Podcast Summary
Potential market volatility due to government shutdown: Historically, US stock market recovers from shutdowns and delivers strong long-term returns. Maintain a long-term perspective, be selective with investments, and avoid panicking during market volatility. Prepare for potential impact with an emergency fund.
The ongoing government shutdown could lead to significant volatility in the markets, but historically, the US stock market has shown the ability to recover and deliver strong returns for investors in the long term. With odds of a shutdown at around 90%, nonessential agencies and services will have to stop operating, potentially affecting up to 6 million federal workers and contractors. During the last shutdown in 2018, which lasted 35 days, the markets initially sold off but then rebounded, and the entire period until COVID resulted in a gain of more than 50%. Investors should maintain a long-term perspective, consider being selective with investments, and avoid panicking during market volatility. Preparation, such as having an emergency fund, is crucial for individuals, especially those with federal employment.
Government shutdown's economic impact and Amazon antitrust case: The government shutdown can negatively impact families and businesses, while Amazon faces antitrust scrutiny for its relationship with third-party sellers and growing dominance in retail.
The economic impact of government shutdowns can be significant for families and businesses, as discussed in relation to the ongoing shutdown and its potential impact on budgets. Additionally, the antitrust case against Amazon, which was anticipated, could potentially have more traction in regards to Amazon's relationship with third-party sellers and the growing reliance on Amazon's network and services. The changing business landscape and Amazon's growing dominance in the retail space may make it a target for antitrust scrutiny. However, it is important to note that the outcome of the case, including potential litigation and concessions, is uncertain. The perspective of long-term observers of the tech industry, like Andy, can provide valuable context on the potential risks and expectations for companies like Amazon.
Intersection of AI and Personal Platforms: Meta's integration of AI and metaverse investments could set it apart from competitors, but large tech companies face unique risks such as antitrust allegations and regulatory concerns.
Investing in large cap tech companies comes with unique risks, such as antitrust allegations and regulatory concerns, unlike smaller companies. Amazon, despite its success and innovation, is not immune to these risks. Meta, another large tech company, recently unveiled new products and AI developments, including Ray Ban smart glasses with integrated AI assistant and livestreaming capabilities. The attention given to the smart glasses is debatable, but the true integration of AI and the metaverse investments is starting to pay off for Meta. The Ray Ban smart glasses, priced at $300, are an impressive technological feat, but it remains to be seen whether consumers are ready for the product. Overall, the intersection of AI and personal platforms could set Meta apart from competitors.
Nike and Costco Beat Earnings Expectations with Strong Sales: Nike reported a 2% revenue growth with digital sales and Jordan footwear seeing double-digit growth. Costco showed resilience with ecommerce growth and improvements in big ticket sales. Both companies maintained inventory levels and gross margins despite higher input costs.
Nike's Q1 earnings report surprised investors with strong revenue growth, despite challenging retail conditions. The company reported a 2% increase in revenue on a currency-neutral basis, with digital sales and Jordan footwear seeing double-digit growth. Nike maintained inventory levels and gross margins, despite higher input costs. Costco's earnings also showed resilience, with ecommerce growth and improvements in big ticket sales. However, there are questions about when Costco will raise its membership fee, which drives a significant portion of its profits. Additionally, Costco's gold sales have been strong, with the company selling gold bars at spot price to meet customer demand. Overall, both Nike and Costco's earnings reports suggest that these companies are managing to thrive in a difficult retail environment.
Costco's Unique Products and CarMax's Challenges: Costco's unique offerings, like small gold bars, contribute to its success, while CarMax faces a tough quarter with sales down 13%.
Costco continues to optimize its business model by offering unique and popular products to its customers, such as small gold bars, despite the occasional misses with mayonnaise and beer under their Kirkland brand. The company's treasure hunt mentality and ability to turn items with the Kirkland logo into successes, except for mayonnaise and beer, has been a key factor in its success. On the other hand, CarMax reported a tough quarter with sales down 13% driven by lower retail and wholesale volume, and the consumer remaining pressured. The stock has seen some recovery but still looks challenging for the year. In the world of investing, it's essential to look at both the successes and challenges of companies, and for investors, and potential investors, understanding the businesses behind the stocks is essential. Rover, a pet care matchmaking network, is a business that many people use for their pet care needs, and for many, including Motley Fool Money's Ricky Mulvey, it's a service they've personally used and appreciated. As an investor, it's essential to look at the tailwinds and tail wags pushing the company forward and consider the potential opportunities and risks.
Rover's Business Model: Connecting Pet Owners and Sitters: Rover generated $60M in revenue with a 23.3% take rate, benefiting from pet humanization, return to work, and travel resumption.
Rover is a pet-sitting service that connects pet owners with trusted sitters, walkers, and boarders. The company makes money by taking a commission from the transactions between pet owners and sitters. With over 1.7 million bookings in a recent quarter, Rover generated nearly $60 million in revenue, representing a 23.3% take rate. The business has a compelling narrative as the savior of pets and benefits from tailwinds such as the increasing humanization of pets, more people returning to work, and the resumption of travel. Early in the pandemic, Rover didn't see significant growth due to people working and traveling less, but the last two trends have led to a rebound in demand for their services.
Rover's business model prioritizes repeat customers and strong guarantees: Rover's business model prioritizes repeat customers and strong guarantees, creating incentives for both parties and providing peace of mind for pet owners
Rover's business model, which relies on repeat customers and a strong guarantee for pet owners, is a significant factor in its success. The company's algorithm prioritizes pet service providers with repeat customers, creating an incentive for both parties to use the platform. The Rover guarantee, which includes coverage for vet care, property damage, and out-of-pocket medical costs, as well as 24/7 support, provides peace of mind for pet owners and justifies the premium cost. Despite the potential for pet owners to save money by booking off the platform, the benefits of using Rover's services outweigh the costs for most.
Rover's Progress Towards Profitability and Valuation: Rover's rapid revenue and earnings growth, improving adjusted EBITDA, and potential leadership in the pet care services market warrant consideration beyond its high PE ratio.
Rover, a pet care service company, is making progress towards profitability and free cash flow, but its high price-to-earnings multiple may not fully reflect its value due to its current growth stage. The company's revenue and earnings are growing rapidly, and its adjusted EBITDA is improving, indicating that it's getting closer to achieving positive free cash flow. However, as a younger company, it hasn't reached that milestone yet. Therefore, instead of focusing solely on the PE ratio, investors should consider other valuation measures, such as revenue and earnings growth rates, to better understand the company's value proposition. Competitors like Wag, while growing quickly, are smaller and further away from profitability, making Rover a potential leader in the pet care services market. The liability and risk management in pet care services is a significant concern, but Rover and its competitors are addressing these issues through various measures. Overall, Rover's strong growth trajectory and improving financials make it an intriguing investment opportunity, despite its high valuation.
Factors beyond earnings and revenue multiples for valuing Rover and GameStop: Investors should consider factors like customer retention, growth, and improving margins when evaluating Rover and GameStop, but Ryan Cohen's involvement as GameStop's new CEO and his successful track record offer potential for a turnaround.
While earnings and revenue multiples may not be the most accurate indicators for valuing a company like Rover, particularly when it has a strong net cash position, other factors such as customer retention, growth, and improving margins are more important signs of a company's success. Ryan Cohen's involvement in GameStop as its new CEO, despite the company's struggles in recent years, shows that some investors believe in the potential for turnaround, especially when led by a charismatic and successful leader. Cohen's success at Chewy and his ownership of the largest stake in GameStop give him a strong incentive to help the company recover. However, the challenges facing GameStop are not just about leadership, and a successful turnaround may require more than just individual efforts. As always, it's important to consider multiple factors when evaluating a company's potential.
ICE: More Than Just the NYSE, EPAM Systems: A Global Tech Consulting Firm to Watch: ICE, the NYSE owner, runs various exchanges, trading venues, clearing houses, energy options, and has a profitable fixed income and data service business. EPAM Systems, a global tech consulting firm, is projected to reach $500B market size by 2028, offering attractive growth prospects and strong fundamentals at a reasonable valuation.
Intercontinental Exchange (ICE), the company that owns and operates the New York Stock Exchange, is not just a one-trick pony. While it's well-known for running the NYSE, ICE also operates various other exchanges, trading venues, clearing houses, and energy options. Additionally, it has a profitable fixed income and data service business and delves into technology around the mortgage business through its acquisition of Ellie Mae. The stock, which yields around 1.6%, is not very expensive, selling at less than 20 times earnings, making it an attractive investment opportunity. Another intriguing stock on the radar is EPAM Systems, a global technology consulting business. With the global software consulting market projected to reach over $500 billion by 2028, EPAM's ability to deliver services and solutions to global customers while keeping costs down due to its global delivery model makes it a strong contender. The company has also diversified its business, reducing its reliance on top customers. EPAM Systems is valued around 30 times trailing earnings, a reasonable valuation for a company with attractive growth prospects and strong fundamentals.
