In this podcast, Motley Fool senior analysts Matt Argersinger and Emily Flippen and host Dylan Lewis discuss:
- The Fed's latest rate hike and why another seems in the cards.
- Why earnings updates ended epic runs for Chipotle and Spotify.
- How big tech's cost-cutting is going.
- The earnings reports from Roku, Mastercard, Coca-Cola, and Live Nation.
- Two stocks on their radar: BorgWarner and Invitation Homes.
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.
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This video was recorded on July 28, 2023.
Dylan Lewis: Rates keep going up and the earnings results are pouring in. Motley Fool money starts now. It's the Motley Fool Money radio show. I'm Dylan Lewis joining me in studio, Motley Fool Senior Analyst, Emily Flippen and Matt Argersinger. Great to have you both here.
Emily Flippen: Good to be here.
Dylan Lewis: We've got a parade of quarterly updates from companies, stocks on our radar and the early themes of earning season. But we're going to start with the Fed and the big picture. This week, the US central bank decided to increase rates a quarter of a point, marking the 11th rate increase and bringing the baseline Fed funds rate to its highest point in 22 years. Matt, something that I think we were expecting and are now confirm. This is what working with.
Matt Argersinger: I think this was totally expected, maybe the most expected move by the Fed that we've had over the past, say 15 or 16 months, 11 straight hike or not straight hike, I should say they did skip last month, but brought the target range to five and a quarter five-and-a-half, highest level in more than 22 years, by the way, for the Fed funds rate, and that was followed up on Friday. But we had more news about inflation cooling. We had the core PCE, which is widely tracked or at least by the Fed number of inflation. That was 4.1% from a year ago. That was below estimates and the lowest annual rate since September 2021. By the way the goods price component of that actually decreased 0.1%, so it's all happening for the Fed. It conscious of this image unfortunate including one of an aircraft carrier. But did I say, mission accomplished.
Dylan Lewis: It seems like they've been able to increase rates without massive spikes and unemployment, without too much economic disruption. This is pulling something off that I think a lot of people weren't sure they'd be able to do it.
Matt Argersinger: Right. I mean, it's a monumental move. You think about it. We've gone from zero, roughly a year ago to 5.25% on the Fed funds rate. That's a monumental move but like you said, Dylan, economies holding up. We had a Q2 report this past week from the BEA showing a 2.4% increase in GDP. I used to work for the BA, by the way, in a previous life, the unemployment rate is still near historic lows at 3.6%. Consumers continuing to spend especially on services. There is no recession insight, at least as far as I can see, and inflation's cooling. Mission accomplished.
Emily Flippen: I think too early. Let's say it's too early to say mission accomplished only because I think what the Fed has done really well as control expectations and that's great and people will make judgments about how to run their business, how to run their employment numbers, all of these things based on what the Fed says they're going to do and they've been incredibly consistent, which is great. But all it takes is one level of data coming out of whack, for somebody to then pull back and then change those plans it's great right now because every numbers coming in in the Fed's favor as they're slowly increasing rates. But all it takes is one, I'm cautiously optimistic.
Dylan Lewis: It sounds like you're getting a little bit there at the idea of Fed credibility and willingness to stick to what they're saying, and I think one of the things that I'm watching with this narrative, I'm curious for your take here Matt is generally, it's been easy rate hikes for the Fed so far. We've needed to moderate inflation, but what's going to happen when we need to get from 3.5% down to that final 2%, that long-term target. It seems like they've really wanted to push down to that and are going to maintain their rate hike schedule. That's my read at least.
Matt Argersinger: I think that's a good read. I think what you're saying is the easy work, unexpected work has been done. Now, the last leg or the last few legs to get down to that 2% target, realistic as that might be, that's going to be tough and that might really grind the economy to a halt. Let's hope not, but that's what it might take to get inflation down to that level.
Dylan Lewis: From the big macro to the big movers, we're going to start the earnings look, talking about Chipotle and Spotify two companies that made big moves after their quarterly reports. For Chipotle, earnings came in ahead of estimates at 340 million, but revenue and same-store sales were both slightly below expectations. Emily, the stock fell 10% post earnings. Is that because the Q3 outlook wasn't as rosy as people were expecting?
Emily Flippen: Yeah. The keyword there is the expectations and Chipotle has had an incredible couple of years as they've successfully increased price hikes and proven that they have a little bit of resilience and pricing power when it comes to the people who will pay up for the Chipotle experience. But I think part of the reaction is the writing that's on the wall for Chipotle heading into the next couple of quarters when they don't have the same ability to raise prices as it did in the past, and management has so much as said that. But now they're lapping some quarters and their previous year where they actually did raise prices and has some great growth on top of it. There's just some near-term pressure that Chipotle is experiencing, but you got to give credit where credit is due with this company, which is despite these question marks about the economy and the question marks about the massive price increases that everybody Chipotle included has seen last couple of years, is there still driving transaction growth and the comp growth in this most recent quarter was really incredible, 7.4%, and that's driven mainly by increases in traffic. Not just those price increases, people are still coming in and paying up for that Chipotle experience. One of the things that they do that I've been so skeptical about, but as is incredibly powerful, the launch of new limited term products that a chicken out past store over the most recent quarter, which performed incredibly well. These little upsells they get people into when you walk into a Chipotle, you end up spending a little bit more money for these new products and that strategy works out well for them.
Matt Argersinger: I would say, yeah, I mean, I think this is an example of a company and there's probably several that we're going to talk about today where it's been such a good period of time for the company coming into earnings, and I think Chipotle was trading for around 60 times earnings roughly if I have that right. They'll have really no room for error for a company that's just done so well. It's not surprising maybe that the market on a slight missed expectations is going to hammer the stock as much as it did.
Dylan Lewis: One of the things that jumped out to me with the report is Chipotle opened 47 new locations during the quarter, 40 of them, including drive-thru lanes. It seems like so much of the focus for this business is the digital ordering. Being able to get people in and out as quickly as possible. Almost a little bit more fast food like then maybe fast-casual like Emily.
Emily Flippen: Well, they're competing with both fast food and fast casual. We've seen competitors like Sweetgreen and Cava in our public markets are their most recent couple of years. They have new competition while at the same time trying to pull people who would normally make that stop at say, at McDonald's or Wendy's or Taco Bell, maybe they have the opportunity to just as conveniently order from a business like Chipotle. But I will say this and I have to give credit where credit is due in terms of this management team, Brian Niccol has been so focused on the minutia of running this company that it is really turning into an operational machine, and if you don't believe me, go back and read the transcript from the most recent quarter because management, since a lot of time talking about things as small as what grill they're using or what the expeditor is doing, whether or not they're working on mobile orders and on the line that's building front of the store. I mean, they're trying to focus down on what makes a really efficient business so they can compete with these new customers and some of it being really efficient fast food businesses too.
Dylan Lewis: We also saw some big moves from Spotify post-earnings. The company added 10 million new premium customers in the quarter, bringing the tally to 220 million over 550 million monthly active users total. I look at this business, Emily, and I say all of the things seem to be moving in the right direction. What's going on here?
Emily Flippen: Thank you, Dylan. I taste Spotify is probably the most underappreciated company on the market over the past couple of years. This is an operational machine, in my opinion, they have an incredible ability to monetize and grow their user base. But because the ad revenue market has in general been so soft there podcasting business has been draining on their gross margins. Spotify, following the lead of so many other tech companies, has gone through the process of trying to turn their business a little bit more operationally efficient and that involve things like layoffs. They might not be done quite yet, but because Spotify is a company that's based outside of the United States the costs that they have associated with things like layoffs are a bit higher than I think what American investors are accustomed to. When they saw this quarter and they saw ballooning losses, they attributed that to a failure of their ability to drive efficiency when in reality, after adjusting for these onetime severance costs, the operational improvements have been pretty dramatic. Their adjusted gross margins have have grown over time. Their operating margins have grown overtime. There's still lost producing, but the actual business itself and the way that management is running the company, I think continues to perform really well.
Matt Argersinger: Five-hundred-and-fifty million monthly active users. That if I'm still listening, Pandora, which is that does that make me a dinosaur?
Dylan Lewis: I think so Matt.
Matt Argersinger: Oh my gosh.
Emily Flippen: Matt, can ask you a question, that 550 million how much do you think that was a percentage increase year-over-year?
Matt Argersinger: I couldn't guess.
Emily Flippen: Seven percent.
Dylan Lewis: That is monster growth.
Emily Flippen: Incredible. Monster growth.
Dylan Lewis: I'm both a shareholder of Spotify and a user of Spotify. I saw some news related to the company this week that was a little bit of a mixed bag for me because prices are going up. The standard planned pricing is going from 9.99 to 10.99. As a shareholder I say, this is great, we're seeing some pricing power. As a user, not exactly thrilled to be paying a little bit more. Emily, what do you make of that?
Emily Flippen: Exact reaction I had. This is the first time they've raised prices on our US-based consumers. This is that question mark, do they have the pricing power? Because there is competition in streaming, Amazon Prime, Apple Music. Consumers have options, but I like to believe as both a Spotify investor and a Spotify user, that they've built a little bit of a mode in terms of the content, not only in terms of podcasts, but playlist and other dare to say AI-generated. But really they have a deep understanding of what their customers want in a way that I think is better than a business that is a bit more diversified in their focus, Amazon being a great example. I think this price increase will work out for the better for them.
Dylan Lewis: After the break we've got updates from Big Tech. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis here in studio with Emily Flippen and Matt Argersinger. The big banks kicked off the reporting season, but Big Tech is really what I like to pay attention to besides my bread and butter. We have updates from Alphabet, Meta, and Microsoft. Matt for Alphabet, Google parent posted revenue and earnings ahead of expectations, top-line grew 7%, shares up almost 10% since reporting. What's going on here?
Matt Argersinger: Very solid and I would say it really comes down to, I think, two things that got investors excited also shareholders, so I was pretty happy too. The core business is definitely bouncing back, really struggled over the past year or so. But Google's ad revenue rebound at 3.4%. That was higher than consensus. There was growth in both Search and YouTube, which seemed a little bit of a slowdown as well. It looks like the headwinds that were really affecting the overall digital advertising space have started dissipate. Then you have the Google Cloud business, which was up 28% year-over-year in terms of revenue, but more importantly, also had a second straight quarter of operating profits for that segment and operating margin there was much higher than it was in the first-quarter. I think that has investors excited about well finally we see this Google Cloud business on maybe the same ramp that AWS took several years back for Amazon and really going to start contributing massive amount of profits to the business.
Emily Flippen: Everyone's focused on Cloud revenue for this company. You can understand why, but I will say, and I'll reiterate this. I think YouTube continues to be an underappreciated asset for Alphabet. There's a reason why the ad market, I think, is firming up a bit more for them than it is for other players, in part because they have these platforms that are much easier for advertisers to monetize on in YouTube, especially with their YouTube shorts, I think has something really special. When you consider the fact that there is a writers' strike and an actor strike right now, the fact that all the content on that platform is user-generated content can help them potentially grow streaming hours, which further improves their ad revenue in future quarters. In fact, if you look at total US TV viewing over the course of May in this year, YouTube was the single largest platform at more than 8.5% of total viewing hours. That's larger than Netflix, that's larger than Hulu, HBO, all of those streamers. There's something powerful on YouTube, but everyone wants to talk about Cloud revenue so who I'm I?
Dylan Lewis: One of the things that jumped out to me in their report was Ruth Porat, the company's CFO, leaving the role to become President and Chief Investment Officer. Matt, you've talked a little bit before on the show about Alphabet's capital allocation decisions. I'm curious knowing that there's a new person heading into the CFO seat sometime soon, any advice.
Matt Argersinger: I would say please, please new wonderful CFO, initiate a dividend. I think that's what investors would really love to see. You've done a lot of buybacks, but I think dividend, we know throughout history companies that initiate and grow dividends over time are the best-performing stocks do at Alphabet.
Dylan Lewis: They've got the cash for it.
Matt Argersinger: They certainly do.
Dylan Lewis: Speaking of cash, we're talking Meta as well when we're talking Big Tech, shares of the company up 9% following earnings, company grew revenue 11% year over year to $32 billion, while earnings increased by 21%. This seems to be indeed the year of efficiency based on those growth rates, separations there, Emily.
Emily Flippen: It's great for Meta because they've set out these efficiency targets and they've certainly been hitting all of them. But the company is now trading at a very similar valuation as it was around two years ago, right before the giant Metaverse-fueled crash that Meta experienced. Now there is this question mark about what management strategy looks like from this point forward. I'd say that this is the type of business that in my opinion, succeeds not because of its capital allocation strategy, but in spite of it, they have these really highly profitable platforms that have been fueling massive losses for this Metaverse venture that Zuckerberg continues to lead the company toward. I like some of what they're doing. I like the partnership with Roblox as one example. Getting that platform on quest headsets can just further expand the actual real-life use cases, but we're still so far away from this being a material contributor to not only revenue but earnings as well. But I have to ask the question about when Meta shareholders get impatient with the company again. I'm not sure that this company is substantially different than it was two years ago.
Dylan Lewis: To your point, Emily, Meta has lost $20 billion since the beginning of last year with its Reality Labs division. I do wonder if there's going to be a point where investor patients wanes on that. It seemed like that was something that was happening, but maybe the company has bought itself a little bit of time, Matt.
Matt Argersinger: I think it has Dylan and because here's the one number I was looking at. If you look at all of 2022 Meta generated about $18 billion in free cash flow. In just this second quarter alone of 2023, it generated 11 billion in free cash flow. That is the year of efficiency result that Mark Zuckerberg got. I think that's what's buying him time to pursue this. I don't know, Metaverse strategy that Emily laid out that who knows where that's going to go. But I think he bought himself time and the company time to continue to pursue it.
Dylan Lewis: You mentioned Emily, the incredible year-ish, a couple of years that this business had and shareholders have had. It's been a wild ride. The company over the last year and year-to-date is performed fairly well for shareholders. Do you feel like to some extent the easy money with Meta maybe has been made?
Emily Flippen: It's always there's curve whenever you see a business pursuing efficiency, which is this first couple of quarters after launching these new targets are really easy because you're trimming the fat. But at some point that easy fats gone and your ear down to actually trying to grow the business while also not allowing yourself to get to bloated. The issue with this investment in the Metaverse is it's really easy to get bloated because you don't quite know where your money is best spent yet, versus when you've been running a platform like Facebook for so long, you've a pretty good idea about where you're going to invest money and generate substantial growth from that earnings from that. With the Metaverse, it is prone to be very expensive very quickly. Now that doesn't mean it can't be successful, but it does mean that Meta shareholders had to be mentally in other words prepared for that reality. After this past couple of years, I'm not sure if investors are prepared the way that they might need to be.
Dylan Lewis: Microsoft reported this week and didn't quite participate in the rally and in the same way that some of those other Big Tech names did. Earnings and revenue came in ahead of expectations that top-line grew 8%, but the stock is down about 5% since reporting Emily.
Emily Flippen: It's a punishing time for Microsoft because they've had such a tough year and I'm teasing, [laughs] the expectation for Microsoft have been incredibly high. They're an early investor in OpenAI, the owner of ChatGPT. They've benefited a lot in terms of their valuation from AI hype and this quarter was probably going to be a rough quarter for them no matter what, just because the expectations heading into it were so high, but revenue growth of 10%, not anything to Scott that for a company of their size, what I really like is that while there are a lot of companies looking to benefit from AI, Microsoft actually has AI that is driving revenue, which is really what I care about. How is it actually going to impact the financial goals of a business and with their new co-pilot, which is an AI-generated productivity tool, costs $30 a month per user. That's expensive, but they're selling it. Somebody out there has clearly buying it.
Dylan Lewis: They've clearly established that subscription productivity market already. This is not a big stretch for them to add this to something that someone might already be paying for in their office suite.
Emily Flippen: I like the practical use cases. I think Adobe Photoshop being another good example of a company that has practically used AI to generate sales.
Matt Argersinger: I like what Emily said about expectations going in because I think if you look at Microsoft's coming into earnings, it was trading about 35 times forward earnings, whereas Alphabet Meta closer to 20 times forward earnings. It's like what we talked about with Chipotle in the beginning of the show. Is just companies have done really well and come in with a lot of expectations. If they haven't just crushed the Grand Slam with these earnings they're selling off a bit and that's to be expected.
Dylan Lewis: Matt, this is one of the first times we're talking about Microsoft without also talking abou. Activision Blizzard and the will, they won't they close that deal? Anything up there with the updates?
Matt Argersinger: I would say no, but I would say at this point is playing a 90% chance that closes. By the way, if you're a shareholder and Activision, which I'm, you're going to get a dividend payment in August, which is nice, but I do think it's going to close.
Dylan Lewis: After the break we've got more earnings updates from Live Nation, Roku, Coca-Cola, and more. Stay tuned. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis, joint again by Matt Argersinger and Emily Flippen. Too many earnings updates to count this week. We've got more company updates instead of our usual Friday interview, and we're going to jump right in, starting with Roku, Emily, Roku smashed expectations with its quarterly update. Massive top-line beat sales, hitting nearly $850 million. Losses loan narrower than expected, sending the stock-up 20%. Emily, so much for her soft ad market.
Emily Flippen: Well, the power of low expectations, I'd say the ad market is still soft for Roku, but they managed to grow revenue on their platforms, which is mainly ad revenue by 11%, and they said they saw some firming but let's not forget that Roku has a little bit different than a lot of other advertising-based businesses that they compete in the scatter ad market. They don't have contracted ad revenue at the way that other competitors may, which tends to be a bit more volatile for them. It was a good quarter considering the fact that traditional TV ads for the scatter market were down something like 17% in the quarter. Just continuing to transition away from traditional TV toward more connected TV and Roku is of natural beneficiary of that. This is a type of business that has always had me scratching my head. I'm a shareholder, I've been a fan of it over numerous years, although my competence has waned as I've been confused by how management is spending their time and their money getting into the smart home business, getting into the original content but it seems like this is a company that is poised to succeed in spite of these decisions, which is to say the operating system that Roku has created is just incredibly sticky both in the United States, are there still growing streaming hours and active accounts, but also internationally as well. In Latin America, they're the number one selling operating system, and just as long as they keep growing their users and their engagement, it's really hard to see a world or they're not better monetizing those viewers over time. A lot to like in this quarter.
Dylan Lewis: Emily, you were talking before about how their ad business may be as some of the easier spend to cut or some of the more nimble spend that marketers use. I'm wondering, given that a lot of their advertisers are also in the entertainment space and we have a writers' strike and an actor strike right now, do you have any concerns about reduced ad spend for new shows, new movies, hitting a company like Roku, maybe more than other advertising companies.
Emily Flippen: Yes, and I would expect that it will. Obviously, Roku alongside so many different companies are hoping for an end to this writers' strike sooner rather than later but ultimately what drives engagement with drives ad spend, not only from the people who are placing advertisements for the people who are watching them is good content and without good contents, people aren't going to be turning on their TVs as much. That's certainly pressure in the near-term, but do think Roku benefits over the long term from things like ad-based tiers for streaming, more expensive streaming prices. All those naturally flow into a better business for Roku. These are some near-term headwinds but whether or not i think it'll actually impacted thesis for holding Roku shares over the long term, I'd say no.
Dylan Lewis: From the small screen to the big stage, Live Nation reported this week, Matt revenue for the ticketing business hit 5.6 billion. Earnings per share came in at one dollar up 55% year over year. Seems like people are very happy to dole out money for the live experiences.
Matt Argersinger: He's certainly our Dylan, so impressive. Twenty-seven percent growth in revenue and what you said, 5.6 billion. That was way ahead of consensus, which was right around five billion. The lion's share of that revenue, revenue comes from the company's concerts business, and what's interesting is that the number of events produced by Live Nation in the quarter actually fell about 2% to 12,241 but the number of fans intending rose 9% to 37 million. That's a huge number, but I can't get this number out on my head. 12,241 events. That means Live Nation is putting up roughly 136 events per day and is 90 days in a quarter. That's mind-blowing to me now I know some of those concerts quote, can be short single artists show small venue. That's still a lot of events in a single quarter.
Dylan Lewis: Yeah. They only put on 12,000. That was [inaudible].
Matt Argersinger: Dallas down peers?
Dylan Lewis: Yes, it was down. I mean, it's just an amazing number and then tickets sold, which is another part of the business that climbed 70% to over 150 million tickets sold. Just an absolute monster of a quarter for Live Nation.
Matt Argersinger: I think when people hear the name Live Nation, they often think of Ticketmaster, and this is one of those businesses where I think if you're a shareholder, you're happy. If you're a user, you have your gripes with the business. This is a company that often catches flak for some of its practices. They've had executives on Capitol Hill in the last year or so. Is are you worried at all about regulatory intervention with this company?
Dylan Lewis: I'm not so much worried as I think I was six months ago. I assumed by the way, after all the scrutiny they got that they were going to spin off this business. I still think that actually might be a good move down the road but, they've addressed how they handle the big surge and ticket sales for big artists like Taylor Swift. They're, working on all those little fees that it could attach these tickets, and so I think they're taking action. I still think they'll spin it off at some point. I actually looked at this company awhile ago for one of our services, the Real Estate Winners service here at The Motley Fool, because I really like the real estate behind this business. They have someone iconic venues, some real estate that you can't be replicated anywhere in the world but I got scared away a little bit by the Ticketmaster scrutiny. Maybe I need to revisit that these is, but of course the stocks already run away from me, so I don't know [laughs] . Emily, all of the spending that we're seeing out events bodes well, especially for the credit card companies. Last week we were checking in on American Express. They saw record spending. I imagine we're seeing some pretty strong spending looking at MasterCard's results this week as well.
Emily Flippen: Yeah, whether or not you think that's a good thing or bad thing, I think remains to be seen but MasterCard is certainly benefiting from an increase in spending over the most recent quarter. Their most recent quarter they beat on both the top and bottom lines. Not unusual for MasterCard, but it was largely in this case, thanks to international travel, they saw cross-border payments rise 24% in the quarter, which is spectacular, and you may wonder, well, why is the stock not really moving here and it really hasn't moved? Part that I think is because the market is betting that these benefits are short-lived in nature. We're still seeing some post-COVID weirdness management caught out. Travel into China, picking up it's stopping where was or blown 2019. There's a bet that all the slowdown is probably going to come for this company, but for right now, it's a decent quarter for MasterCard. The big question mark remains of what is the health of consumers look like in the second half of the year? MasterCard, in comparison to a company like Visa, does have the benefit of being a little bit less reliant upon revenue generated from the united states, they have a bit more diversification in terms of global exposure. I think less than one-third of their revenue comes from the US. It's larger for most other car makers. They have that benefit, but they need that increase in spending because they make their revenue from increases in transactions. They need use your card, use it more often for smaller and more frequent purchases, and let's just keep our fingers crossed that regulators don't come in and say, hey, Ticketmaster, MasterCard, this little fees that you charge, we're going to do something about that.
Dylan Lewis: Yeah, I was going to say this is going to sound similar to our Live Nation segment, but I'm wondering, is this an industry that you worry about? Lawmakers saying, I see what you're doing there and this seems awfully consolidated.
Emily Flippen: I do, and I know that our regulators hate losing in United States have been a little bit all over the place. Betting on any regulatory change, I think is a fool's move in one direction or another, but it's hard not to see the pressure that businesses are getting from consumers in, this case, card makers are getting from smaller businesses when they have to charge 2% of that transaction going to the Visa or MasterCard. That's very high, it's very onerous and it causes price hikes for consumers. There could be some regulatory pressure there.
Dylan Lewis: We also saw results from Coca-Cola this week. The company reported earnings and revenue ahead of estimates and raised its full-year outlook. Matt, is this a continued example of a pricing power story?
Matt Argersinger: It is Dylan, but before we get to that, I'm just so glad we're talking Coca-Cola here because, today Dylan and I'm here as Clark Kent but as you know, my alter ego is Superman.
Dylan Lewis: No, no. [laughs] But no, it's Ron Gross.
Matt Argersinger: Yes.
Dylan Lewis: Ron Gross of course.
Matt Argersinger: Their superhero.
Dylan Lewis: I remember maybe super grossman?
Matt Argersinger: Yeah, I can, almost you're done. Dan Boyd shaking his head behind the glass, but super Grossman loves boring stodgy dividend companies like Coca-Cola and so do I and why shouldn't? A company is still putting up impressive results even as mature as it is, but like you said, it's all about pricing power because if you look at concentrate volumes they were up only 1% in the quarter. Case volumes were flat and they are even down 1% North America, but sales were up 10% on a price and mix basis. Overall, if you strip out the currency effects and some of the non-recurring expenses, coax organic revenue was up 11%. Earnings per share were on the same basis, were also up 11%, so this is a company that's still a very Motley growing company, especially in overseas markets paying a 3% dividend a lot to like Ron Gross will love it.
Dylan Lewis: Astute listeners may note that it's been a while since both you and Ron Gross have been on the show together Matt. Do I need to start investigating whether you are the same person?
Matt Argersinger: You might be the same [laughs] person, Dylan and you never know.
Dylan Lewis: With a company that operates in a lower tier like lower-priced product, do you worry more about the pricing power fueled elements of their growth, do you think that there's a little bit more sensitivity?
Matt Argersinger: Well, so far there's certainly hasn't been, but I do question how far that pricing power extends. Coca-Cola has done a great job building out their portfolio of brands, so there are many more things besides just water, fruit juices, teas and the brands have exceptional followings, but I would say at some point you can't raise the price 5, 6, 7, 9, and 10% before it hits starts hitting demand, so there's that issue and I think there are also facing some scrutiny as we know with the diet soda, whether or not there's negative health effects there. Far though pricing power is held up really well. The question is, will it continue to hold up as we go forward?
Dylan Lewis: Before we head into the break I want to take a step back and look just broadly at what we're seeing so far this earning season. We've gotten some interesting looks at ad spending. We've been able to see a little bit of where there is and is not perhaps some pricing power. Emily, what are you seeing this earning season and what stories are emerging for?
Emily Flippen: It's funny despite the fact that this has been a great year for tech companies in a way that 2022 was not. I still feel like there's a little bit of skepticism around companies that are not generating sustainable profits right now. I think the bar is higher if you're coming into this earnings season with ballooning losses, so yeah, example being Spotify then Investor tolerance for the numbers you put forward is going to be smaller and that's despite the fact that the economy is strong. It's been a good year. I just think that there is still this fear that as hanging in the back of Wall Street's mind that is causing some knee jerk reactions on many of these companies.
Dylan Lewis: Do you think that some of that is a reflection of the higher borrowing environment that we're in with higher rates, or do you think there's something else there?
Emily Flippen: I think there's something else there because I'm seeing this regardless of whether or not that company is in a decent cash position. There's companies have billions of dollars on their balance sheet and cash and marketable securities that are still unprofitable. They don't need to go to public markets anytime soon, but the market is treating it like they do.
Dylan Lewis: Matt, what about you, what's jumping out this earning season?
Matt Argersinger: Yeah, I think you don't just based on the companies we've talked to on this show, I think valuations matter a little bit. I think if you're a company like Microsoft or Chipotle coming in on a bit of a heater, lots of momentum, your stock gave back a little bit because maybe results weren't quite as amazing, isn't analysts expected whereas companies with some question marks like a Roku or a Live Nation even are outperforming and I think that's the story here so far. Companies that are demonstrate a lot of momentum giving back some companies that maybe not have participated so far are catching up.
Dylan Lewis: Coming up after the break, we've got stocks on our radar. Stay right here, you're listening to Motley Fool Money.
As always people on the program may have interest in the stocks. They talk about in the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Dylan Lewis joined again by Emily Flippen and Matt Argersinger. We've got stocks on our radar, but we are checking in first on the summer box office. People are back in theater seats. Thanks to Barbie and Oppenheimer releases both performing strong, but Barbie's posted an eye-popping half a billion dollars in the global box office for its first week. Matt, did you have any notion that it was going to register a number like that?
Matt Argersinger: Absolutely not, Dylan. I can't believe when you said the number this morning. I just cannot believe it's been that popular, but credit to the director of credit to the producers because they made a movie that obviously has wide appeal because I've heard anecdotally. Men in their 50s going to see Barbie, that brand has that nostalgic feeling and years ago if you'd said for doing the Barbie movie out, I said OK maybe girls between the ages of seven and 15 we'll go see that movie and be great, but this is obviously as a universal appeal.
Emily Flippen: This is a really conscious decision on Mattel's part. I think they were trying to modernize the Barbie brand a bit and for people who are familiar with the movie that the movie is rated PG-13 for instance. They're dismissing that younger female audience that would typically be what you would associate with a Barbie brand and going toward a more mature audience, updating Barbie for the modern era. Now, does this lead to a sustainable increase in Barbie IP? Maybe, but what we can see is that it has widespread appeal and I think in part thanks their decision to focus on us slightly more mature audience was slightly more mature themes that has obviously in combination with Oppenheimer taken the internet by storm.
Dylan Lewis: Mattel, it seems very clearly is looking at what Marvel has done over the last couple of years and saying, we have IP, we're interested in doing this. They reportedly have 14 properties in active development making use of their intellectual property library. I want to run a couple of these by you and see if any of them seem to have half a billion-dollar box-office potential. We have Barney, Polly pocket, Thomas and Friends and American Girl. Emily, do any of those jump out as something that has the appeal of Barbie?
Emily Flippen: I feel like the only one that stands out to me and maybe I'm showing my age here is Barney, because I feel like that's probably the brand that people will and you say the word Barney, immediately what somebody is talking about the same way we say Barbie is now, can I picture in American Girl Dom I had? No. Can I picture Polly Pocket, am I had? Definitely not, so I feel like that's where they had the most potential, but I do feel like trying to modernize Barney for potentially a more mature audience, get off you harder. I think then Barbie.
Dylan Lewis: Matt, are you seeing a Barney movie?
Matt Argersinger: I am not telling, Dylan. [laughs] I'm very skeptical because I think this is a very cautionary tale to look at what Marvel's done and see if we can replicate that, and you look at Hasbro for example, to use a company very similar Mattel which had some success with those Transformers movies, but then try to do battleship and a few other movies that just didn't fell flat, so yeah, take it slow and focus on your best IP.
Dylan Lewis: One of the things I'm curious about with this IP extension thing is there's a clear playbook here and we are seeing these properties that have really large libraries say, what we can update this maybe make it relevant to a new audience, Barbie is a big splash, but I do wonder as we become more aware of what these companies are trying to do, Matt will the consumer appeal for some of these movies start to wane?
Matt Argersinger: Well, if you look at Nintendo this year, so he's a really recent examples. Super Mario Brothers why appeal the movie did incredibly well and intend has already come out and just like Mattel and said hey, we've got, we're going to have Zelda, we're going to have all these other movies potentially around our IP. I think the playbook gets old really fast on as Emily alluded to, so is it sustainable? I'm not sure.
Dylan Lewis: Let's get over to stocks on our radar, our man behind the glass Dan Boyd is going to hit you with a question. Emily, you're up first. What are you looking at this week?
Emily Flippen: Yeah, interesting company on my radar this week. It's BorgWarner, the ticker is BWA. Over the last couple of years, BorgWarner who is a traditional like auto parts manufacturer has been slowly transitioning its business to a more electric future. They are known for their internal combustion engine parts, but now they're getting into the EV parts and they actually made a big move earlier this year to spin off their traditional diesel-focused parts into a separate business that's now publicly traded called Fenia. Leaving just this really electric focused BorgWarner business and I like it because I think it's a more under-the-radar picks and shovels ask play on the trend of electrification. If you're an investor who likes companies like Tesla and you believe in the future for electric vehicles, but you're looking for a way to play that same growth without buying manufacturer themselves, I think BorgWarner's when to consider.
Dylan Lewis: Resistance is futile. [laughs] Dan, a question about BorgWarner and can you say at three times fast.
Dan Boyd: I'm not even going to try that second one. Dylan, but I do have a question. Emily, did you make this company up to bring to the show today because I don't think anybody at the tables heard of this one?
Emily Flippen: This is actually a recommendation in Stock Advisor for listeners who are half a subscription to Stock Advisor. I definitely recommend it. It's an old company. It's been through a lot of changes over the last couple of years, but I think their leadership team is very forward-looking.
Dan Boyd: I love it when people bring new ideas to the show. Matt, what's on your radar this week?
Matt Argersinger: I don't think this is a new idea because I think I've talked about this one before, but Invitation Homes, ticker INVH. It's the country's leading single-family rental rate. They have over 80,000 single-family homes many of which reside in the faster-growing Sunbelt States like Florida, Georgia, Arizona, and Texas. Outstanding second-quarter results this week, rent growth on new and renewal leases average 7% and that's coming off double-digit growth last year. This is about the housing market. If you think about low inventories of existing homes, multi-decade high mortgage rates, millions of millennials are just now entering those prime home buying years, like Emily just bought a house recently. But a lot of them are priced out. It's a really expensive market and you can rent one of invitations homes for about $1,000 less. Get the privacy, get the yard, get the bigger space that you're looking for. I think it's a huge value prop, Dan a question about Invitation Homes.
Dan Boyd: Yeah, Matt yesterday on the show, Matt Frankel was talking about how there is a affordable housing shortage, is Invitation Homes investing at all in affordable housing?
Matt Argersinger: Well, not directly, but if you think about their portfolio it includes a lot of relatively affordable housing, so if you're a resident are looking for a home or looking for to buy home, you're going to pay a lot less to live in one of imitations homes and so in a way I think it yeah, it is more affordable.
Dylan Lewis: Dan, which company are you putting on your watchlist, Invitation Homes or BorgWarner?
Dan Boyd: It's hard, Dylan because they actually do both seem good companies, but they're not making any more land here, so I'm going to go with Invitation Homes this time around.
Dylan Lewis: All right, so a lot of sense.
Dan Boyd: It's called that.
Dylan Lewis: Emily Flippen, Matt Argersinger, thank you both for being here and bringing your stocks on the radar.
Matt Argersinger: Thank you.
Dylan Lewis: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll catch you next time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dan Boyd has positions in Activision Blizzard and Chipotle Mexican Grill. Dylan Lewis has positions in Spotify Technology. Emily Flippen has positions in Roku and Spotify Technology. Matthew Argersinger has positions in Activision Blizzard, Alphabet, Chipotle Mexican Grill, Coca-Cola, Invitation Homes, Live Nation Entertainment, Mastercard, Netflix, Roku, and Tesla and has the following options: short August 2023 $57.50 puts on Coca-Cola and short August 2023 $62.50 calls on Coca-Cola. The Motley Fool has positions in and recommends Activision Blizzard, Adobe, Alphabet, Chipotle Mexican Grill, Invitation Homes, Mastercard, Meta Platforms, Microsoft, Netflix, Roblox, Roku, Spotify Technology, and Tesla. The Motley Fool recommends BorgWarner, Hasbro, Live Nation Entertainment, Nintendo, and Sweetgreen and recommends the following options: long January 2024 $420 calls on Adobe, long January 2024 $47.50 calls on Coca-Cola, long January 2025 $370 calls on Mastercard, short January 2024 $430 calls on Adobe, and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
