren't going to give you the same level of risk exposure, probably, that you would find in individual stocks.
Moser: Not typically. And congratulations, Jake, on graduating and the job. Thank you for the kind words. We love what we get to do here, so thanks for the question. It's a really good one.
I was looking at this last week. It's an amazing statistic. We have something like 79% of the American workforce that has the option or the opportunity to invest in a 401(k) plan, and of that 79%, only 41% is actually taking advantage of it. So, overwhelmingly, the statistics tell people we have a lot of work to do there. Having that 401(k) is a great way to take that risk off the table, just focus on saving in the mindset of decades. You're not thinking about the next year or five years' returns. This is a lifetime of accumulating and building wealth.
So for me, I think now that you have that 401(k) set and you're doing that, I think you have to get into another sort of discretionary portfolio where you can continue to save and invest. You can look at it a number of different ways. I always think the first step for anyone looking to invest, the best first step is to invest in something like an S&P 500 or an index fund, because it gives you immediate diversification. It helps you spread that risk around while participating in the market.
Now, based on Jake's stats here, it sounds like he's already getting that exposure to some degree through his 401(k). And if that's the case, I think the next step is, go ahead and open a portfolio and start buying individual companies, because again, you're going to be doing this for a very long time. Don't put any money in there that you need within the next five years. But if you can put money in a discretionary investing account and focus, again, with that same mentality as the 401(k), it's decades, building and accumulating wealth. At his age, you have a lot of time ahead.
And you can actually take a little bit more risk in that portfolio. You probably don't need to go with an S&P index fund. Start by buying stock in some of the biggest no-brainers out there that are helping to run the world today, your Googles and Starbucks and Facebooks and Amazons and Apples, and then you can add some riskier holdings into the mix there as you get older. I think that's something you have to do, almost.
Hill: In terms of the cost, and I think this is a particularly insightful part of Jake's question, he's already thinking about, "If I have another account, I need to think about the cost associated with that account. It's not just, how much money am I going to invest, but also what are the trading fees, is there a way to buy partial shares, that sort of thing." Fortunately for Jake, we live in an age where there are a lot of companies who would love to get his business. So there are a lot of options in terms of low-cost, low-fee platforms.
Moser: There really are. We could sit here and list off a number of them. I'm going to go ahead and give Jake a name for the platform that I know best, and it's a partner of ours, Rubicoin. Rubicoin has two apps out there today. There's Rubicoin Invest and Rubicoin Learn. Learn is the app that's really about educating the individual investor. Invest is the app that helps you take that next step and actually invest.
And the neat thing about Rubicoin and what Emmett and John have done there in building this platform up is, they have the ability not only to invest through the actual app, but they have partnered with, I believe it's DriveWealth, which allows for the purchase of fractional shares. I think fractional shares are a terrific alternative for younger folks who may not necessarily have amassed enough capital to buy shares in some of these companies that they love so much. If you're looking at companies like Amazon, Google, Markel, Priceline, these are stock prices that are in the thousands of dollars. So to buy one share, you have $1,300, you buy one share of Amazon. But the fractional-share dynamic there is a really attractive way to overcome that.
Go to the App Store if you have an iPhone. I believe it's also on Android. Or you can just google up Rubicoin. Lot of great stuff they're putting out there, and I think the Invest platform that they have is a terrific way to at least investigate getting started, and see if it's something that's going to fit what you need, Jake.
Hill: I don't use the Robinhood app --
Moser: Yeah, I don't either.
Hill: -- but, we get that question a lot, particularly from younger investors, and I know it's a popular app. Same sort of thing, where it's $0 to trade.
Moser: And I think that's attractive when you see it. You think, "Wow, I don't have to pay anything for the commission." Now, understand, you're getting what you pay for, in that it's going to be a bare-bones structure there. And from my understanding, I never used Robinhood, but my understanding is that they don't have the same liquidity that other trading platforms will have. So just be aware, especially when you're looking at this and thinking about owning these shares for the next 10, 20, 30 years, I wouldn't get hung up on a transaction cost of $3.99 or $7.
I use Scottrade. It costs me $7 to buy and sell a stock. Now, I'm doing very little selling. You just have to be in that net buyer mindset of we're building capital; we're not worried about trading things around. So the longer your timeline, the less that transaction cost means. So I would not get too hung up on that when investigating which platform to use.
Hill: Jason Moser, thanks for being here.
Moser: Thank you.
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. Austin Morgan helping us out behind the glass today. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon, Starbucks, and Under Armour (C Shares). Jason Moser owns shares of Apple, Markel, Nike, Starbucks, Twitter, and Under Armour (C Shares). The Motley Fool owns shares of and recommends Amazon, Apple, Facebook, GoPro, Markel, Nike, Priceline Group, Starbucks, Twitter, and Under Armour (C Shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.