In this podcast, Motley Fool analyst Jason Moser and host Deidre Woollard discuss:
- The ins and outs of Boeing's CEO search.
- Why Masimo may spin out its consumer division.
- If Elliott Management can make Match soar.
IWG CEO Mark Dixon explores the opportunity his company sees in the global shift toward hybrid work.
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 March 25, 2024.
Deidre Woollard: Boeing is making leadership moves and Masimo fancies a spin-off, Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Deidre Woollard here with Motley Fool analyst Jason Moser. Jason, how's your Monday going so far?
Jason Moser: So far so good. Just to recovering from a little yard work Sunday. The downside of spring is you got to get back to the yard work grind, but that's OK. I'm getting older and it's my source of meaningful exercise.
Deidre Woollard: Awesome. Well, someone who may be having an eventful Monday is Boeing CEO Dave Calhoun. He announced he's going to be stepping down at the end of 2024. It has been a turbulent four years for him in the top spot to say the least. There are some other changes too; their Independent Board Chair Larry Kellner, he's stepping down in May. Their Commercial Airlines President is retiring. A lot of change, not a big surprise. It seems like change is needed. But the question I was curious about is Calhoun, he announced now, but he's not leaving until the end of the year. Why do you think they did that?
Jason Moser: Well, first, I just want to say I see what you did there with the turbulent, well-played. I don't know that there's any real rush to get him out the door. It's not really that far ahead, but I also think he probably will leave before that, but it at least gives the board an opportunity to deliberate and give some real thought as to who they want taking over the position here because this really matters. This is a very important selection here.
Not surprising to see Mr. Calhoun step-down. This communicates that there's action being taken, that the status quo is unacceptable. Clearly from passengers to Boeing's customers. Everybody is unhappy with what's been going on here, but this ultimately, I think gives the board chance to find someone new. What company that had just continues to bleed market share to its competitor in Airbus. There's no real end in sight to that too. I think there's no reason to rush this because of the importance of who ultimately fills this role.
Deidre Woollard: My old PR person's spin on it was that when you announce something like this, you've already signaled OK, we know there's a problem, we're doing something, but you don't have to necessarily take the next step. You'd think that Calhoun is may be taking an active role behind the scenes now without having to worry that everything he does impacts how the board thinks about his stay or something like that since he's already announced he's going?
Jason Moser: His days are numbered so he can do his best to help with the transition to new leadership and we'll see how that goes. But again, the only real surprise to me is it's really honest. I felt this should have happened earlier. Feels this should have happened sooner, but better late than never.
Deidre Woollard: One also, it's a bit of a changing of the guard with the new independent Board Chair stepping in, you've got Steve Mollenkopf, he's a former CEO of Qualcomm, has the engineers mindset feels like a good thing. I'm wondering if you're at Boeing and you're looking for this new CEO, you've got the president of commercial airlines that just stepped into her new role. She's a third-generation Boeing employ. I'm wondering for the CEO role, I'm assuming they're looking both inside and out but do you feel it's more beneficial to have someone from outside the organization just because of potentially the transition needed?
Jason Moser: This is something I actually do feel strongly about this. This needs to be an external hire. I understand Miss Poke and she has a long history with the company that she's been with Boeing, I think since 1994. It's not to say that you couldn't be successful on their roles. She certainly could be. But by the same token there are plenty of examples out there in recent history that show companies in this type of a position really can benefit from bringing in that external higher than those fresh set of eyes. The one that comes to mind is Wells Fargo.
Obviously just a ton of culture issues that were going on with the company over the past several years. They actually hired internally and things actually got worse. Then they look to Charlie Scharf. Charlie Scharf came in from Bank of New York Mellon. I think he had net new perspective, those fresh eyes. I think in this case, this really does need to be an external hire because there's so many questions as to how this company got to where it is.
This isn't something that happened overnight. This is something that it's a result of something that's been going on for a long time. From that perspective, I really do feel an external hire is the only answer here. Looking to Ford, Alan Mulally, I think another good example there, a little bit further back in time there, but still bringing in someone with a new way of looking at things that can be a real benefit there, not only from a business model perspective, but again from the culture perspective.
A lot of companies have really gone through the ringer hire over the last several years for obvious reasons. Things are getting back to normal and there needs to be this resetting of what this company means, what their mission is, what they're trying to do, and how they intend to get there. It seems that where this company is today is a product of what's been going on over the last several years, not just Mr. Calhoun's tenure either. I think these types of problems, they fester for a while. External's certainly the way to go, i think.
Deidre Woollard: It reminds me when I was talking to Harvard professor Amy Edmondson about her book on failure, we talked a little bit about Boeing and she was talking about the previous incidences with the max and this culture of being able to report when things are going wrong or to be able to speak up is so important. I wonder if it needs to be a cultural shift. Do you think that the person who comes in needs to be inside the industry because it's such a tough industry and yet with you've got this important independent Board Chair, former CEO of Qualcomm, you could maybe bring in some tech talent too. I'm wondering what you think about that?
Jason Moser: Well, it's hard to say. This is obviously a very specialized skill set and given what Boeing does. There needs to be that background, whether it's an aerospace engineering, what have you. There there are a lot of ideas out there as far as names that could be on the shortlist here, it seems most, if not all of them have that type of backgrounds, I think in this case that makes more sense to them.
Deidre Woollard: Well, I want to move on and talk about some other news. Massimo did one of my favorite PR techniques, the Friday afternoon press release, always an interesting one. They announced their plan to spin off their consumer division. Of course, that includes their Sound United acquisition as well as the Stork baby monitor, the freedom smartwatch. I found this interesting because I was looking at Massimo's Investor Relations page and they were at a conference in early March at the Raymond James Conference talking about how much sense it made to have the businesses together under one roof, how one fed the other. Well, they don't seem to think that anymore.
Jason Moser: Well, how the turntables have. I'm glad, we're talking about this just because Massimo is a company I've followed for a long time. It's one I actually own shares and personally, I've recommended it in one of our services. It sounds like this is something that's going to happen. They have a plan, the board will assess it, but this all goes back to that Sound United acquisition that you mentioned. That deal was is relatively recent and I think it was around one billion dollars that Massimo paid for Sound United. Immediately when that headline, it seemed to be a very curious move at that time given what Massimo does.
Massimo for those who don't know, this is a company that's really made its hay with its technology in pulse oximetry, measuring the oxygen levels in the blood, which is really a point of necessity for hospitals and doctors offices. Massimo through the years has done a really good job of developing this technology in then developing products and services from that technology, leveraging that technology and the Sound United deal came out of nowhere. It was all based on these high-quality speaker companies, which I understand the role that sound plays in Massimo's technology, but never really seemed to add up.
I think the investor skepticism has always been there. It's been there since. When you look at Massimo's business today, still a full two-thirds revenue comes from its healthcare segment, the original Massimo business. A third of revenue now comes from the consumer side of the business, which is really what that Sound United acquisition is tied to. The revenue from the healthcare segment is far higher margin. This is still a healthcare business.
I think that what this gives Massimo a chance to do is, to maybe reinstill some investor confidence in the healthcare business because there's still a lot of questions out there in regard to the consumer side of the business, the Sound United acquisition and ultimately what that could bring to the table. But the healthcare side of Massimo's business is fully proven and very successful and it's been that way for a long time. I think this could give investors the opportunity.
This could reinstill that confidence in the healthcare business and give the consumer side of the business a chance to succeed on its own. Now that it'll have to succeed on it's on its own merit there, but just from a shareholder's perspective here, that this really does make a lot of sense to me. I think it really is steering investor focus back toward what Massimo does so well, and that is healthcare technology.
Deidre Woollard: One thing that's interesting with that too, is the healthcare business is really a razor and blades model in terms of what they sell, whereas the consumer side is, it's not that. But I found it was interesting though that their Chairman and CEO Joe Kiani, he's he's going to be Chairman of the new company as well and some of the other analysts have been talking about, well, maybe it would be better if it was a complete separate break, but it's clear he does not want to let go of that. Sounds like you want to stay with the core Massimo business and have less interest in this spin off. Is that right?
Jason Moser: That's a fair statement. Yeah, I think and so Mr. Kiani, he's the founder of Massimo and really this was a garage start-up. He's just done, an amazing job with his business. I get, and I appreciate his enthusiasm toward the consumer side. He was the one that really came up with the Sound United deal. Just to give you an idea of what the things that they're pursuing in there. It's everything from these these new newfangled baby monitors to things like hearing aids, which that alone they see at $35 billion total addressable market and I think as, hearing aid devices become more readily available to consumers without necessarily having to get prescriptions and pay those just exorbitant prices.
There absolutely is an opportunity here for that consumer side of the business. I think I'd rather see the consumer side of the business tried to go on its own in order to be successful because my interest in Massimo has always been based on the healthcare side of the business and you mentioned that, the razor and blade model there, they they get those machines into doctor's offices and hospitals and then they do really well in selling those consumables that really are required to make those machines work. That's really high-margin revenue there. They're just a lot of good qualities about that business that I remain very attracted to it whereas the the consumer side is just still an unproven entity and I'm not necessarily convinced that that market opportunity is as attractive as maybe they thought when they made the acquisition.
Deidre Woollard: One more piece of news I want to get to is Elliott Management. Anytime Elliott Management takes a stake in the company, we always have to pay attention. They've had a stake in Match Group for awhile. They've struck a deal. They're going to add two new directors to the board, including one of my favorites, former Zillow CEO Spencer Rascoff, got Lorde Jones, CMO at Instacart and other heavy hitter. They want to stabilize leadership, jumps-tart the growth for Tinder and Hinge, makes a lot of sense. Elliott is really interesting because they have a great track record. They've recently taken a seat at Etsy. They're battling for Crown Castle, which is another whole other story. What's your take on LA? I start to get a little excited now when I hear LA is looking at a company that I'm also looking at.
Jason Moser: I think a lot of investors do. I think that's a fair knee jerk reaction. We had to sort of take a step back and then say, well, let's see if it's actually results anything because there's no guarantee that it will. But I mean, this is what Elliott does. They hold somewhere in the neighborhood of $65 billion in assets. A lot of what they do is finding these companies that have well-established positions in their markets as leaders in those markets. But maybe they're going through some difficult times. I think it's fair to say that match falls in that category, Etsy as well.
If you recall, they held a position to smaller position, but a position on nonetheless in PayPal fairly recently, that they have since dissolved. I guess they just felt like maybe with new leadership, either new leadership had a good vision of where they wanted to take the business or they just felt like really the juice wasn't worth the squeeze, so to speak. That probably is the tougher part of that line of work is determining when you got to bail on certain ideas, but they do like you said, they have a lot of experience in this line of work. While it doesn't always work out, it works out very often for Elliott. They have a lot of expertise and a lot of spaces so this could be something that works out very well for Match Group.
Deidre Woollard: Yeah. I feel like Elliott is like house-flippers. They come in, they bring in their experts, they do some renovation and then they leave.
Jason Moser: That's good. Yeah. Listen, hey, I mean, their investors right at the end of the day, they're just trying to make a buck,.
Deidre Woollard: Aren't we all. Thanks for the time today, Jason.
Jason Moser: Thank you.
Deidre Woollard: We talk about a lot of stocks on the show, but it's just a peek at the Motley Fool's investing universe. This year we're rolling out a new offering. It's called Epic Bundle. The service includes seven stock recommendations every month, model portfolios, and stock rankings, all based on your investor type. We're offering Epic Bundle to Motley Fool Money listeners at a reduced rate as a thanks for listening to the show.
For more information, head to fool.com/epic. We'll also include a link in the show notes for you. Over the last several years, hybrid work has boomed. I talked to Mark Dixon, CEO of IWG, about his company's position as the top provider of flexible workspaces. I wanted to talk about your most recent earnings call because talked a lot about the need for coverage in offering flexible workspace is so you're the market leader now in flexible workspace, how are you meeting this massive demand?
Mark Dixon: There's a dramatic change occurring in the way people want to work and the way companies want to support their people. And really it's all about reducing commuting. People don't want to travel distances, whether that's in a car, train, or any other modes of transport, long distances. To just use a computer in another place. Lots of people don't want to work from home, they want to work with other people in an office, they just want that office to be conveniently situated for what they have to do on that day only to where they live.
This is a fundamental and far-reaching change that is transforming the commercial real estate industry, which is unsuitable to this new way of working, which is facilitated by technologies, Teams, Zoom, and better Internet, more places, and so on, so forth. So that's what's driving demand. A lot of companies, the majority of global companies are thinking about this or doing this because it allows them to cut about half the cost and it's what people want. It's one of those things that for a CFO, he makes a popular cast.
These things are quite rare, so they like it, and employees, team members love it as well. We are seeing dramatic growth and we're growing unprecedented numbers of new centers we're adding to the network. In many countries, we operate in about 120 countries. This is a phenomenon is happening pretty much everywhere in the world. And so we're working with partners to grow the network. We signed up last year in those results, you were talking about 860 new buildings in a single year. We used to open 200 now with 860 is a complete change. And we expect to do a minimum of that, or maybe even more this year.
Deidre Woollard: Well, I think what's really interesting and you talked about it in your earnings presentation, is that 88% of companies are thinking of going fully flexible. It's this mix that you just talked about because there's the HQ that people go too far less often. There's working at home which people want to do, but not all the time, and then there's that flex-based areas. So if everyone's going hybrid, is this a permanent shift or do you think you'll see more flex-based growing over time?
Mark Dixon: It's a permanent shift to flexible space look its platform working. It's the sort of thing if you've just have in your mind to Uber, you can own a car but some people just use Uber every day or twice a week or whenever they need it, especially if they live in a city because the cost of parking a car and looking out for a car. It's an infrastructure which is the Uber infrastructure that's there and use it when you need it. That's, imagine this and then imagine platform working which affects the infrastructure that's out there all over the country, all over the world that you use where it's convenient to you, but could be close to home one day, and then you have a meeting in Atlanta or London the next day, and the following day you want to be somewhere else. You can simply get on your app, add a workspace, use it.
Or it might be your local office down the road from where you live, cycle there, meet other folks, have a good social life and work much better than working from home. Lots of social interaction is what workers want. This new way of platform working will become the norm for about 30% of white-collar workers. That's a population of about 400 million people. It's going to be huge industry, the total addressable market, or TAM, is expected to be 2-3 trillion. This is a big segment of what will be the future of real estate and it's transformational in many ways. It goes way beyond just commercial real estate and office, it's where people leave, where they have their lunch, and how cities are built. All of that is going to change all technology facilitated. My belief is that technology changes everything eventually. This is just the next thing.
Deidre Woollard: Building off that Uber idea, because you said two separate pathways there, which is one, I'm an individual and I'm going all these different places. The second is more like my company is offering me this space. In terms of your business, is it more? It's mostly companies at this point, but do you see opportunities for individuals?
Mark Dixon: Yeah, we're about 35% are individuals. But just to be clear, these individuals, it's a very significant group. This group is made up of business people that have business people have one, consultants, financial attacks experts, many people, lawyers, and so on, who want to have a great office near to where they live or near to where their clients are. Those are companies have one, we then have the rest of the businesses, enterprise corporates, and start-ups and medium-sized companies. But all of those are buying a program for their people.
These programs could be for 100,000 people. But they have everyone switched on. Uber did the same thing, you can have a company account with Uber where you can just charge to the company and we do the same thing. That is a big part of the business. It's a bit of everything here. By the way, we have 10 different brands. We've got brands specifically for start-ups and brands that are much more for corporate. We're trying to pick off and supply to our customers what they want and where they want it.
Deidre Woollard: It seems to me a lot like you have delivered on the promise that we work hard and wasn't able to deliver on. I'm wondering as you watched that company shrink, are you still seeing opportunity to take both space and customers from them? I know you took some of their space in the past.
Mark Dixon: Yeah, we've done I don't know how many so far, but probably around 45-50 buildings. We wish them the best. It's going to be a huge market there in the market as well. But we are basically, our coverage is about 10 times their size. They're in a slightly different business segment to us that tend to have large spaces, larger units of space and things like that. But yeah, look, we'll see they're still in their restructuring period at the moment, Chapter 11. We'll see how it emerges and so on. But it's a massive marketplace. It's not them or us. It's a competitive market. There's lots of people doing it. We just happen to have the biggest coverage.
Deidre Woollard: We want to get a little bit into your metrics because you've been reporting RevPAR revenue per available room is a metric I usually see when I'm looking at hotels. Really fascinated to see you reporting that. What prompted that shift?
Mark Dixon: Clarity prompted that shifts. One of the most important things for us as a public company, high-growth global is how can we better communicate with our investors and public company, investors and analysts and so on. What we found is that we were getting caught on single metrics. The thing that makes up RevPAR is actually a whole number of metrics that we used to give individually and you'd end up having a discussion about something like occupancy.
RevPAR is occupancy, price and services that we have. These are three important metrics. It combines them into a simple, straightforward metric that you can hang your hat on. We can give guidance on and it helps external people, calculate what our revenues are going to be in company-owned centers and in managed state, which is growing very quickly. It's been popular, so we all of these changes that we made, other changes going into three divisions and so on.
We talk a lot to investors, not on investor meetings, but outside of the meetings, to ask them what could we do to better explain our story. It's a great story that you can get lost in the detail very easily. The outcome of that is what you see today. Three divisions, very clear metrics RevPAR. Then we talk about the costs, the overheads, and it's all percentage margins in the end. Very easy to follow, you know where we are, you know where we're going to be, or you can better estimate and it's been very popular with investors. They like it.
Deidre Woollard: 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 yourselves stocks based solely on what you hear. I'm Deidre Woollard. Thanks for listening. We'll see you tomorrow.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Deidre Woollard has positions in Zillow Group. Jason Moser has positions in Etsy, Masimo, and PayPal. The Motley Fool has positions in and recommends Crown Castle, Etsy, Masimo, Match Group, PayPal, Qualcomm, Zillow Group, and Zoom Video Communications. The Motley Fool recommends the following options: short March 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
