Disney+ subscriber growth falls short of Wall Street’s expectations. Marriott International (NASDAQ:MAR) and Airbnb (NASDAQ:ABNB) find room for improvement. Roblox (NYSE:RBLX) pops on strong revenue. DoorDash (NYSE:DASH) shares rev 20% on upbeat guidance.
The Trade Desk (NASDAQ:TTD) and Unity Software (NYSE:U) both fall despite encouraging first-quarter reports. Bill Ackman orders up a 6% stake in Domino’s Pizza (NYSE:DPZ). Krispy Kreme plots a return to the public markets. In this episode of Motley Fool Money, Motley Fool analysts Jason Moser and Ron Gross, with host Christ Hill, analyze those stories and share two stocks on their radar.
Plus, Bloomberg Senior Editor Brad Stone shares how Amazon (NASDAQ: AMZN) secretly developed the Echo; which cities were the real finalists to be the home of HQ2; and other insights from his new book Amazon Unbound: Jeff Bezos and the Invention of a Global Empire.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on May 14, 2021.
Chris Hill: We’ve got the latest headlines from Wall Street. We’ll talk with Bloomberg’s Senior Editor, Brad Stone, about his new book on Jeff Bezos and Amazon. As always, we’ve got a couple of stocks on our radar. But we begin in the magic kingdom. Disney‘s (NYSE:DIS) second quarter report had some bright spots, profits came in higher than expected, and they added nine million subscribers for their Disney+ streaming service, but Wall Street was looking for even more subscribers as well as higher revenue and shares of Disney fell 6% this week, Ron.
Ron Gross: Oh, Wall Street. What do you know? Yes, you hit it on the head. Weaker than expected subscriber growth for Disney+. Clearly disappointing investors. Stock is actually down this year, significantly rebounding from the worst of the pandemic. But down this year, Parks and Resorts are still impacted by the pandemic. Most television and production resumed but they’re still seeing disruption of film and television production as well as live sporting events, obviously. That all combined to see total revenue down 13%, park segment down 44%. Shouldn’t be that surprising to folks based on what we’re seeing in terms of traffic, parks reopening. But management does expect this to improve and improve significantly, especially I think in light of the new mask guidelines released this week by the CDC so that’s encouraging. Now their Media and Entertainment segment revenue, that increased by 1%. Nothing too exciting, but it was up, led by a 59% increase in what they call direct to consumer revenue, and that is largely Disney+. Those results were similar to last quarter. They did see about, you said 8.7 million-9 million increase in subscribers. That was good, but that was largely offset by higher costs for ongoing expansion of programming, the move into additional markets, and still, even though they increased nine million, that was just not enough for some investors who are hoping for much stronger growth as we had seen in previous quarters.
Disney+ has tripled from last year, but obviously they were starting at a low base, 103.6 million subscribers globally right now. They did see their average monthly revenue per subscriber decrease, and that’s because they launched Disney Hot Star in India and that decreased overall revenue per subscriber. Hulu improved, ESPN even improved a bit. ESPN+, I should say. Networks declined 4%. That’s the biggest part of their media component. But it all jumbled together for an earnings-per-share increase in adjusted one of 32%, which is solid. A lot’s going to happen this quarter as the parks gain steam, as Disney+ takes a breather, perhaps, due to the economy opening and people getting back out into the world. It’s going to be a really interesting quarter that we’re in right now to keep an eye on.
Hill: Yeah, I got to say, Ron, I was a little surprised at how focused Bob Chapek, the CEO, was on Disney+, considering that they came out with this earnings report after the CDC had issued their updated guidelines on wearing masks. When you think about how big parks are in terms of the revenue pie for Disney, I thought he would have talked a little bit more about that. He is making it very clear. It is all about Disney+ right now.
Gross: Yeah, it’s the new Disney, it’s the digital Disney. But you are right, we cannot forget that a significant percentage of operating income still comes for the parks and entertainment and resorts segment, and that’s why I think this quarter I’m going to keep my eye on that, perhaps significantly more, I think, than the Disney+ subscription ups or downs as we see it during the quarter.
Hill: Shares of Marriott were basically flat this week. First quarter profits were higher than expected, the overall revenue was light. Jason, Marriott is seeing higher demand for hotel rooms, but there is definitely a chance for improvement here.
Jason Moser: Yeah, definitely a chance for improvement. I think while we may be living in the age of Airbnb, I do think that with more than 7,600 properties around the world, Marriott still matters very much for travelers, and therefore should matter for investors as well. The numbers weren’t all that stellar, of course, revpar, the revenue per available room metric, which is the key performance indicator, down basically 46% in all markets compared to the first quarter of a year ago. Adjusted operating income for the quarter came in at $138 million, which was down from $293 million a year ago, all resulting in diluted earnings per share of $0.10 versus $0.49 a year ago. That doesn’t sound all that great. But there is light at the end of the tunnel, Chris, mainland China where occupancy is near the prepay academic level, occupancy reached 66% in March. That was nearly the same as in March 2019. Seems strong demand in both leisure and business. The U.S. and Canada were also seeing that trending in the right direction. Occupancy started the year at 33% in January, reached 49% by March. So, they continue to do an excellent job engaging their 150+ million Bonvoy members with various incentive programs and credit card partnerships. All-in-all, I think the pursuit that they’re making also with the home and villas by Marriott International. A lot of reasons to be optimistic about this business as the economy starts to recover.
Hill: Sticking with travel, lodging, Airbnb grew its revenue in the first quarter, but the company’s loss tripled and shares of Airbnb fell 8% this week. Ron, I think we can go ahead and add their management to the list of company executives who just aren’t sure what the second half of this year is going to look like.
Gross: It’s visibility, as they say on Wall Street. It’s really murky right now and it’s very difficult to see what will happen. This quarter, there were some really good parts to this quarter. COVID-19 vaccinations and easing restrictions economically obviously lead to more people booking rentals, and just for context reminder that this company only went public back in December of 2020 at $68 a share and immediately skyrocketed to $146. We’re at about a $140 per share now with an $86 billion market cap. But this quarter serves some real high spots, gross bookings up 52%.
One interesting little tidbit was searches on the platform from people 60 years older and above were up 60% in February and March. You’ll recall that this was really the first group to get widely vaccinated, and so they were out there looking for vacation rentals. Revenue was up 5.4%. That was driven by higher average daily rates, fewer cancellations relative to this time last year. Another interesting thing that I noted was that almost a quarter of the nights booked were not for traditional travel, but for stays of 28 days or more. That was up from 14% in 2019, so now it’s almost 25%, long-term travel. Net loss was $1.2 billion, as you said, that’s compared with $340 billion last time, so significantly increase, but there was a lot of what I think will be one time charges there. So if we adjust for that, we can see adjusted EBITDA still negative, but $59 million getting closer to profitability. Big announcement coming on May 24th. They’ll discuss the future of travel. They will unveil a new guest experience on their site, so for you Airbnb fans, keep an eye out for May 24th.
Hill: First quarter revenue for Roblox was 140% higher than a year ago. Roblox is the popular gaming app for kids. Shares are up 10% this week, Jason.
Moser: Yeah. If you don’t really fully get the metaverse, join the club, right? [laughs] I think a lot of us are just trying to wrap our minds around it. That doesn’t make it any less real. It is very much real. It’s just this concept of a virtual universe, a place where pretty much anything can happen virtually. Roblox, I think it’s going to be a compelling way of play, I think for investors. Looking at the numbers that you’ve mentioned, revenue up 140% from a year ago to $387 million, bookings increased 161%. Average daily active users, 42.1 million people. That’s up 79% from a year ago. While you mentioned kids, I will say that number was driven by 111% growth in daily active users over the age of 13. So even adolescents, getting out of adolescence into young adulthood. There are a lot of folks that really enjoy this platform. Ultimately, hours engaged were 9.7 billion, which was up 98% from a year ago. So I think this is a company just new to the public markets.
They are doing a lot of things right, and clearly, a big headline out there with all of the attention of the platform gets. I think it’s something to watch and it’s because they rely on their developers. Developer exchange fees represent the amount earned by developers and creators on the platform. Those fees were up 167% for the quarter representing 31% of revenue versus 28% a year ago. Just given the nature of the platform, that’s a metric to keep an eye on, but certainly it looks like April is moving in the right direction as well. So a good start, it looks like for Roblox.
Hill: It was an eventful week for The Trade Desk. The digital ad platform announced a 10-for-1 stock split and posted first quarter results that look good on the surface, Jason, and their shares of The Trade Desk fell more than 20% this week.
Moser: It’s funny, splits usually have the opposite reaction. I mean, what’s up with that, Chris? I don’t like to say just blindly buy the dip when things like this happen, but to me as an owner of Trade Desk shares, as someone who follows this really did seem like an overreaction to a very good business. Now with that said, it is worth noting to you, before that sell off, it was trading at 86 times free cash flow, so a cheap stock, it was not. But when you look at the numbers, I think you have to be encouraged that revenue was up 37% from a year-ago, non-GAAP earnings up 56%. Customer retention remains strong at 95% or better, and they’re calling for the coming quarters here between $259 million and $262 million, and that’s well above the expectations. I think for me this is two things, the lack of clarity into the rest of the year, there’s still a little bit of uncertainty. There are also, I think, some bigger question marks in regard to the unified ID 2.0, that UID2, which is a new industrywide approach to identity. Helping to preserve the value of relevant advertising while putting user control of privacy the forefront.
I think there’s some questions regarding exactly how well that’s going to work, the traction that it’s gaining, management seems to be very optimistic. They see it as a very consumer-centric issue that gives customers more relevant data while giving the consumer more understanding and clarity. Making big investments into their platform, they’re going to be launching a new dynamic and new platform here called Solamar this summer. That should add to the value that they’re getting their customers, that will be something to follow. But at the end of the day, very strong business, very strong balance sheet, I look at that sell-off as a bit of an overreaction, and again as a shareholder myself, I’m feeling pretty good about where this business is headed.
Gross: Chris, I must add that although splits often do have a positive impact, they should not, they should have no impact whatsoever, unless for some reason it increases liquidity in some big way. But this company has plenty of liquidity before that. It should have no impact. Let’s keep reminding investors of that.
Moser: It’s like reality versus metaverse, right, Ron?
Hill: It’s more fun though, come on, time for one split if that’s not fun. DoorDash lost $110 million in the first quarter. That was more than expected, but the company raised guidance and shares of DoorDash up 20% on Friday. 20%, Ron?
Gross: Some really strong revenues numbers here, actually pretty phenomenal. This one went public also back in 2020, if you recall, went public at $102 a share and now trades around $140. Revenue was up almost 200% here. Obviously pandemic and COVID still having a favorable impact. Total orders grew 219%, gross profit was up 233%, and yet Chris, they still had a net loss of $110 billion. That should speak to the business model just a little bit for you. Adjusted EBITDA, a little bit better cash flow, when we talk about EBITDA, a measure of cash flow, $43 million, so that was positive. That’s one bright spot in addition to the strong revenue numbers. Easing of COVID restrictions, reopening of the economy had an impact that was smaller than management expected. Things were actually better than management expected, but they are still seeing the negative impact of that reopening. They expect that impact to grow in the summer months and beyond as things get more back to normal. Impact was probably mitigated in the first quarter by stimulus checks, so people had some extra money to spend. They are expanding into convenience stores, grocery stores, alcohol pets, that was up over 40% in the quarter, small base obviously. But they were able to raise guidance, as you said to the top of their forecast for full-year EBITDA, we’ll keep an eye on this thing. The path to profitability is what investors always want to see.
Hill: I’m sorry. Did you say pets? The alcohol delivery I understand. I can have a pet delivered to me.
Gross: The pet market I should’ve said, I don’t think they are delivering actual animals, but you can get your food and your pet accessories delivered via DoorDash.
Hill: Shares of Unity Software falling a bit this week, despite the fact that first quarter revenue was higher than expected and their loss was smaller than expected, and Jason I know it’s not a cheap stock, but it really does seem like the numbers in Unity’s business are going in the direction you would want if you’re a shareholder.
Moser: Oh, yes. I’m a shareholder, and then I agree they are going in the right direction. I think for me, the biggest takeaway for investors, this clearly is not just a gaming engine anymore. I mean, it came to the market with that identification. It is not that way more, this really is a creation engine and I think that’s only going to continue to gain traction as they introduce new customers and household appliances, automotive, healthcare, aerospace. I mean, you name it, these guys are doing a lot of different things here. To the numbers revenue of $234.8 million, that was better than the guidance they set last quarter. They raised guidance for the full year here, they’re going to cross that $1 billion in revenue mark. I was calling that out in my recommendation of the company several months back, I thought they crossed the one billion mark. No later than 2022, it looks like they’re going to get it here in 2021, which is nice.
Strong performance in both the Creates solutions and Operate solutions. Create solutions revenue up 51%, Operate up 40%. The Operate solutions is the bigger part of the business. That’s a usage-based model, so engagement seems to be heading in the right direction based on those numbers. Then when we look at the value of large customers, they have 837 customers now that generated more than $100,000 of revenue for the company in the trailing 12 months, versus 668 as of March 31st in 2020, dollar-based net expansion rate as well, 140%, versus 133% a year ago. This is, I think, a business that is doing all the right things. It’s just typically with these types of businesses, valuation is going to be one of the bigger risks until they get to that sustainable profitable model, which will be eventually, it’s just not there yet.
Hill: Krispy Kreme is returning to the public markets. The company has confidentially submitted a draft registration statement to the SEC. Still to be determined is how many shares will be offered and what the price range will be for Krispy Kreme stock. But Ron, we get to invest in donuts again.
Gross: Good donuts too. Really tasty donuts. Yes, Krispy Kreme has a really interesting somewhat murky past, went public back in 2000, they expanded rapidly. They were really quite the highflier at one point, and then scandal hit, accounting scandals and it was a bit of a mess. They ended up having to file for Chapter 11. They eventually were taken private by JAB for $1.4 billion, not a hefty price tag. Here they are going back out a confidential filing with the SEC, so as you said, we don’t have much information at this point yet. They are a private company. I will remind folks that Dunkin, another delicious donut company, which I take more as a coffee company personally, was taken private last year by Inspire Brands for $8.7 million-$8.8 billion. It will be interesting to see what market cap Krispy Kreme comes out and what the demand looks like for it.
Hill: Brad Stone is the Senior Executive Editor of Global Technology at Bloomberg News. He is also a best-selling author whose brand-new book, just out this week is Amazon Unbound: Jeff Bezos and the Invention of a Global Empire. He joins me now from San Francisco. Brad, welcome back to the show.
Brad Stone: Hi, Chris. Thanks for having me.
Hill: Congrats on the book. It’s fantastic. There are so many things in this book that you cover, because Amazon is now this enormous collection of businesses, so we don’t have time to get into all of them. But I did want to hit just a few of the things that you’ve done with this book, because you’ve clearly broken new ground in terms of the people you’ve interviewed, the documents you’ve reviewed. Let’s start with something that happens relatively early in the book. That is the Amazon Echo, which is probably easy for people to forget at this point. But the Amazon Echo came about in the wake of a tremendous failure on the part of Amazon with their Fire Phone, which was just a complete flop. But Bezos gets this idea for a device that you can talk to and it responds, and it ties in with Amazon Web Services and the cloud. As you document, they pull this off in an extraordinary way.
Stone: Right. Well, Chris, the key to making the Echo work was something called far-field speech recognition. So, not talking into your phone as you might have originally done with Siri, but being able to talk across the garage or across the kitchen and having it understand you. It turns out that the key to that kind of natural language understanding is collecting a lot of data. I actually call this, it’s almost like the AI Catch 22. You can’t release something because it won’t be smart, but you have to release it so that you get enough data to make it smart. What Amazon did with Alexa is they brought it out on the road and they rented these apartments and homes, and they brought Alexas into them, but they covered them in acoustic fabric. Then they brought in armies of contractors to recite from scripts and to make queries out loud.
These people did not know what they were doing, and in fact, neighbors were calling the police on these Amazon apartments because it seemed sketchy, whatever was going on there. But in the end, Amazon gets the data, solves the Catch-22, releases the product, as you say, a couple of months after the Fire Phone bombs, and Alexa is a cultural hit and it redefines people’s sense of Amazon and the number of times they interact with this company. No longer once or twice a month, but sometimes multiple times a day.
Hill: As you said, with AI, it’s the sort of thing that just gets smarter as it goes. Now that I don’t know a couple, is it 100 million of these devices they’ve sold? Clearly, it’s getting smarter all the time.
Stone: Let’s admit, maybe sometimes unsatisfyingly it doesn’t quite answer all of our queries. Sometimes the best application for Alexa seems like interrogating Alexa and figuring out what it knows and what it doesn’t know. There’s still a lot of room for them to grow there.
Hill: One of the most interesting parts to me in the book is, a period in, I think 2017, when it really seems like Jeff Bezos is starting to pull away from the day-to-day duties of running Amazon. He’s involved in the Washington Post, he’s involved in Blue Origin, and gets together with his senior leaders as they’re going through all the different parts of the business, and it sounds like being in a meeting with Jeff Bezos, where he’s pouring over materials and you’re presenting to him is a pretty scary proposition. But in this particular meeting, Bezos seems to key in on the downside of something that we’ve talked about on this show for a couple of years now, which is Amazon is starting to make more money from advertising. Which on the surface appears to be a good thing, but as Bezos digs into it, he feels like there’s a problem underneath.
Stone: Right. This is one of his magic superpowers. He looked at these dense, data-rich documents in the 2017 operating planning meeting, and he identifies that it looks like the retail business is growing very nicely and becoming more profitable. But in fact, that advertising business, Chris, that you’re talking about, those search ads are responsible for a lot of growth. He asks, “What does this look like if you take out advertising?” He’s pressing and pressing and then Amazon Unbound, I’ve got these detailed meetings that you’re right, make you shake. They can be so intimidating. What he determines is that the underlying profitability of the retail business was getting worse. Now, the thing about Jeff Bezos is the newer projects, Alexa and the Go Store, that cashierless store, or the expansion in India, he is fine losing billions of dollars over the course of seven, eight years. But the older businesses like retail were in 2017, he thinks those should be getting more profitable, more operating leverage. So he makes everyone’s life miserable, demands headcounts, cost reductions, there are some quasi-layoffs at Amazon. They have to renegotiate their agreements with all their suppliers. Actually, the result is not just an unfettered advertising business that’s now beginning to throw off a lot of cash, but some of the stock growth we’ve seen since then, and really Amazon surpassing the trillion-dollar market cap threshold. That was a key point in the story I’m telling and in the history of Amazon.
Hill: It also, I think does an effective job at getting at a misconception about Jeff Bezos, which has lasted for a couple of decades, which is, well he’s this guy who’s focused on growth and customer satisfaction and he doesn’t really care about profits. But as you said, now, if something is promising, he’ll give it a long runway, but at some point, it’s got to be profitable. Once it’s profitable, it needs to be more profitable down the line. But it seems like this rise of the advertising business in some ways compromises the edict of, “We want to be the most customer-centric company in the world.” Because as they are succeeding with this ad business, it really diminishes the customer experience a little bit.
Stone: I think so. I mean, you look at Amazon search results and it’s no longer this taxonomy of useful things. It’s pay to play. It’s the sellers and the brands who want to be there alongside Amazon’s own private label business. But Bezos made a decision, that was his decision. That even if there is some diminishment of the customer experience, the ad business, which I think the last quarter they said was generating about $7 billion, would offer up so many investment opportunities that it would outweigh whatever depreciation in the customer experience there is. Probably the result is the movies and the TV shows the Prime members get and Amazon investing more in India and who knows what products that haven’t even been introduced in. I think you’re right. I think there’s an argument that the world’s most customer-centric company, as they like to call themselves, made a decision in the growth of their ad business that actually wasn’t very customer-centric, but that they thought the trade-off was worth it because they wanted those sweet, sweet investment dollars.
Hill: One of the biggest stories over the last few years involving Amazon is of course the search that the company undertook for a second headquarters. It was something we talked about a lot on our podcasts at The Motley Fool. I’m sure I’m not the only person reading this book to be surprised that when it came down to the work that this team was doing, they were incredibly diligent. Taking hundreds of applications essentially from cities across America, whittling it down to 20. Then when they made their final recommendations, it was cities that ended up not being chosen. The recommendations from the team were Chicago, Philadelphia, and Raleigh, North Carolina. Somehow, we ended up in New York and Northern Virginia.
Stone: It was really remarkable as I was reporting that out and getting the internal documents that at Amazon that the Site Selection Committee inside the company had produced. They went on this grand tour and it was all in the news, and we’re all talking about it. Those were the three finalists. At the time, Amazon was battling with the city of Seattle, which had started to view it as a gentrifying presence. It was understanding that it was going to have to grow outside of Seattle and Bezos.
Stone: The fact is he owns homes in New York City and Washington DC. They prioritize access to talent, so that was certainly part of it. They make this left turn to split up HQ2. I think what they underestimated was the extent to which the negative political wins that were blowing in Seattle were also going to be there for it in New York. That’s what we saw with the whole fight with AOC and the City Council and the battle over whether Amazon would allow unionization. It’s like this gripping drama which we got only a little glimpse of when it was happening in real-time and the result, of course, is that Amazon pulled out of New York City and really got this black eye, and is now growing happily inside Manhattan and elsewhere in Crystal City and in Bellevue in Washington and, of course, in a bunch of other cities. You really can’t stop the growth. But it was the beginning I think of a little bit of a turning point in Amazon’s reputation not just as a technology innovator, but as a little bit of a wealthy, monopolistic company that a lot of people felt shouldn’t be asking for tax breaks or tax incentives.
Hill: You spent years on this interviewing senior executives, going through internal documents. What surprised you the most when you were researching this book?
Stone: As the business drama plays out, as Amazon grows, Bezos undergoes a startling transformation, almost right before our eyes, and he is attracted to the glamour of Hollywood and the bright lights of celebrity and all that is human, but Chris, you asked me what surprised me, and it was the extent to which the transformation of his personal life, which was splashed out over the tabloids, really did impact Amazon. Selecting New York and Washington DC, asking for helipads in both of those locations because his girlfriend at the time was a helicopter pilot, he was taking helicopter flying lessons, he had bought a helicopter and it contributed to the blow up in New York City. There’s a bunch of other examples and that surprised me, how the most disciplined person in the world got into a situation where his personal life became fodder for the tabloids and how that reflected on Amazon. It’s an interesting part of the story, but I think at the time and still today, it’s shocking.
Hill: Sometime later this year, he’s going to leave the corner office. Andy Jassy, the head of Amazon Web Services, will become the next CEO at Amazon. Bezos becomes Executive Chair. I don’t know, I feel like I’ve seen this movie before and there are two versions of it. There’s one version where the executive chair steps back, lets the new guy take the reins of the company, and there’s the other version where he’s right over the shoulder of the new CEO. Where do you think this goes? Where is Andy Jassy, say, a year into the job?
Stone: I think it probably starts with the second scenario you describe with Bezos remaining the loudest voice in the conference room. He says he’s going to stick around to work on new projects, I would imagine he’ll be there on big strategic decisions, acquisitions, annual reviews. But gradually, I could see a move into the first example of someone who is really that chairman, the head of the board of directors observing at some distance because he’s got a $200 billion fortune to give away, he’s got a space company, Blue Origin, that’s ailing a little bit. In my book, I report that he’s building this fantastic luxury yacht, so clearly taken some time to relax as part of his future calculus. So I think we move from the overbearing Bezos a little bit to more the founder who is a little less present.
Hill: When you look at Elon Musk and SpaceX, it’s natural for me to think, he’s going to spend some time on Blue Origin.
Stone: He needs to fix things. They thought they could go slow and take it step-by-step and Bezos is personally financing it all himself, but the reality is that SpaceX is a company now that survives and thrives mostly on government contracts and military contracts, and Bezos is envious of that. He thinks that Blue Origin should be paid to play, so to speak. So I think we’re going to see a fierce competition between the two richest guys in the world and, Chris, I don’t know about you, but that sounds great. That sounds enormously entertaining.
Hill: It really does. Let’s get the popcorn, we’ll hang out and watch it. The book is Amazon Unbound: Jeff Bezos and the Invention of a Global Empire. You can find it at your local independent bookstore. You could probably find it online somewhere if you can think of a place online to buy books. Brad Stone, always great talking with you. Thanks for being here.
Stone: Thank you, Chris.
Hill: Guys, before we get to the stocks on our radar, Bill Ackman is back in the news this week. He and his team at Pershing Square (NYSE: PSTH.U) sold out of their shares in Starbucks, Ron, and revealed they took a 6% stake in a business near and dear to your heart, Domino’s Pizza. What do you think?
Gross: I like this. He called out some of the obvious reasons to own Domino’s. Their pure franchising opportunity, they’ve invested in their technology, in their delivery in a major way before most people did pre-pandemic for sure. They own their own delivery infrastructure, they don’t have to rely on the DoorDashers of the world. There’s plenty of expansion opportunity left for Domino’s franchises and I like this investment right here, and he obviously likes it to the tune of 6%. Pretty impressive.
Hill: Let’s get to the stocks on our radar. Our man behind the glass, Dan Boyd, will hit you with a question. Jason Moser, you’re up first. What are you looking at this week?
Moser: Sure thing. Well, as we wrap up earnings-palooza, next week we will see Home Depot (NYSE: HD) earnings released, and ticker there is HD. Earnings for Home Depot out on Tuesday, May 18th. Home Depot has had a really good year-to-date thus far. I’m very curious to hear their language on the call regarding things like inflation, the housing market, lumber I think is another hot button issue right now. If you look at last quarter, they were talking about lumber prices falling very sharply as they were exiting their third quarter, but then they go to the fourth quarter and pricing for both framing and panel lumber reversed and set new near term highs. This matters because when you see that mix of lumber, that’s a margin impactor, they can’t realize as much profit on that lumber the higher those lumber prices go. That can be something that pressures margins in the near term, but I’ll be paying attention to that. Less than 30 times earnings with a nice 2% dividend yield. This is just a really wonderful long term holding that plays into what seems to be just a perpetually slow, but growing market.
Hill: Dan, question about Home Depot?
Dan Boyd: Yeah, absolutely. Jason, I feel like Home Depot’s biggest competitor is Lowe’s. Every time I go to Lowe’s versus Home Depot, I enjoy the experience more, but I end up going to Home Depot more because it’s closer. I live about a mile away from a Home Depot. Is Lowe’s a big competition? Is it a big problem for Home Depot coming up because Home Depot got it on lock down?
Moser: Lowe’s is absolutely becoming a greater threat to Home Depot than they were historically. I think that they’re focused on customer service, they’re focused on introducing new things like rentals, things that Home Depot has been so successful for so long. I think that Lowe’s absolutely is a very strong competitor to Home Depot and they cannot let their guard down.
Hill: Ron Gross, what are you looking at?
Gross: Dan, no boring old economy stocks this week, my friend. [laughs] Ultragenyx Pharmaceuticals, R-A-R-E, RARE is the ticker symbol. I recently added this to my personal basket of biotech stocks. I just took a small position because I need to learn more. They’re an early stage biotech company, they focus on the treatment of rare and ultra rare diseases. I won’t get deep into the technologies here because, quite frankly, I’m not sure I even understand them yet, and the diseases they’re focused on have names that most of us have never heard of. But it’s a very, very interesting company. They currently have three approved medicines, generated about $99 million in the quarter. They are nowhere near profitable due to continued R&D and that low level of sales, but their pipeline includes five gene therapies in various stages of Phase I and Phase II trials, $1 billion of cash on hand, so they’ve got time to work this out. Let’s get those pipeline drugs into the marketplace. We’ll see where it goes, $7 billion market cap right now.
Hill: Ultragenyx, Dan, got a question?
Boyd: Certainly. Rare and ultra rare genetic diseases, Ron, how big is the market share for a company like this? It seems like there’s a cap to me.
Gross: That’s a great question, and there probably is a cap. They’re going after $1 billion, $5 million markets, sometimes $500 million markets that no one else has bothered to go after. So, they have to hit a lot of them and it can only get so big. You make a good point.
Hill: Pick a stock, Dan.
Boyd: Absolutely, Chris. Don’t know much about rare genetic diseases, but I do know much about paint and putty, so I’m going with Home Depot.
Hill: Thanks, guys. We’re out of time. We’ll see you next week.
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