AMC Entertainment Holdings (NYSE:AMC) takes investors on a wild ride. DocuSign (NASDAQ:DOCU), Five Below (NASDAQ:FIVE), lululemon athletica (NASDAQ:LULU), and Zoom Video Communications (NASDAQ:ZM) report strong earnings. Twitter (NYSE:TWTR) launches a subscription service. Etsy (NASDAQ:ETSY) makes a big buy, and enterprise search company Elastic (NYSE:ESTC) gets a nice bounce on earnings. In this episode of Motley Fool Money, Motley Fool analysts Emily Flippen and Jason Moser discuss those stories and share two stocks on their radar: a brazilian payment processor and a hardware and software maker.
Plus, restaurant industry expert David Henkes talks winners and losers, the importance of chicken sandwiches, and why investors should expect more restaurants to go public.
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This video was recorded on June 4, 2021.
Chris Hill: We’ll get the latest headlines from Wall Street, we’ll get the latest on the restaurant industry from our guest, David Henkes. As always, we’ve got a couple of stocks on our radar. But we begin with the stock of the week, AMC Entertainment, shares of the movie theater chain doubled this week, despite the fact that on Thursday the company filed to sell more than 11 million shares which sent the stock falling more than 30% that day. Emily, management is pretty clear about the fact that the stock price is divorced from the reality of the business of AMC Entertainment. What goes through your mind when you’re watching all of this madness play out?
Emily Flippen: Well, the first thing that goes through my mind is that management is smart, how they’ve played this. They’ve raised over $500 million, thanks to the surge in traders, and over 80% of AMC shares are now owned by retail investors. They’re certainly catering to that target demographic here. But that’s actually not what’s causing this crazy pop. It’s actually a little bit more confusing than what the media makes it out to be, which is just that all these people are flooding into AMC. That’s why the stock is up in the hundreds of percent in only a few days. It’s really more about options and how options are playing on AMC. It’s a complicated process and to keep it short, essentially, the hedging process for options are causing huge increases in the share price that are definitely going to be temporary. What’s really sad about this whole situation is that oftentimes the people who end up suffering the burden the most are those 80% of retail shareholders in a business like AMC.
Hill: Let’s move on to some earnings then. We’re going to start with DocuSign, up more than 15% on Friday after first-quarter profits and revenue were higher than expected. The electronic signature company also provided upbeat guidance, and Jason, I know this company did well during the pandemic when everyone was doing business remotely, but DocuSign really seems like it is set to thrive during the great reopening as well.
Jason Moser: Oh, yeah. It feels like this has gone from just a helpful way to get through a difficult time to absolutely just the way people want to do business now. It’s very hard to find anything wrong with what’s going on here with DocuSign. It’s not just the e-signature company anymore. I think that’s been the gateway drug, if you will, that really gets customers in and it hooks them for all of the other capabilities that they’re building out with the agreement cloud and the numbers all show that the strategy is working — top line growth of 58% for the quarter. They raised guidance again. This is going to be a $2 billion revenue company by year’s end with 80% gross margins, a massive suite of offerings, and still a lot of share to capture. I understand the profitability concerns, but let’s give them a little leeway here because they’re making the right investments. Total customers now, just under 1 million. That was up from 661,000 a year ago. Enterprise customers now at 136,000. That’s up from 89,000 just a year ago. International now becoming a bigger part of the business here, just crossed over the $100 million mark for the quarter. Again, the dollar net retention rate is 125%. They’re keeping their customers and they’re growing those relationships. Operating leverage is becoming very apparent in the business. This little acquisition that they made recently, a little start-up called Clause, it just shows the position that they’re in now. This is one of the market leaders and they’re going to be able to consolidate and bring those neat little start-ups into their family and build out their capabilities. A lot of things to really be optimistic about with DocuSign.
Hill: First-quarter revenue for Lululemon Athletica rose 88%. The apparel retailer also raised guidance for the full fiscal year. The stock was treading water this week, Emily, but these seem like the kind of results and guidance you would want to see if you were a Lululemon shareholder.
Flippen: This was a really incredible quarter for Lululemon, but I’m not sure how much of it was truly a surprise. I think anybody with eyes or any shareholder of Lululemon knew that there were clear tailwinds for this business as stores began to reopen, especially as we head into the spring and the summer months. The fact that they had earnings and revenue that beat expectations alongside raising full-year guidance and second-quarter guidance really didn’t take the market by surprise. What did take me by surprise though was just looking at the two-year strength in numbers for their men’s and international businesses. That’s going to be critical for driving growth and justifying today’s valuation of Lululemon, and men’s is still growing faster on a two-year basis than there are women’s business right now. Admittedly, it’s coming off of a smaller base there, but that does go to show that a lot of their growth is going to be convincing more people that, hey we aren’t just a leggings company, despite the fact that that’s how the media likes to present Lululemon. They’re a business that caters to athleisure across all demographics, all across the world. If management’s able to make good on their claim that they aim to have a 50/50 international North America split in terms of revenue for their business over the long term, this could be a great stock to own.
Hill: Was there any talk on the call about Mirror, which is the company they acquired last year to compete with Peloton? Over the holidays we saw a lot of marketing push from Lululemon about Mirror. I’m seeing a lot more from NordicTrack these days in terms of trying to compete with Peloton less so with Mirror.
Flippen: Mirror has always not intended to take away from the ownership of the market for the Pelotons and the NordicTrack, but rather add to it. It’s a completely differentiated product, and what’s interesting about the way that Lululemon and their management team talks about Mirror is that it actually operates as a funnel into a culture, a lifestyle brand that is Lululemon. Somebody can own both a Mirror and a NordicTrack or a Peloton. It’s additive the way that I see it, but also importantly, it’s going to be additive to their business structure. It wouldn’t move the needle this year, but they’re adding two to $300 million on their top-line from the acquisition of Mirror expected. We’ll continue to watch that hopefully grow over the next few quarters.
Hill: Shares of Zoom Video are still down from their high for the year, but up a bit this week after first quarter revenue grew 191%. The growth is slowing, Jason, but a year ago, one of the big questions about Zoom Video was, how many of these customers can they keep? It looks like you’re doing a pretty good job answering that question.
Moser: Yeah, I like that this follows our DocuSign coverage, because this feels very DocuSign, asking how they are iterating and ultimately writing their second act. The video chat for Zoom has been the gateway, much like e-signature has been for DocuSign. But now it’s about building out a platform and allowing companies and customers to do more, to be more productive with these tools that Zoom has built, to be able to work in what ultimately is becoming a hybrid workforce world. For example, they’ve launched a video SDK. They launched that in February. They announced that $100 million apps fund and in order to help build out their app presence, ultimately, letting users bring their favorite apps directly into the Zoom experience in a way that inspires more collaboration and boosts efficiency. They just closed out their largest deal ever in terms of annualized recurring revenue with a leading global financial services firm that actually resulted in Zoom getting over 90,000 hosts which obviously is a large number.
Also, they called out some big customers and Kimberly-Clark, Target, and a company called DENSO, which is probably unfamiliar to most of us, but that’s the world’s second largest auto parts company. When you look at the numbers, sure, growth is slowing down, but 191% revenue growth is nothing to sneer at and they are still calling for ultimately about 50% growth overall for the year. To your point, they are keeping a lot of those customers that they are bringing in. They ended the quarter with just under 2,000 customers generating more than $100,000 in trailing 12-months revenue. Again, net dollar expansion rate for customers with more than 10 employees. That was over 130% for the 12th consecutive quarter. Again, bringing customers in, keeping them, growing those relationships, I suspect that this is really still just the beginning for what is becoming a very, very fun story to watch play out.
Hill: Twitter introduced its first ever subscription offering, Twitter Blue. For a few bucks a month, Twitter Blue offers dedicated customer support, easier ways to read long threads, among other features. Twitter’s going to be rolling this out in Australia and Canada. Jason, no word yet on when it will be available in the U.S. Shares of Twitter, basically flat on this news.
Moser: Well, I’m going to make a prognostication here because I think that Twitter Blue is going to finish up in the red. I must say here, I’m not very impressed. I’m going to try to be diplomatic about this because I do like Twitter. For a time, clearly I was very bullish on the company, its potential. I think the real risk here though, and I certainly feel this way as a user, this Twitter Blue it’s very underwhelming. Frankly, these are features that I would have expected to see them rolling out over the course of the past few years as just part of the free user experience. For a long time, the criticism was there. It just didn’t move quickly and I think that was a valid criticism. Now they’re starting to move, but hey, you know what? They want to charge you for it. Well, at least give me something that’s worth paying for because this stuff that they’re rolling out here, the ability to roll back tweets or organize tweets, it just doesn’t seem like it’s worth paying for. I feel like I’m giving them a lot of credit for maybe getting 5 million paying users from all of this, so you’re talking about $200 million in incremental revenue. Not very meaningful over the top line. Certainly should be high-margin dollars. There could be some lessons they glean from this, but I’m just having a hard time seeing the Twitter subscription as being ultimately very successful.
Flippen: What malarkey is that, Jason? Goodness gracious.
Moser: What do you mean?
Flippen: It’s not valuable?
Moser: Have you already signed up?
Flippen: Just the ability to undo tweets alone is the most valuable thing Twitter has rolled out over the past five years.
Moser: I’m sensing sarcasm.
Flippen: It’s not sarcastic at all. I actually think that there’s a world in which Twitter Blue is very successful. Now, I will be the first to admit you tweet way more than I do, Jason. But if I was a tweeter more than I am today, I would value a lot of these things.
Hill: Etsy is making its biggest acquisition ever. The company announced this week it is buying Depop, a secondhand fashion marketplace for $1.6 billion. Emily, do you like the deal for Etsy?
Flippen: I love this deal for Etsy. I am so excited, Chris, because it has been forever since I’ve seen a great business make an acquisition of this size mainly in cash. As a shareholder, I love to see businesses making acquisitions in cash because they’re essentially taking on all the risk of the synergies that would arise from this acquisition as opposed to acquiring with shares, in which case, that buck is passed on to me as a shareholder. I love this acquisition, not just because it’s all in cash and that makes me excited, but also because Depop is aimed at an entirely different generation of users than Etsy has currently. The vast majority of Etsy users right now are older than the age of 26, whereas 90% of Depop users are younger than 26. They’re focused on things like street wear, sportswear, vintage wear, TikTok followers. These sorts of things that really diversify Etsy’s business and just show a level of underrated optionality that I think Etsy is going to create as a platform of platforms.
Hill: The fact that I have shopped on Etsy and had never heard of Depop before this week, I automatically knew it was aimed at a younger audience.
Flippen: Well I tried to get on there today and just checked out the platform before we taped and I went to their website then realized, they don’t have a website. You can only use the app, and I realized I was also too old for their target audience.
Hill: Elastic is a SaaS company that focuses on data search for businesses. Elastic’s loss in the fourth quarter was smaller than expected this week and shares up more than 13%. Jason, this was your radar stock on last week’s show. What did you think of the latest results?
Moser: Well, it’s even more of a radar stock now, Chris. This is really piquing my interest. It does feel like if you’re looking for a company that’s going to benefit from the growing amounts of data that continue to be exchanged on the enterprise side, Elastic should certainly be on your shortlist. Like you noted, they develop software and services that let their users search through structured and unstructured data to figure out all sorts of solutions and consumer and enterprise applications. With the market opportunity in the neighborhood of $78-$80 billion today, clearly still a lot of room for this business to run. The numbers for the quarter, certainly very encouraging. Total revenue up 39%, excluding currency effects. Revenue for the year was up 40%, billing’s up 33%. So, it’s continuing to grow and it does have that subscription style offering that we love so much that generates that recurring revenue.
As far as the key performance indicators with a business like this, very much like DocuSign and Zoom, you’re looking at customers. The customer account now over 15,000, that’s versus 11,300 just a year ago. A customer account with annual contract value greater than $100,000, that’s now over 730, that’s up from 610 just a year ago. Ultimately, subscription revenue is where it’s at for these guys. 93% of total revenue in the net expansion rate, slightly below 130% as they maintain those customers, bring new ones, and then grow that relationship. Ultimately, they’re calling for $785 million in revenue for the coming year, that’s 30% growth. They see crossing the $1 billion figure the following year. I certainly see a pathway for this company. It’s one that I continue to dig in more.
Hill: It’s a $12 billion company. They’re not profitable yet. Do you have, for a company like this, your own timeline in terms of when you want to see them getting closer to profitability?
Moser: I’ve tried not to hold their feet to the fire too much these days just because so many of these businesses are just getting started. When you have a business that’s crossing over $1 billion in revenue, I’d like to start seeing them extract some profitability from particularly with the operating leverage you can get from a model like this, but we’ll give them a little wiggle room.
Hill: After our mostly down week, shares of Five Below rebounded on Friday after first-quarter profits and revenue both came in higher than Wall Street was expecting. Same-store sales for the discount retailer rose 162%. Emily, let’s face it, not every retailer survived the pandemic. Five Below appears to have made it through the storm.
Flippen: Chris, I wasn’t going to pull out those yearly numbers with same-store sales up 162%, revenue up 167% because those numbers are so meaningless, but since you brought it into the conversation, let’s talk about that. Coming off of what was a really challenging year for most retailers, Five Below being one of them, their stores, unlike a lot of other stores, were shut down for extended periods of time. They were not an essential retailer for a period of time before they started to reopen. Five Below is coming off the back of what was a rather dark year for the business coming into the lights of post-pandemic life. But even if you look at it over the two-year basis, which is the better comparison, this is an outstanding business. Sales were up 64% on the two-year basis in comparison to 2019, earnings were up 91%, and same-store sales were up 23%. That was driven by double-digit ticket growth even with stores having reduced hours. Extremely impressive business. Big question is, can they continue to grow store count like they have over the past two years?
Hill: Few businesses have been challenged over the past 15 months, as much as restaurants. Here to give us an update on the current state of the industry and more is David Henkes, he is a senior principal at Technomic, one of the top experts in the industry and he joins me now from where else, his home in Chicago. David, good to talk to you.
David Henkes: Good talk to you, Chris, thanks for having me.
Hill: The last time you and I talked, it was last July. At the time the forecast for the year was restaurants being down in the neighborhood, 20%-30%. Here we are, 11 months later. How’s the forecast for 2021 looking?
Henkes: Well, the forecast for 2021 is actually looking really positive and we’re in the process of relooking our numbers, because the first quarter of 2021 is just blowing the roof off of all of our expectations I think. You look at the public chain reports, you look at some of the distributor numbers, Sysco, US Foods, PFG that report public numbers. Everyone seems to be having a really good year now, to some degree it’s pantry restocking, it’s getting ready for an influx of pent-up demand that we’re seeing. But to some degree consumers are just coming out and they’ve got money to spend and they’re ready to go. We think this year is going to be a good year where we’re going to be revising our forecast up slightly. I’m not sure exactly how much yet, but we’re looking at a 2021 of probably I don’t even want to put a number on it right now, but we’re looking at probably double-digit growth and significantly more in places like fast food and fast casual and some of those that never really declined, particularly to a large degree during the pandemic are going to continue to do well and we’re going to see a big bounce back in full-service restaurants. It’s going to be a good year.
Hill: One of the big story lines for the industry over the past month has been about hiring difficulties. A lot of restaurants, whether it’s local mom-and-pop shops or some of the national chains really seem to be having trouble staffing up. What does it look like to you and your colleagues at Technomic? Is this something that is just sort of a natural speed bump coming out of this pandemic and two months from now, everyone is going to be fine? Or is this a sustainable challenge for some of these?
Henkes: I think when you look at the big roadblocks to a potential full-blown recovery in 2021. There’s really two big things we’re watching and they are somewhat interrelated. The first is labor. Right now there’s a lot of different causes and so you can’t necessarily track it back. You talk to some restaurants, they’ll tell you people, they’re getting government benefits. It’s hard to match that. The effective rate of some of the people with unemployment benefits is something like $15-$17 an hour that they are earning on unemployment. Restaurants are unable in some cases to match that. But you also just run into a situation where there’s people that don’t want to come back to restaurants. Working in restaurants in the best of times is a tough spot to be in at times, and some people have moved on to other jobs to Amazon, to gig work.
There’s a number of things at play. I think the pandemic, there’s still people that maybe aren’t quite willing to come back to restaurants. So labor is a huge issue and we’re seeing supply and demand, the demand for labor as well as outpacing supply. What that’s doing is driving up wages. So a lot of talk in the industry, there’s this fight for 15 and there’s a lot of government initiatives around raising minimum wages. It’s almost happening now because of market forces. You could argue some of the government is involved in that with some of the benefits. But restaurants are having a hard time and they’re having to increase pay as a result. It’s a huge watch-out because what ends up happening with capacity a lot of times is that if you’re going full guns on a Friday night, but you can’t open a part of your restaurant because you don’t have enough servers to do it or you don’t have the sous-chef in the back or you don’t have the bus boys. It’s going to be an issue.
The other thing that we’re concerned about is the cost environment. Now, this relates to labor because costs are going through the roof with a lot of things and labor included. But there has been a huge supply chain challenge over the past 12 months, shortages, delays. Certainly a lot of people talk about the Suez as if that was sort of the start of it, but it wasn’t. This has been an issue really since the beginning of the pandemic, the supply chains have been stretched and pulled in ways that nobody ever expected. The cost environment, the labor situation, are both two big watch-outs that could have a material impact on the recovery this year.
Hill: Are there any chains that have been able to take advantage of the fact that a lot of smaller chains, a lot of mom-and-pop restaurants just had to shut their doors, in some cases permanently? Have some of the larger chains been able to capitalize on that and maybe expand their footprint at an accelerated rate?
Henkes: Let’s put it this way, we track the top 500 restaurant chains as part of our ongoing tracking of about 1,500 operators. But we publish the top 500 in a report called, oddly enough, our top 500 restaurant report. You look at restaurants sales last year, overall, restaurants declined about 18.5%. The overall food service industry was down, about 25% of the restaurants were down about 18.5%. When you look at the chain part of the market, it was only down 8%. So right away and, and you’d say, OK, wait, 8%, there’s still declining, but fast food chains only declined 1%. Fast casual chains declined about 5%. Then the sit-down chains were anywhere from probably 25%-40%. When you talk about winners and losers, you look and you say fast food as a chain part of the industry only declined 1%. Then you start to peel back the onion and say all right, who did well? Chick-fil-A up 13%, Domino’s up 18%. Some of the other pizza chains, Papa John’s, let me look at their number here, Papa John’s was up 16%. A lot of the pizza delivery, chicken players did extremely well, but even McDonald’s. McDonalds is a $40.5 billion chain, they actually grew 0.3%.
The big chains that were able to especially take advantage of their drive-thrus or that focused on delivery or to a smaller degree, takeout, absolutely grew their share. In fact, if you look at our top 500 last year in 2019, pre-pandemic full-service chains were about 24% of the makeup of the chain markets that declined to 18%, fast food or limited service restaurants, more generally. Again, many of them declined, but a lot of them grew and grew a double-digit pace. I think our sense more generally is that the big chains, those with the financial wherewithal to make it to withstand some of the challenges to invest in technology, those are the ones that are really better positioned coming out.
The other thing that I think is important to note is that when you talk about unit closures. We’re still trying to get our arms around unit closures. But for the most part, restaurants and especially restaurant chains didn’t really close that many units. What we thought would be this bloodbath of really closing a ton of units, probably the biggest of the top 10 chains that closed the most units was Subway. They closed about 7.5% of their locations. But listen, Subway has been challenged for a long time and so you can’t attribute all of that to the pandemic. But Chick-fil-A grew 7% in terms of locations, Dunkin’ declined. Domino’s grew 4% in terms of their locations. Even in a pandemic, you had some operators not only maintaining or growing their sales, but in some cases were investing in growing their location counts as well. Coming out of the pandemic, these chains that didn’t have to close as many locations as we thought and that withstood and held up with their sales better, invested in technology. They’re going to be certainly well positioned and have been well positioned and a look at their recent same-store sales, would prove that point out, that they’ve really done pretty well.
Hill: A year ago, the hot item was chicken wings. Restaurants that didn’t even specialize were adding wings to the menu because they worked for takeout and delivery. Are chicken sandwiches now the new chicken wings, because it really seems like it’s not just the fast food restaurants that are angling for this market?
Henkes: Well, I would probably argue that chicken sandwiches have been there for the last several years. You’re right, every major quick service restaurant is now competing in this chicken sandwich war. I think they’ve all looked at the growth, and I just referenced it. Chick-fil-A that continues to do well. All of these chicken players, KFC has come out with them, all of these players that are chicken, it makes sense, but then McDonald’s, and Burger King, and now, Chili’s just came out with one. What makes it interesting is because a lot of these chains are now competing on delivery, to some degree, whether you’re a fast food restaurant or a sit-down restaurant, doesn’t matter as much anymore, because the consumers are just ordering them on their phone. You can order a Chili’s chicken sandwich just as easily as you can order a Chick-fil-A sandwich, and both of them are going to be brought to your door, and both of them are delicious. Chicken sandwiches have really become ground zero in terms of the restaurant battle right now, almost to the extent that it’s comical. It’s like every week, somebody else is rolling out a new chicken sandwich. Listen, by the way, I think they’re all pretty good. You have them and personal taste may vary, but at some point, you have to say that there’s a declining utility in offering these chicken sandwiches. Now, that said, chicken restaurants last year, the KFCs and Chick-fil-As, grew 10%. In a pandemic, the chicken category, not chicken as a product, but the chicken-style restaurants or chicken restaurants that we classify as chicken restaurants, grew 10% last year, the fastest of anything. Consumers love their chicken, they continue to vote with their wallets. It doesn’t seem like there’s any end in sight in terms of consumers’ insatiable demand for chicken.
Hill: Over the past decade, investors have seen a lot of publicly traded restaurants being taken, private; Panera Bread, Dunkin’, among them. Later this month, Krispy Kreme is going to get its second act as a public company. Should we expect a more successful second act for Krispy Kreme? Should investors expect more restaurants to be spun out into the public markets over the next decade?
Henkes: It’s a really good question. When you look at Krispy Kreme, its German ownership, they’ve really righted the ship. It was taken private because they had overextended themselves, and over-expanded, and when it was acquired, it was struggling. They’ve turned it around. I think when you look at the investments, there are a lot of what we call the SPACs, the special purpose acquisition companies, that are going after restaurants. A lot of them are publicly traded or they are publicly-traded shell companies that are acquiring restaurants. Perhaps it’s not an IPO in the traditional sense, but there’s going to be a lot more publicly traded entities that invest in restaurants, and give investors more of an opportunity. I don’t offer investment advice, unlike you guys, and so I don’t want to necessarily tell you to invest in anything. But listen, we’re at a point right now where the next several years for restaurant growth is probably going to be pretty explosive coming off of the worst year probably ever in terms of the restaurant industry.
Now, individual company performance is going to vary, but I think that a lot of people are looking at this as a buying opportunity because there’s distressed assets, there’s a lot of change, restaurant companies are generally carrying a lot of debt. The extent to which investors either own a lot of private equity, but again, these SPACs or other investors, there’s going to be a lot more activity happening over the next couple of years, probably, some IPOs as a result of that.
Hill: Last thing and then I’ll let you go. We talked recently on the show about the partnership between Pringles and Wendy’s, for the limited edition chip made to taste like Wendy’s spicy chicken sandwich. These things come across your radar all the time. Have you seen anything recently that you’re particularly either excited about or horrified by?
Henkes: I think, Chris, part of the challenge in answering that is we work with a lot of these companies. I’ve seen a lot of things that horrify me. I don’t necessarily want to talk about it.
Hill: But sometimes they work, right? Like that’s the thing. There are absolutely these things that you or I, or anyone else could look at and think, “That doesn’t look like it would taste very good,” and they’re hit for some of these chains.
Henkes: Yeah, we see these mashups happening. There’s two different ways restaurants are investing in that. They’re working with a CPG company to get something into the grocery shelves, but then there’s also a lot of menu innovation where they’re just doing crazy flavors, or doing things. Young brands and some of these QSRs are notorious for that. Really, what they’re doing is trying to create buzz and trying to create something, especially for the younger consumer. They’re looking to break through social media, break through the word of mouth, and a lot of younger consumers, how they communicate now on the different social media channels and really create something that is buzz-worthy. It’s almost to the point where the flavors are beside the point. It’s having something that is crazy unique and new, that people are going to talk about. If it works, great, but the primary benefit of all of that is just to get people talking about you and your brand. I think that’s probably what’s driving a lot of that.
Hill: You want to know more about the restaurant industry, there is no one better to be following on Twitter or reading his stuff. David Henkes, thanks so much for your time.
Henkes: Thanks, Chris. I appreciate it.
Hill: Just a couple of minutes to get those stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Jason Moser, you’re up first. What are you looking at this week?
Moser: Yeah, keeping an eye on a really good performance for us in the Augmented Reality and Beyond service, the company is called Trimble, ticker is TRMB. They build hardware and software that’s aimed at connecting the physical and digital worlds, focused on positioning, modeling, connectivity, data analytics. I’m keeping an eye on the ongoing infrastructure bill negotiations here in Washington, D.C., because while the two parties may be at odds right now on how much it’s going to be, it sounds like there’s going to be something and it’s going to be a big number, regardless. When you look at the most recent earnings call, CEO Robert Painter, he noted that, he said, and I quote, “We want to play offense and invest now for the mid to long-term opportunities that we see in the market. We see a generational opportunity out of the North America infrastructure bill, and a strong commodity price backdrop in the agriculture market.” So to me, listen, with the number of end markets this company serves, I feel like this could be a sleepy reopening play, Chris.
Hill: Dan, question about Trimble?
Dan Boyd: Absolutely, Jason. It looks like this company has had a pretty big surge in the stock price since last spring, when the COVID-19 pandemic began. What can you tell me that explains why it seems to have gone up so high in such a short time?
Moser: I just think recognizing the value proposition in the hardware and software they provide, the switching costs involved. Once customers commit, they got to stay in there, and they’ve done a good job of expanding those relationships.
Hill: Emily Flippen, what do you got?
Flippen: I am looking at StoneCo the ticker is STNE, they’re a Brazilian payment processor. They had a weaker-than-expected earnings report, but a lot of the pessimism is really just caught up in COVID. You can imagine it as the Square of Brazil. I think it has a lot of long-term opportunity.
Hill: Dan, question about StoneCo?
Boyd: The Square of Brazil. I’m surprised it’s not Jason talking about this, [laughs] with his War on Cash basket.
Flippen: What I will say, is it fits perfectly into that War on Cash basket, but it will be critical to watch their take rates. Competition in Brazil is fierce.
Hill: Dan, what do you want to add to your watch list?
Boyd: I’m going to go with StoneCo this time. I think Brazil, of course, is one of the largest emerging markets in Latin America. I hate cash just as much as Jason does.
Flippen: Is this real life?
Hill: Emily Flippen and Jason Moser, thanks so much for being there.
Flippen: Thanks, Chris.
Hill: That’s going to do it for this week’s show. It’s mixed by Dan Boyd, our producer is Mac Greer. I’m Chris Hill. Thanks for listening, we’ll see you next week.
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