Podcast Summary
Apple's Services Segment Drives Growth Beyond iPhones: Apple's services segment, including wearables, grew by 17% without iPhone sales, contributing to 20% of sales and 33% of growth profits. The services segment is providing Apple with new opportunities for pricing power.
Apple's growth is no longer solely reliant on the sale of iPhones. The tech giant's services segment, including wearables, is now driving a significant portion of its revenue and profits. During its latest earnings report, Apple saw growth of 17% when excluding iPhone sales, with the wearables business contributing to 20% of sales and 33% of growth profits. The services segment, which includes offerings like AppleCare, Cloud, Music, and Streaming, is providing Apple with new opportunities for pricing power. Despite a flat to down net income, share buybacks boosted earnings per share by 4%. Tim Cook's strategic management beyond the iPhone is paying off, and Apple's continued innovation in wearables and services is expected to drive future growth.
Apple's Services and Products Bringing in Significant Revenue: Apple's vast device user base, lower pricing, and high-quality content make Apple TV Plus a promising revenue stream, while Fitbit acquisition could add value in health and fitness sector.
Apple's services and products, including Apple TV Plus, have the potential to bring in significant revenue through pricing power and subscriber numbers, despite initial criticisms. Apple's massive capital return to shareholders over the years and the large number of devices they sell each year, such as iPhones, iPads, Apple TVs, and Macs, will contribute to a substantial base of potential subscribers. Additionally, Apple's intentionally lower pricing for Apple TV Plus, as seen with competitors like Amazon Prime and Netflix, may attract customers and allow for price hikes as content ramps up. Furthermore, Alphabet's acquisition of Fitbit for $2.1 billion, despite being a small fraction of their overall balance sheet, could potentially add value to their business, particularly in the health and fitness sector.
Google's acquisition of Fitbit: Monetizing Beyond Hardware Sales: Google expands in wearable tech market, monetizes Fitbit beyond devices, and Starbucks sees growth in US and China with 10M loyalty members. Facebook reports record revenue, emphasizing subscription business potential.
Google's acquisition of Fitbit presents an opportunity for the tech giant to expand its presence in the wearable technology market and potentially build a successful subscription business. The market for dedicated fitness devices exists, and Google's resources and infrastructure could help it monetize beyond the device base. Fitbit, which went public at $20 a share and was acquired for $7.35 a share, is a significant acquisition for Alphabet, which has the financial resources to make it work. Meanwhile, Starbucks reported strong sales growth in the US and China, with China's loyalty program membership reaching 10 million active members and the opening of 600 new stores in the quarter. Despite this, Starbucks' stock did not move much in 2020, indicating that investors may have overlooked the company's solid performance. Additionally, Facebook reported record revenue in the third quarter. Overall, these companies' performances highlight the importance of monetizing beyond hardware sales and the potential for growth in the subscription business model.
Facebook's Political Ad Revenue Takes a Hit: Facebook's revenue grew by nearly 30%, but political ad revenue is expected to be less than 1% in 2020, while Twitter banned political ads entirely.
Facebook had a strong quarter with revenue growth of nearly 30% and accelerating earnings per share, despite the ongoing political ad situation. This growth was driven by increased daily active users and ad impressions, though revenue per ad saw a slight decrease. Mark Zuckerberg expects political ad revenue to be less than half of 1% in 2020, leading some to question the value of accepting these ads given the potential headaches. In contrast, Twitter announced it would no longer accept money for political ads, representing only about 2% of their ad revenue. Zuckerberg's stance on the issue has been compared to SoftBank's handling of WeWork, and some believe he may ultimately change his mind. Both companies are taking different approaches to political ads, with Facebook focusing on earned media and Twitter allowing paid tweets but not paid reach. Twitter's decision to ban political ads was a strategic move, as they aim to avoid the potential spread of controversial or false messages through paid promotion.
Facebook's Approach to Political Ads vs. Teladoc's Business Growth: Facebook's CEO supports free speech but aims to enhance user experience for politics and ads. Teladoc reports smaller loss, higher sales, and impressive growth, making it a leader in telemedicine with 20-30% annualized growth target.
Mark Zuckerberg, the CEO of Facebook, believes in free speech and is trying to protect it, but instead of focusing solely on policing political ads, the company could improve the user experience for politicians, consumers, and readers. Teladoc Health, on the other hand, reported a smaller loss than expected in Q3, with higher overall sales leading to a rise in share prices. Ron Gross, who follows the company closely, highlighted Teladoc's impressive growth, particularly in membership base and revenue, which has been fueled by partnerships with larger players in the telemedicine space. With a comprehensive offering and a massive network, Teladoc is currently the leader in the industry and is targeting 20-30% annualized growth in the next 3-5 years. The company's success comes from its focus on doing one thing well and growing a big network, making it a difficult competitor to catch. However, UnitedHealth, a much larger company, is also working on its own version of a competitor in the space. While partnerships have been beneficial for Teladoc so far, there's a possibility that UnitedHealth could make an offer to acquire the company.
Texas Roadhouse's Q3 Success vs Grubhub's Disappointing Quarter: Texas Roadhouse reports strong comp sales growth, margin expansion, and plans to open 30 new restaurants, while Grubhub struggles with weak sales and increased expenses, causing a stock price drop.
Texas Roadhouse had a strong Q3 performance with impressive comp sales growth and margin expansion, leading to a significant increase in diluted earnings per share. The company continues to grow, opening new company and international franchise restaurants, and plans to open 30 new restaurants in 2020. On the other hand, Grubhub had a disastrous quarter with weak sales and increased expenses, resulting in a significant stock price drop due to concerns about marketplace competition. Texas Roadhouse's growth story continues, while Grubhub faces challenges in the competitive food delivery market.
Competition pressuring Grubhub and Wayfair's growth: Both Grubhub and Wayfier face intense competition, leading to decelerated growth and declining stock prices. Despite investing heavily, they are not yet profitable, causing market concern.
The intense competition in the food delivery and online home furnishing industries is putting significant pressure on Grubhub and Wayfair, respectively, leading to decelerated growth and declining stock prices. The CEO of Grubhub acknowledged the impact of competitors on the company's growth rate, while Wayfair faced challenges due to higher wholesale prices resulting from China tariffs. Both companies are investing heavily in their businesses but are currently not profitable, leading to market trepidation. Despite these challenges, the core metrics of Wayfair's business remain strong, with growth in active customers, orders delivered, and repeat customers. However, the lack of urgency towards profitability from both companies' management is becoming a concern. The market is focusing on businesses that can generate profits, and the pressure is on for Grubhub and Wayfair to address these concerns and demonstrate a clear path to profitability.
Stronger-than-expected earnings for Mattel driven by international sales and BTS dolls: Mattel reported a 44% increase in earnings per share due to international sales growth, BTS doll success, and cost cutting, but its infant, toddler, and preschool division underperformed.
Mattel reported stronger-than-expected earnings, driven primarily by international sales, particularly in Asia, and the success of dolls based on the Korean boy band BTS. However, the company's infant, toddler, and preschool division saw weakness, resulting in only a 3.1% revenue increase. Despite this, Mattel saw widening margins due to cost cutting, leading to a significant earnings per share increase of 44%. The company's CEO has been successful in stabilizing the core doll business and expanding into entertainment. Interestingly, Mattel experienced no impact from tariffs, while Hasbro did. Regarding Arista Networks, investors were spooked by the company's Q4 revenue guidance, which was below expectations, despite Arista's historical profitability and growth rate. Etsy's Q3 results did not justify the over 20% drop in its stock price. Overall, companies continue to face challenges in managing various divisions, with some delivering consistent growth while others underperform, leading to questions about whether to double down or cut losses.
Market Overreaction to Etsy's Guidance: Despite strong growth, Etsy's stock dipped due to market focus on take rate impact from Reverb acquisition. Avis Budget's profits fell, shares down due to competition from ride-hailing services. Potential buying opportunity for Etsy investors, partnerships may help Avis.
The market had an overreaction to Etsy's revised guidance during their latest earnings call. Despite strong growth indicators such as a 30% increase in gross merchandise sales, a 31.5% rise in revenue, and a 27% increase in active sellers, the market focused on the impact of the Reverb acquisition on Etsy's take rate and profit margin. This short-sighted reaction caused a significant dip in Etsy's stock price, but given the company's strong fundamentals and leadership, it may present a buying opportunity for investors, especially as we enter the holiday quarter. Additionally, Avis Budget's third-quarter profits fell 11%, and shares were down for the week due to the challenges of competition from ride-hailing services like Uber and Lyft. The company is trying to mitigate this disruption by forming partnerships with these services, but it remains to be seen if this will be enough to turn the business around.
Impact of Cost Improvements on Profits for Hertz and Avis: Both Hertz and Avis saw cost improvements but faced declining profits. Hertz made a $59M investment, while Dine Brands Global's successful drink promotions boosted sales and profits
While Hertz and Avis both experienced improvements in per unit fleet costs, their profits declined significantly. Hertz purchased $59 million worth of shares during the quarter, but the value of this investment is uncertain. The car rental industry, with its high debt levels and slim profit margins, is facing challenges. Meanwhile, Dine Brands Global, the parent company of IHOP and Applebee's, has seen its stock price soar due to successful drink promotions, such as the recent $1 vodka cranberry lemonade. This inexpensive alcohol offering is a significant driver of sales and customer traffic. Despite the humor surrounding these promotions, their impact on the company's bottom line should not be underestimated. In the competitive landscape of the car rental and restaurant industries, it remains to be seen which companies will emerge as winners.
Three intriguing businesses with strong growth potential: CME Group's toll booth model in derivatives market, Lumentum's role in 3D sensing market, and EPAM Systems' founder-led approach and sales growth in financial and tech sectors are promising investment opportunities
The speakers on this podcast discussed three intriguing businesses that may not be household names but have strong growth potential. CME Group, with its toll booth model and position in the derivatives market, was mentioned as a great risk management tool for institutions. Lumentum, a chipmaker specializing in VCSEL technology, was highlighted as a key player in the 3D sensing market, with applications in biometric authentication and augmented reality. EPAM Systems, a digital and software consulting firm, was praised for its founder-led approach and consistent sales growth, particularly in the financial and tech sectors. The speakers recommended keeping an eye on these companies for potential investment opportunities. While each speaker focused on a specific stock, it's clear that the underlying themes of innovation, growth, and market leadership were common threads throughout their discussions.
Understanding Vertical Integration in Businesses: Vertical integration allows companies to control various aspects of their supply chain, potentially improving efficiency and reducing costs. Applebee's could benefit from this strategy by controlling food production and distribution.
Learning from this episode of Motley Fool Money is the discussion about vertical integration in businesses. Jason Moser, Andy Cross, and Ron Gross explained how a company like Applebee's could potentially benefit from vertical integration by controlling various aspects of its supply chain, such as food production and distribution. However, the concept of a "vertical cavity" was a bit confusing for some listeners. Despite the technical jargon, the hosts emphasized the importance of understanding the potential advantages of vertical integration for businesses, especially in the context of the ongoing supply chain disruptions. They also encouraged listeners to share their experiences of dining at Applebee's and trying their new drink specials. Additionally, the team reminded listeners to keep an eye out for their upcoming Thanksgiving special and invited anyone interested in contributing "boots on the ground" research to email them at radio@fool.com. The team closed the show with a reminder to tune in next week for more insights on the stock market and business news.
