In this Motley Fool Money podcast, host Chris Hill is joined by Fool senior analysts Matt Argersinger, David Kretzmann, and Aaron Bush for an earnings-palooza episode -- so many big companies reported this week that it's tough to keep up. But the gang will try, starting with a dive into the issues of Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR), each of which took a big share-price hit for issues that could be viewed as short term.
Among the other interesting news, Atlassian (NASDAQ: TEAM) is giving up on its attempt to compete with Slack and is partnering with it instead, rural retailer Tractor Supply Co. (NASDAQ: TSCO) is thriving in the era of Amazon.com (NASDAQ: AMZN), and Under Armour (NYSE: UA) (NYSE: UAA) is finding all its growth overseas. All that, many more earnings reports, a response to a listener's question about how to invest in the autonomous-vehicle space, and of course, the stocks on the team's radar this week.
A full transcript follows the video.
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This video was recorded on July 27, 2018.
Chris Hill: It's the Motley Fool Money radio show! I'm Chris Hill. Joining me in studio -- senior analysts David Kretzmann, Matt Argersinger, and Aaron Bush. Good to see you as always, gentlemen. It's Earningspalooza. We have so many companies with earnings news, we don't even have a guest this week, but we will dip into the Fool mailbag, and, of course, give you an inside look at the stocks on our radar.
Social media stocks are the headlines this week, so let's start with Facebook. After the social network issued its second quarter report, Facebook's market cap on Thursday fell by $119 billion. In terms of market cap, that is the single worst day in market history. David, a lot of parts to the story, but in terms of that fall, the Chief Financial Officer made it very clear that Facebook's revenue is going down by high single digits sequentially for the foreseeable future.
David Kretzmann: Yeah, 42% revenue growth for this quarter, which is an astounding number for a company that's already as big as Facebook. That number, I guess, could go down closer to 25%-30% by the end of the year, so we're definitely seeing a slowdown there. What also stuck out to me is, they're guiding for their operating margin to drop from about 50% today -- which, let's take a step back and recognize, that's an incredible number. They're basically twice as profitable as Alphabet right now. That's incredible achievement. Over the next few years, they're guiding for that to go down to the mid-30s.
But even if they drop down to an operating margin of 35% in the next few years, that's still above where Alphabet or Microsoft have been at any time over the past five years. I think we need to take a step back, take all of this in context. Facebook is still a dominant platform. They're seeing growth in their user counts, user engagement. This is still a very profitable company.
Aaron Bush: It's funny, because they've been telling us this was going to happen. And here we are, and it's happening. I think that's important to keep in mind. I do think there's some truth to the fall. Not that Facebook itself is peaking, but Facebook, the platform, in the U.S. and maybe in Europe, that might be starting to near a peak, with user growth tipping off. So, it makes it more important that Facebook's other areas, like Instagram, pick up the slack for a long time going forward. It also puts more pressure on them to figure out, "What do we do with WhatsApp; what do we do with Messenger?" If investors are starting to get antsy about future growth, then they need to figure out how to step up in other ways.
Matt Argersinger: Let's remember to take more things in context here. Facebook is at levels, I think, a few months ago, when the whole Cambridge Analytica thing came out, and Zuckerberg was testifying before Congress -- we're just at that level now. I feel like, the market cap that has been wiped away -- which is still an impressive number -- that's what Facebook has grown in the last three months, which is astounding by itself.
Hill: As you said, Aaron, Mark Zuckerberg has been very clear about this, very open about this, saying, "We're going to be spending a lot more money, we're going to invest in technology, we're going to hire thousands of people." So you can look at the fall in the stock and say, "Wait a minute, we knew this was coming."
It's a different thing, though, when the CFO really spells out, in very clear numbers, "This is what it's going to look like." It's one thing to say, "Our margins are probably going to come down." Once you start to put real numbers against it, I think that's what caused what we saw on Thursday.
Kretzmann: Something that Mark Zuckerberg reiterated on the call is, they're running Facebook for the next several years. They're not trying to juice results for the next quarter or two. That really came through in this conference call. I think, as Foolish investors, business-focused investors, that's what we like to see. In the meantime, Facebook will probably still continue growing earnings above 20%, potentially even 25%-30%. Right now, the stock is trading for a forward P/E of 24. I would argue that a lot of the pessimism and that slowdown in growth is already priced in.
Hill: Earlier this summer, Twitter announced it is purging its platform of fake accounts. On Friday, Twitter's stock purged itself of nearly 20% of its value. Their profit for the second quarter, it was there, Matty, but their monthly active users are down.
Argersinger: That's right. It's another story where I think we should have expected this. We were going to see this, and we knew it. And when the news finally hit, it was like, buy on the rumor, sell on the news. The news came out, and investors sold the stock.
But again, with monthly active users down a million, and of course, they guided for a few million more lost in the coming quarters, I don't think that's the metric that the market or investors should be focusing on. For one, daily active users -- we know Twitter is much more a real-time platform, people are going there for the news as it's happening, sports as it's happening, culture as it's happening -- that number was up 11%. That's pretty strong. Then, you mentioned the earnings. Revenue was up 24%. We expected to see that Twitter was finally getting traction with their advertisers, and that's happening. We're not going to call Facebook fallout, but I do feel like, there might be a shift going on, that advertisers are looking for other platforms, and Twitter should be a beneficiary.
Hill: I'm glad you mentioned that, because it really does seem, less so with Twitter and more because Facebook, we've started to see some reports here and there of advertisers moving their digital dollars away from Facebook in the last couple of months, onto other platforms. Doesn't it really seem like the table is set right now for other companies? I'm thinking mainly of Snap, but really, any business that's trying to make a big push into digital advertising. If you have media buyers who are now hedging a little bit or pulling back some of that spend with Facebook ... Aaron, if Snap can't get it done in the next six months, it's time for them to fold up the tent and go home.
Bush: I tend to agree with that. Snap has not been very impressive at all, and I do not have confidence that they actually will take this opportunity and do a good job with it. But, I mean, there are so many other big players out there. YouTube could easily steal a lot of that. They've had some issues of their own, but they seem to be on fire, too. If others fall, they could hit it big. We'll see.
Kretzmann: To give Jack Dorsey credit, Twitter's cash flow situation has dramatically improved the past couple of years. It produced $1 billion in operating cash flow over the past year. The company is sitting tight with about $3 billion in net cash. From a cash perspective, the business is as strong as it's ever been.
Hill: Amazon shares hitting a new high after its second-quarter report. Web Services keeps chugging along, Aaron. Speaking of advertisers, Amazon's advertising business is starting to rack up some serious numbers.
Bush: I think my biggest takeaway from this quarter is that it's so hard to have any takeaway, because they're doing so many different things. Their growth is so impressive. They grew revenue 39%. Some of that is acquisitive, from last year's Whole Foods acquisition, but a lot of that is organic. It's because they're doing a great job scaling U.S. retail, up 44%, international a little less than that. AWS is still on fire, more so than any other cloud platform out there.
They're trying all these new things. Advertising is ramping up. They have Twitch in the back, which might be a part of that. They're ramping up subscriptions in its own right. Prime Day, even though it had bugs this past quarter, was still their largest event ever. They had all these tailwinds. They continue to acquire. They made the PillPack acquisition this past quarter. It's so hard to summarize because there are so many things going on.
I do think, one thing that's important to keep in mind is, Jeff Bezos is known for saying, "This quarter was great because of things we did two years ago." Because we're seeing all of these things that they're doing now, it gives me confidence that, two years from now, we'll be seeing pretty good results then, too.
Kretzmann: What stuck out to me is the fact that Alexa probably got 15 times the mentions of Whole Foods. Go back a year ago, we were losing our minds over Amazon acquiring Whole Foods. Now, Whole Foods is just an afterthought. It gets one or two mentions in a really long press release. It's not even mentioned in the prepared remarks of the conference call. I think, at this point, Whole Foods is becoming a loyalty extension of Prime. And, as a Prime member, I'm happy with that. It's interesting to see how much can change in a year.
Hill: Alphabet's second quarter revenue rose 24%. Their Other Bets division was up 40%. Shares of Alphabet hitting a new high this week, market cap now closing in on $900 billion, Matty.
Argersinger: Speaking of a large company that's still growing at an incredible rate, if look at the core advertising business, up 25% to $28 billion. That's 86% of their total revenue. Their Other segment within Google, which includes their cloud business, that was up 37%. I can't believe the amount of growth, the rate of growth, that we're talking about on this radio show, given the size, given the market caps, of these companies. It's so impressive.
I had to double-check this, but DK before we taped said, "I think Google has over $100 billion in cash." Sure enough, they do. If you back out the amount of debt they have, they have $98 billion in net cash. Another way to look at it is, that's 20 more years of E.U. fines that they can pay. It's a staggering number, and that gives that business so much optionality.
Hill: Optionality is they key word. When you think about Alphabet and you think about Amazon, great quarters they put up, and also, very visible issues that they each were dealing with in recent months. Alphabet with the fine. As you mentioned, Aaron, Prime Day, they had a couple of good years in a row where Prime Day didn't have any bugs. They kind of broke that streak this time around. It's almost like, when you have that kind of optionality, you can survive these types of blips.
Argersinger: Oh my gosh, and then you can make big, forward-looking investments, like Waymo, which is probably going to have some serious milestones this year. The Other Bets, which includes their medical science business. There are so many things going for it. And yet, you have a business that, if you back out that cash -- now, it's not always smart to do that -- you're talking about a company that's trading for about 25 times this year's forward earnings, growing the core business over 20% for at least the next several years.
Kretzmann: What's really impressive to me is the fact that 90% of the company's revenue still comes from that core advertising business. And that business will probably continue growing at above-average rates for at least another decade, if not much longer. In the meantime, if Waymo hits, if their unicorn or venture investments really grab hold, any of those other projects, those are really just the cherry on top, because the core business is still incredibly attractive.
Hill: Second-quarter revenue for Spotify came in 26% higher than a year ago. Spotify has now more than 80 million paid subscribers. It looks good, Aaron, but they're still not profitable.
Bush: Nope, and that's kind of a problem. I think they're doing a good job; they're just in a difficult position. What was impressive about this past quarter is, they grew their monthly active users and their paying subscribers by 30% and 40%, respectively. That's important.
Perhaps less impressive is that revenue growth was not nearly that high. They're not making as much money per user that they have. Even worse than that is, they're not really making that much progress in their gross margins. They're still really low, about 25%-26%. That's we're the largest problem is, and that's what's crippling their profitability.
I do see a path to them improving this. The more people that join them, which they are achieving, gives them a higher chance of making exclusive deals. I do think the future of music is shifting the power away from people who own the music to people who own the listeners. And the more that they can own the listeners, the more power they'll have getting those exclusives, and even more than that, negotiating prices with those who own the music. I do think that they might be making progress there, but it's not very evident, and they're still in a tough spot.
Hill: We've talked before about video streaming -- Netflix, Hulu, Amazon Prime, etc. -- not being a zero-sum game. People do and will continue to have multiple subscriptions. It seems like that's not the case with music. You're going to get one streaming service, and that's probably all you're going to get.
Bush: I think so. At least right now, that makes sense, because they tend to have the same content. Maybe one day in the future, if Apple and Spotify are competing, for example, for exclusives, there might be a reason why someone would have more than one. But I think now is the time when lock-in is most important, so they must chase that.
Argersinger: Yeah, as Aaron has talked about, it's really the ownership component that separates video content from music content. The reason people are willing to pay for Netflix, for Amazon, for Hulu, Disney, is because there's that content that only exists on those platforms. For music, it's not quite there yet. As Aaron said, maybe the network eventually gets big enough for Spotify to actually accomplish that.
Hill: Electronic Arts' (NASDAQ: EA) first-quarter profits came in higher than expected, but that got outweighed when EA lowered guidance for the second quarter and the full fiscal year. How concerned should people be about this, David?
Kretzmann: I wouldn't be too concerned about this. The company, over the past year, has generated over $1.5 billion of free cash flow. They're sitting on about $4 billion of net cash. The underlying business is still very strong.
The video game business is lumpy quarter-to-quarter and year-to-year, just based on the timing of game releases and things like that. We just wrapped up the World Cup a couple of weeks ago. Now, next week, in London, the FIFA eWorld Cup Grand Finals will start, where the 32 best FIFA players in the world will descend on London. Over the past year, competitive FIFA games have attracted 20 million players from 60 different countries. EA is really trying to generate a lot of engagement with their games.
Ultimately, in the coming years, the company wants to connect 1 billion players worldwide. That larger vision at the company, backed by those strong sports titles, as well as other action shooter games like Battlefield, I think there's reason to be optimistic.
Bush: One other thing to keep in mind is that over the past couple of years, EA has made a ton of money off of loot boxes and has received a lot of criticism for that. They're very quickly trying to not do that again, and to figure out how to make money in a recurring, digital way, through other things. I think part of this change has to do with trying to figure that out.
That's not good for this year, but I think ultimately, that actually does lead to healthier growth, because it means that they're not going to be making people mad. That's kind of important. They still have tons of great franchises, and that's not going away.
Kretzmann: Speaking of that, one business model tweak that they're looking at is subscription gaming. Essentially, you subscribe, you pay a flat monthly fee, and you get unlimited access to all of their new titles. That's something they're rolling out on the PC next week. I think we'll see more of that in the years ahead.
Hill: GrubHub's (NYSE: GRUB) second-quarter revenue rose more than 50% compared to a year ago. Shares of GrubHub up nearly 20% this week. They're doing well, Matty, but this is starting to be a really pricey stock.
Argersinger: It is, but gosh, I feel like they've earned the grub stake that they have in the bargain right now. You mentioned the revenue number. The number of active diners, up 70% year over year to 15.6 million. They now have over 85,000 restaurants in over 1,600 U.S. cities and London. That, to me is a pretty sizable network.
When I thought about GrubHub in the past -- shame on me for not taking a bigger look into buying the stock myself -- I always thought, you have competition. You have Uber Eats, DoorDash, Amazon has meal delivery, as well. It just felt like this was a hyper-competitive market, and it would be tough to make a lot of headway and certainly any margin in it. But GrubHub has certainly separated itself from the pack. I think, the network they're building now, they're certainly the leader.
Hill: Shares of Atlassian, the enterprise software company, hitting a new high this week. Atlassian issued strong results in the fourth quarter and announced a new partnership with Slack. You tell me, Aaron, which of these is more significant.
Bush: The Slack deal is definitely more significant. Over the past several years, Atlassian has competed with Slack through their HipChat and Stride products, but they've never really been that successful in making that as popular as Slack has been able to make their own product successful. What they're doing is, they're essentially selling the IP of those two products over to Slack. Slack is going to pay them a bit for it. Then, Slack is going to shut those two products down and roll those users into Slack.
Through this, Atlassian is actually taking a stake in Slack. This is really the end of competition for these two companies, and the beginning of collaboration. I think that's a big deal. Both of these companies now focus on two different parts of enterprise collaboration software. I do think we'll be able to see more integrations over the next few years, and I think that's going to be a big deal.
Argersinger: It's so rare to see a company that accepts the fact that they have the inferior product in the marketplace.
Hill: To a smaller competitor.
Argersinger: Right! And immediately says, "We're shutting down our own products, or at least, we're going to do a partnership deal, and we're going to adopt their superior product and see if we can work together." It's a fantastic decision by Atlassian.
Bush: I would say, too, that Atlassian also makes tons of money. They've done such a good job of rolling up other competitors. They're in a deal-making kind of zone. This will free up more cash that they can then put to use in areas they can dominate even more.
Hill: All Starbucks (NASDAQ: SBUX) did in the third quarter was post record profits and record revenue. Shares of Starbucks up a little bit on Friday, Matty, but it's not really getting the response that we've seen, certainly, when you're posting record numbers.
Argersinger: Right, and mainly because they pre-announced pretty much all of this about a month ago. If you remember, that day, the stock got hit pretty hard, and they guided their comps down. The news is just flowing out of that. The 11% increase in revenue, which took them up to a record, it's mostly from new store openings and the fact that they consolidated their East China business, which was previously licensed. Those are now owned and operated stores.
There's not a lot to like about this release, actually. We know that comps have been trending down. They were down again, only up 1% in the current quarter. What's interesting here is that China comps, which have been so strong, were actually down 2%. That was surprising. On the call, management talked about the fact that in China, they're really just focusing on new store openings right now. They feel like a lot of their new stores in very urbanely dense cities like Shanghai and Beijing were cannibalizing some of the older stores. They're OK with that right now, because they're really just focusing on the footprint.
So, there's that to worry about. Again, we just want to see those comps bounce back. The trend is, right now, not in Starbucks' favor.
Hill: It's really not. It's almost like they need to clean up their house a little bit over the next couple of quarters. I'm a shareholder of Starbucks, but I look at this company and I think, "I don't really have any expectations for the rest of 2018 for this one."
Argersinger: I agree. I think domestically, they probably know that they've over-extended in certain places, and they need to roll back.
Kretzmann: One bright spot in the U.S. is that they're finally seeing growth in their digital platform. They now have over 15 million active Starbucks rewards members. That's up 14% year over year. It's been a while since we've seen that kind of growth. They have more plans over the next year to revamp that digital platform. I think that'll be key.
Hill: Shares of Chipotle (NYSE: CMG) up 4% this week after a solid second quarter report. Chipotle's same-store sales were up due to higher average tickets. David, foot traffic down a little bit, but it looks like Chipotle is exercising a little bit of pricing power.
Kretzmann: I'd say the biggest bright spot for the company right now is the fact that they're going all-in with their digital platform and their initiatives there. They're seeing some nice traction. They have 4 million monthly active users on their app or website, that's up 65% so far this year. Digital sales this quarter were up 33%, now making up 10% of revenue. Now, they have a second line in the back of the kitchen that's plugged into that digital platform in over 500 locations, and more to come.
Those digital tools really help engage customers, keep people coming through the app and the website. Much more convenient. They're also testing out pick-up shelves, similar to Panera. You can order online, walk right into the store, and pick your food up off the shelf. They have that rolled out in a few locations in New York, and it'll probably be coming to more locations soon.
Hill: What about the queso? Have they fixed that? Have they done anything to fix the queso?
Kretzmann: All they'll say is that queso is still a positive contributor to sales. I personally haven't tried the queso in about six or seven months, so I might have to try the recipe again.
Argersinger: I can see Mac shaking his head behind the glass. He's obviously not a fan of the queso.
Hill: That's the investor equivalent of damning with faint praise. That's about as faint as it gets. PayPal's (NASDAQ: PYPL) stock is at an all-time high this week after strong second-quarter results, but guidance for the third quarter sent the stock falling. PayPal's chief operating officer said that some investors misunderstood their guidance. What do you think, Aaron?
Bush: I think they might have misguided the guidance. This quarter itself was really strong. Revenue grew 23%, earnings grew even faster. By all key metrics, they're making steady progress. They added 18% more accounts year over year, and the number of transactions grew 28%. That tells me, not only are they adding new people, but the users who use PayPal and their services are using them more frequently. There's a strong network effect going on there. I don't think that's going to go away.
I think it's also important to mention that Venmo has been on fire. Payment volume there was up 78% year over year, and it now represents a quarter of all of PayPal's payment volume. I do think part of the slowdown could come from a natural slowdown in Venmo, now that it's becoming a larger part of their payment volume.
But, they do have a lot of other stuff going on. They announced a $10 billion buyback, which told a lot of investors, "Wait, you don't have anything better to do with that $10 billion?"
Hill: That was my reaction! This is a relatively young company, it has a market cap of $100 billion. That was exactly what I thought when I saw that. Like, really? You have nothing else to do with $10 billion?
Bush: Yeah, I don't really know what to make of that. I will say, though, just in the past quarter, they have made four acquisitions, and they've made plenty of acquisitions before. I don't think that's true, that they don't have anything better to do with it. I just think that gushing lots of money is a good problem to have, and they're just figuring out what to do with it.
Hill: International sales for Under Armour rose nearly 30% in the second quarter. That's good, Matty, because here in North America, Under Armour sales were barely positive.
Argersinger: Right. And, barely positive, considering we had three consecutive quarters of negativity in that number, is not bad. But yes, after Nike (NYSE: NKE) reported last month, and reported fairly good North American numbers, I expected Under Armour to do a little better. It's nice to see the growth. International is where it's happening right now. Under Armour has a lot to do to fix its North American business.
Overall revenue growth of 7%. When you factor in all the restructuring they've done, the debt they've built up on the balance sheet, the inventory issue they're still facing, it's not a great number, especially when Nike and other competitors are growing about twice that rate. I feel like Under Armour still has a lot of work to do.
Hill: That's the thing. You sort of felt, earlier this year, that 2018 was going to be pretty pivotal for Under Armour for a lot of reasons, one of which had to do with management, and the team that Plank has put around him, and can he put that team to use, and can he keep them in the building?
Argersinger: "Keep" being the operative verb there.
Hill: Exactly. It does seem like, coming into this, maybe they're finishing their cleanup work, and then they can unleash the business. But it still seems like they're not nearly at that point yet.
Argersinger: Yeah. Maybe, as we get closer to the holidays, this could be a final nice push for the second half of the year. But all evidence I saw, at least on this quarter, is that it's still a work in progress.
Hill: Second-quarter profits for Tractor Supply came in higher than expected. David, I get that selling equipment to farmers and ranchers is not the sexiest business in the world, but Tractor Supply's stock has had a good run over the last 12 months.
Kretzmann: Yeah, up 43% over the past year. This was a great quarter. Same-store sales up 5.6%, which, in a relatively challenging retail landscape, shouldn't be overlooked. I think the company really has a formula for surviving and thriving in the age of Amazon. Like you mentioned, they have a specialty retail focus. They're going after farmers, gardeners, ranchers.
With e-commerce, with their strategy there, they're using their stores to their advantage. Right now, buy online, pickup in store makes up 70% of their e-commerce orders. By the way, they've had 24 straight quarters of double-digit e-commerce sales growth. It's still a relatively small piece of the overall pie, but they are seeing some progress there.
Finally, they also have a loyalty program, The Neighbor's Club, which has 8.7 million members. Those members spend 3 to 4 times the average of non-loyalty members. They're aiming to get 10 million members by the end of the year.
One other cool thing that they're doing in their stores is, they have kiosks. When you're walking through the store, and you see an item that's not quite the right size or fit that you're looking for, you can just order online through that kiosk.
Argersinger: So, definitely thriving in the age of Amazon. Are they going to thrive in the age of Trump and all these tariffs that are coming and hurting potential agricultural exports in the U.S.? I was just wondering if there was any comment about that in the call or the release.
Kretzmann: It definitely came up on the call. That'll be something to watch, especially for those bigger-ticket items like mowers, or larger pieces of equipment. Those will suddenly be a lot more expensive if those tariffs go through. But at this point, they actually raised guidance for the rest of the year, so clearly, they're still optimistic.
Hill: Matty, that was your thought listening to David. My thought was, I didn't think I could feel worse about Starbucks' loyalty program until David mentioned that Tractor Supply -- which, I'm just going to go out on a limb and say is more of a niche business than a company that sells coffee -- Tractor Supply's loyalty program has 50% as many people in it as Starbucks.
Kretzmann: It just launched a few years ago, too.
Argersinger: It's confounding about Starbucks. We should almost send a question out to our dozens of listeners, how many of you are Starbucks rewards members? It feels like it should be bigger! And yet, Starbucks just doesn't have a very sizable number. It just doesn't make sense.
Hill: You can drop us an email, firstname.lastname@example.org. You can hit us up on Twitter, @MotleyFoolMoney, not just with the Starbucks feedback, but also to send us questions. We got a question from Bryant Conger, who writes, "When it comes to self-driving cars, who are the market leaders, and are there alternative ways to play this industry? You guys rock." Thank you, Bryant! You rock for listening.
Self-driving cars, where are we now? I'm the old man at the table, and I just look at self-driving cars and I think, "Nah, probably not for me in my lifetime."
Argersinger: Oh, I think certainly in your lifetime. We mentioned Alphabet and Waymo. Uber is doing a lot. For self-driving years, at least in the next five to ten years, I think you have to look outside the U.S. I'd say you particularly want to look at China. You want to look at things that Baidu is doing, or a company called BYD, which is a big electric car manufacturer in China. I say that only because China is going to be a lot more open to experimenting, testing, and ultimately rolling out autonomous vehicles, much faster than we're going to be able to do that here in the U.S.
Bush: I think it's going to take a long time for this to fully catch hold. But, I do think that there's an in-between zone. It's not like this is a light switch, where you suddenly turn it on and all the cars start driving themselves. I think there will be a ramp-up period, or maybe, in certain areas you can have self-driving cars can do certain things. And that slowly starts to build.
Waymo has a good start right now, and they'll probably do a good job partnering with a lot of others. Tesla's working on it. GM acquired Cruise and is working on it. Ford recently consolidated some efforts there, too. Everyone is thinking about it.
Kretzmann: I'd say Waymo, at this point, in the U.S., has the biggest head start. It just came out recently that their Waymo self-driving cars have now logged 8 million miles on public roads. By far, that's most of any company out there. Tesla is also supposedly dabbling a little bit with autopilot or autodrive, whatever they call it.
NVIDIA (NASDAQ: NVDA) is also one of those suppliers with their general processing units -- essentially, the back-end chips or technology that can be used to power these self-driving vehicles. Still a small part of their overall business, but it is continuing to grow.
But I agree, I think this will be further out than a lot of people expect. If you go back a year or two ago, there was so much hype and excitement about self-driving cars. I think we're still looking at at least a decade before it's common to step into a self-driving car.
Hill: I'm glad you mentioned NVIDIA. That was one of my thoughts -- maybe, for investors, the better way to invest into this trend is not with the manufacturers themselves, but more with the suppliers. There's going to have to be so much testing, and the companies that are producing these vehicles are going to continue to buy these parts and technology long before they're actually selling stuff on the road, right?
Kretzmann: Yeah. I think it's also important to remember that, at this point, you're not going to have any small, pure-play companies only focused on self-driving cars that are publicly traded. You might have some private companies dabbling in it. Uber has been doing a lot with self-driving cars. They're allegedly going public at some point at the end of 2019. That'll be something to keep an eye on. At this point, I'd say, focus on Alphabet, NVIDIA, some of those companies that already have a dominant core business and just happen to have some promising technology or starts.
Hill: In the case of Alphabet, they also have $100 billion on the side.
Kretzmann: Can't hurt.
Bush: Yeah, it definitely doesn't hurt. I wanted to underline the Uber part, also Lyft, too. Both of those companies will probably go public in the next couple of years or so.
I do think, probably, at the end of the day, 20 years from now or whenever this happens, the two big winners will be those who own the technology that makes it possible and those who own the networks of fleets. All of the pieces of the value chain are worth thinking about here. This market is probably going to be worth a trillion dollars at some point, [laughs] so it's not too soon to start thinking about it.
Hill: Our final story, not earnings, but wonderful news, and that is: RadioShack is back! Oh, sure, RadioShack filed for bankruptcy twice in the last three years, but it's being reborn as RadioShack Express, a store-within-a-store that's going to open in 100 HobbyTown locations across the United States. Let's go to our man behind the glass, Steve Broido. Steve, overjoyed at this news, or ecstatic about this news?
Broido: You have "express" and HobbyTown in the same sentence, so there's nothing but goodness there.
Hill: Am I the only one who had never heard of HobbyTown before this? I guess it's a specialty toy store?
Kretzmann: Is it like Hobby Lobby?
Hill: I don't think it's like Hobby Lobby. That's more crafty. This is more specialty gadgets and toys, I think.
Bush: I went on a deep dive into the internet to figure out all things about HobbyTown. There are all sorts of goodies there.
Kretzmann: Where are these stores? Did you find that out?
Bush: I have no idea.
Hill: [laughs] It wasn't that deep a dive.
Bush: I was lost in the merchandise.
Hill: Steve, I'm wondering, because you've made the point on this show in the past that RadioShack really needed to rebrand. I'm wondering if they missed an opportunity here.
Broido: I think so. I think "Radio" plus "Shack" wasn't so good. Maybe something more current, a little bit more today.
Hill: Although adding "express," that has a dynamic quality to it, don't you think?
Broido: Absolutely. "Express" means better.
Kretzmann: That'll appeal to millennials, for sure.
Hill: [laughs] Let's get to the stocks on our radar, and Steve will hit you with a question. David Kretzmann, you're up first. What are you looking at this week?
Kretzmann: Steve, are you ready for this? I'm going with Kush Bottles, ticker KSHB. They're aiming to be the go-to supplier for the cannabis industry -- everything from containers, packaging, branding services, vaporizers, and much, much more. There are 12 facilities here in the U.S.
They're already serving more than 5,000 clients in every major U.S. market where cannabis is legal. They still have two co-founders with the company, including one who's remained as CEO, Nick Kovacevich. Those two co-founders still own about 30% of the company, so you have some skin in the game there.
Hill: Steve, question about Kush Bottles?
Broido: How important are accessories in the cannabis industry? Is this that big of an industry when you're buying cannabis, accessories?
Kretzmann: They're mainly a business-to-business supplier. They're supplying products to dispensaries. Things like containers and packaging, that's their main business. The vaporizers, which are more used by the end consumers, those are important, as far as I know. I'm not a user myself, so I can't speak from direct experience.
Hill: Aaron Bush, what are you looking at?
Bush: I'm looking at Ubisoft, ticker UBSFY. This is a French video game company behind big franchises like Assassin's Creed, Far Cry, Tom Clancy games. Just like pretty much every video game publisher out there, there's a huge runway for new games, new gamers, mobile, digital, licensing, e-sports. There are a lot of tailwinds there.
But, I'm also feeling deja vu, because they recently made a deal that is eerily similar to what Activision made a few years ago. Vivendi, which owned over a quarter of their shares, they recently came to an agreement where Vivendi is going to sell its entire stake. The founders are going to buy more. There's going to be a big share repurchase. And, Tencent is coming in and buying up part of Ubisoft to help them expand into China and grow their mobile presence.
There's a lot to like here. The stock isn't cheap, but they're smaller than other top publishers, and I think it could be an interesting investment.
Hill: Steve, question about Ubisoft?
Broido: In five years, what will be the biggest platform that Ubisoft is on?
Bush: I would still guess probably PS4. Or Xbox, but probably PlayStation.
Hill: Matt Argersinger, what are you looking at?
Argersinger: Going with JD.com (NASDAQ: JD), ticker JD. It's one I've spoken about before. It's China second largest e-commerce company, but largest overall retailer. You look at revenue growth, over 40%. It has China's largest shipping and logistics network. It has partnerships with companies like Tencent, Walmart, Alphabet. And, you can buy shares for less than 1X revenue. I still don't know what I'm missing about this business. I'm missing something, obviously, but it looks like an incredible bargain to me.
Hill: [laughs] Steve, question about JD.com?
Broido: Does the news that we're hearing politically about China concern you, in regards to this company?
Argersinger: Not so much for JD. 90% of JD's business, if not more, is in B2C retail in China. Nothing in terms of import, export, U.S. relationship, should get in the way of that.
Hill: Ubisoft, Kush Bottles, JD.com. Do you have a stock you want to add to your watchlist, Steve?
Broido: I think I might go video games.
Bush: That's my first win! I'll take it! [laughs]
Hill: Can I just say, I love the names of this week's radar stocks? If you told me, "I have this new company, it's called Ubisoft. It's a video game company." It might as well be baby products or something like that. Kush Bottles? I mean, because it was you pitching it, I figured it had something to do with the cannabis industry. But, I don't know, Kush Bottles could be a new acquisition for Coca-Cola.
Kretzmann: Just call me Kush Kretz.
Bush: What? [laughs] No! Never!
Hill: I don't think I will, and I don't think anybody else will.
Kretzmann: All right, scratch that.
Hill: Aaron Bush, David Kretzmann, Matt Argersinger, guys, thanks for being here! That's going to do it for this week's show. Our producer is Mac Greer. Our engineer is Steve Broido. I'm Chris Hill. Thanks for listening! We'll see you next week!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Aaron Bush owns shares of Activision Blizzard, Alphabet (C shares), Amazon, Apple, Atlassian, Baidu, Chipotle Mexican Grill, Electronic Arts, Facebook, JD.com, Netflix, Nvidia, PayPal Holdings, Starbucks, Tesla, Twitter, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. Chris Hill owns shares of Amazon, PayPal Holdings, Starbucks, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. David Kretzmann owns shares of Activision Blizzard, Alphabet (C shares), Amazon, Apple, Baidu, Chipotle Mexican Grill, Electronic Arts, Facebook, JD.com, Netflix, Nike, Nvidia, PayPal Holdings, Starbucks, Tesla, Tractor Supply, Twitter, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. Matthew Argersinger owns shares of Activision Blizzard, Alphabet (C shares), Amazon, Atlassian, Baidu, Chipotle Mexican Grill, JD.com, Netflix, Starbucks, Tesla, Twitter, Under Armour (C Shares), and Walt Disney and has the following options: long January 2020 $50 calls on JD.com, short January 2020 $50 puts on JD.com, long January 2020 $45 calls on Starbucks, and long January 2019 $15 calls on Twitter. The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Atlassian, Baidu, Chipotle Mexican Grill, Facebook, JD.com, Netflix, Nvidia, PayPal Holdings, Starbucks, Tesla, Twitter, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. 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 Electronic Arts, Ford, Nike, and Tractor Supply. The Motley Fool has a disclosure policy.