In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Bill Barker to discuss Glu Mobile‘s (NASDAQ:GLUU) shares popping 30% as news breaks that the mobile-game developer will be bought by Electronic Arts (NASDAQ:EA). Simon Property Group (NYSE:SPG) and Jones Lang LaSalle (NYSE:JLL) project optimism for the year ahead. Also, Chegg (NYSE:CHGG) wraps up a strong year. Additionally, Chris and Bill dip into the Fool mailbag to revisit Bill’s math on eBay‘s (NASDAQ:EBAY) returns and discuss the latest study on the health benefits of coffee.
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This video was recorded on February 9, 2021.
Chris Hill: It’s Tuesday, February 9th. Welcome to MarketFoolery, I’m Chris Hill. With me today, Mr. Bill Barker. Thanks for being here.
Bill Barker: Thanks for having me.
Hill: We’ve got commercial real estate. We’re going to talk education, tech, and we will dip into the Fool Mailbag. We’re going to start with the deal of the day, which features the stock of the day, Glu Mobile, a developer of mobile games. Shares of Glu Mobile up more than 30% because it is being bought by Electronic Arts, and this is a cash deal. Shares of Electronic Arts are up slightly as well, which is always my indication that Wall Street as a group thinks that they’re paying a good price for this.
Barker: Yes, or that the deal simply makes sense. You’re right to point out that looking at the acquirers stock movement, usually, if you don’t know anything at all, you are guessing that it’s going to go down on the day off, but in the recent past, it’s been much more the acquirer’s stock has gone up. I don’t think that’s because they’re getting some special great price. Certainly, not getting Glu Mobile wallet’s down, but it’s a deal that obviously makes sense. Game maker acquiring a mobile game maker, it doubles mobile business, and it gives them some high profile names to add to the ones they already have.
Hill: As we see from time-to-time, when deals are made regardless of the industry, shares of Zynga are up 4%, just because Zynga’s in the business of mobile games, and a deal like this, among other things, is this tested stamp of approval on mobile games as a growth area.
Barker: Sure. You look at something like Glu Mobile’s better known game, best known, expose Kim Kardashian, Hollywood. I don’t know as much about that game as you do, Chris. [laughs] I haven’t played it as much as you, I suppose. I’ve never played it and surely you have.
Hill: I’ve never even heard of this game until you just mentioned it.
Barker: You didn’t know that was the feature for [laughs] Glu Mobile?
Hill: I didn’t know.
Barker: Leading the headlines on the acquisition. Yeah. So, if you’ve ever wanted to play something that involves Kim Kardashian in Hollywood, you will, in the future, have to do it under Electronic Arts. Not yet. It’s still a Glu Mobile for another quarter until the deal finalizes. Now, get back to your point on Zynga. Yeah, you’re going to see everything that looks the most like Glu go up, since it’s up 33%, that’s going to mean that the things that looks the most like it, if acquired, might be undervalued to the tune of 37% today, and that’s what the short-term betting is on at the moment.
Hill: Simon Property Group is the largest mall operator in America, and shares are up 4%, because Simon Property updated and improved their guidance for 2021. We also have Jones Lang LaSalle out with their fourth quarter report. Profits came in higher than expected. Take them whichever order you want, but just on the surface, you got two big commercial real estate companies here with positive signs. Let’s just start with that.
Barker: Positive signs, I will give you that. Simon Property is acting a little bit better as a stock at the moment for the day than Jones Lang LaSalle has so far. It’s one of the major mall operators, owners, and operators. Obviously, it’s been a very tough year, which can be summed up, I think. by the numbers that they break out for Q2 through Q4 in what they’ve collected. So they say that they’ve collected 90% of their net build rents. What that actually breaks down to is if you ignore the $100 million in bankruptcy related write-offs, the $340 million in deferrals that they’ve agreed to on payments, the $410 million that they’ve agreed to, $210 million on abatements, then it’s 90% of that after adjust all that. So really, it’s about 70%-75% of the original contracted amounts.
Look, they’re letting tenants not pay some things. Obviously, the stuff that’s in bankruptcy they can’t do much about. They’ve agreed to collect some rents later. They’ve agreed to acquire some of, or at least significant parts of the businesses of some chains, rather than have a bunch of stores go under, their owners of those stores since they’re in a healthier financial position than some of their tenants. It’s been a tough year. They are in the properties you would want to be, and real landmark malls. I think that things look a little better today. They look a little better every day for something like a mall operator than they did three months ago, six months ago, nine months ago.
Hill: This earning season, we’ve seen almost the scatter shot across the market, across different industries in terms of businesses and their willingness to offer guidance for 2021 and beyond. I think it’s reasonable when we’re talking about whether it’s mall operators or something like Jones Lang LaSalle and office buildings. I think it’s perfectly reasonable to sit back and say, “You know what? We’re just not going to know for a while.” There is a version of this for Simon Property where six months from now, and then for the subsequent 12 months after that, we do see this well of customers back in the malls, and therefore, tenants as well, in part, because people have just been cooped up for so long. The same can be true for office buildings as well.
Barker: Yeah, there is a lot harder job for Jones Lang LaSalle to give guidance. I’m not sure that they did, or what they’re sooner practicing. With Simon, it’s a little bit easier. You know what your contracts are for the year. You’ve got some reasonable numbers about how many of those tenants are going to struggle to pay rent. You can make some projections. You don’t have as many moving parts of your business as Jones Lang LaSalle, and you don’t have your business. You do have part of your business, part of the rents that Simon Property takes in, or based on percentage of sales within the malls, but still, they’ve got enough expertise to make some reasonable guesses, as long as they pointed out in their guidance, there are not any further governmental ordered shutdowns of the malls. So what’s open now, is open, is part of the guidance. If there are any closed, they have expectations of when those will open. Jones Lang LaSalle, I mean, there are much more tired into the real estate market itself, and as prices adjust, as tenants figure out what they can do, that is something that Jones Lang LaSalle cannot control to the degree from what I can see is comfortable giving guidance right now.
Hill: Chegg’s fourth-quarter profits came in higher-than-expected. The education tech company also raised their guidance for the new fiscal year. This is one of those stocks that has doubled over the past year, because when you’re in the business of educational technology, [laughs] and remote learning being what it is, not a surprise that we’re not seeing a big movement out of Chegg’s shares today, but certainly over the past year, this has been a winner.
Barker: Yeah. They have grown the business by about 64% total revenues over the last fourth quarter. One of the reasons they can give guidance is that one thing that is reasonably predictable is that high school, college kids will cheat. Their favorite method of cheating these days is using Chegg which has a library of problem sets, and quiz answers, and things like that that students more and more are using to either get their homework done or use on tests and it’s well known in the student community that this is for $15 a month, you get access to a whole lot of potential answers and they are doing that. I don’t think that the willingness of students to cheat is probably not one of those variables that has been changed much during the pandemic.
Hill: You think that shows up in their filings with the SEC or it’s under risk factors, like, look, we don’t think this is likely, but if all of a sudden and mass students decide that they don’t want to engage in cheating, that could hurt our business.
Barker: The new morality? Yeah, I think [laughs] I’m willing to take the other side of that risk. Like, if that risk is priced into the stock that students will be more ethical in the future than they have been in the past, I’ll take that risk and take the discount that that provides. But look, it’s not all their business. When I say that students are using Chegg to cheat, they’re also using it for what it says that they’re all these materials are designed for, which is to help students learn, help students get answers and guidance through a variety of different modules that they have. You can get plenty out of Chegg from what I hear from the students that I know best and I’m not going to name any names here. [laughs] But you can use it up to a point without paying for anything. You don’t get that answer, but you can get guidance. Some they show you a little bit of a problem and sometimes you can use it to just get started on things. But they’ve got, as I say, 64% is the year-over-year revenue growth. They’re not guiding to nearly that level of growth for 20%, 21% having already processed it this year. But I think it’s somewhere in the ballpark of 20%, 25%.
Hill: Sounds like there are people in your world that are doing some boots on the ground research and at MarketFoolery, we applaud that. We applaud boots on the ground research in all its forms.
Barker: Yeah, I imagined that if you talk to any students that you know well, they would be able to tell you about friends of theirs who have been known to chegg, it being a verb now, “chegging,” among the student population. I’m not saying that you know any students directly who have ever employed Chegg’s $14.95 a month services to get a wealth of answers to tests and homework. But if they may know people, these students that you know.
Hill: All kidding aside, historically, it has worked out well for businesses and their shareholders when the name of that business becomes a verb to Google [Alphabet], to Zoom.
Barker: Yeah, it becomes a moat and just as the Zoom (NASDAQ: ZM) is there and there are competing services, some of which may be close to the same level of quality of Zoom. Some things certainly are not, but yeah, if you’ve got the verb for what you do, you’re in good shape.
Hill: Our email address is firstname.lastname@example.org, got an email from a long time listener and member of our Motley Fool One service and he asked that we not use his God-given name, so we’re not going to do that. But it was a lengthy email, so I’ll just sort of sum up. He prefaced the email by saying that you, Bill Barker, you’re his favorite guest on MarketFoolery. That was the start of his email. “Barker is my favorite.” Keep that in mind when I say what I’m about to say. He went on to respond to some comments you made on last Thursday’s show when you were talking about eBay having grown 6% annually over the last 15 years and because I was saying, hey, eBay is sort of underrated. Your response is like, “You look at the performance, it’s not that great.” This guy said, “Bill is completely ignoring the PayPal spin-off in July of 2015. I can vouch that the last batch of shares of eBay that I bought 15.5 years ago are up about 9X or over 14% annually when considering both the eBay and PayPal shares from that purchase. That doesn’t even include the dividends that eBay started paying in 2019. Ticking issue, fairly it seems, with your math.
Barker: A couple of corrections. One is that he didn’t say that I was his favorite. He said, “You two are a favorite duo of mine.” Really, it’s you as well and we’re just in probably top 10 favorite duos of his from the Motley Fool is my guess. Yeah, now, this is the perfect way, I think, to write something like this is to be polite and then if compliments about the other things that people are doing, come in to play, use them. You’re going to get more positive responses, and yeah, he is absolutely right. I was relying on somebody’s data, a pretty high profile source.
Hill: Chegg. Did you get it from Chegg?
Barker: It was not from Chegg. [laughs] If it was from Chegg, probably it would have been better off. Now, pretty wondering if, anyway, this source of data was using, I think, just the raw eBay stock price, which had not adjusted for the PayPal spin-off, and therefore, was highly incomplete and my reliance upon that was my mistake. Absolutely, eBay, even if you sold all of your PayPal the day that it’s funded off and went out and spent the money that day, I know you still ended up with a lot better return over the last 15 years than 6%. I haven’t had time to go back and do the math. But Bloomer, who, in the PSS, we may refer to the author of this email as Bloomer, is absolutely correct and right to correct us and get the record corrected on eBay.
Hill: We got a couple more emails from different people and I did the story as well so I just want to mention. Yes, we have seen the most recent data, three major studies using analytical tools from the American Heart Association about the health benefits of not just coffee but caffeinated coffee. There is study going out of its way to say the benefits that we’re seeing in terms of reducing over the long term the risk of heart failure. You want to go with caffeinated coffee because the benefits did not extend to decaf coffee.
Barker: Yes, and the study has also, I think, pointed out that they were promoting black coffee and that the cost of putting in milk dairy and sugar into the coffee were not good for your heart. Yes, we exist on the show partly to promote the health benefits of coffee. Here’s yet another highly scientific study. I hope everybody out there still believes in science and [laughs] if that’s an excuse to drink a little more coffee, it goes into. This is another one of those studies. The benefits just keep going the more coffee you drink in a day. If you live with somebody who says, “Oh, but it’s not good to have like that eighth cup of coffee.” If you live with somebody like that who attempts to throw that out, you just say no, not according to this study.
Hill: Yeah. At this hour? You’re going to have coffee [laughs] at this hour? According to the people at the little place we like to call the American Heart Association and the massive study they did involving thousands and thousands of people. Yeah, I’m just trying to be healthy. How great would it be by the way if Starbucks, Dunkin’, whoever, someone just, or even just a local coffee shop, [laughs] just started a small campaign and it just got healthy. That was the tag log. [laughs] Welcome to Joe’s coffee shop, get healthy.
Barker: I’ve had the experience of going into a Starbucks in California where it’s mandated that they have to show the warnings. One of those studies that if you were actually a mouse and you had some Michigan lake-sized quantity of coffee, they would register this minute cancerous element that actually doesn’t cause cancer. But it’s a long warning that was up at the last Starbucks in California that I was at was some years ago. The laws may have changed and are unfortunate and I think that’s been refuted in the number of places. Look, if you have hypertension, coffee is not good for you. High blood pressure, hypertension shouldn’t be doing it. There are reasons for pregnant women not to drink coffee. But as far as I know, everybody else should be.
Hill: Ask your doctor if coffee is right for you.
Barker: Exactly. Don’t take our word for it. [laughs] Please do not take our word for it. Do your own research. But our research seems to indicate that we should be drinking as much as we do, which would be a problem if there were anything wrong with coffee.
Hill: Thanks. Yeah, we have that validation. Bill Barker, always good talking to you. Thanks for being there.
Barker: Thanks for having me.
Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. That’s going to do it for this edition of MotleyFoolery. The show is mixed by Dan Boyd. I’m Chris Hill. Thanks for listening, we’ll see you tomorrow.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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