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In this episode of MarchéFoolery, host Chris Hill, interviews Jason Moser, an analyst at Motley Fool, about the biggest stories in the market. While Uber and Lyft rush to go public with high price tags and no path to profit, investors need to remember that Wall Street and Main Street are very different beasts. Meanwhile, Pinterest might have something to do. Listener Nod wrote about a serious competitor to Afterpay, a promising Australian installment company, and the guys are looking more closely at the private Klarna company. Jason shares what he will watch (with less impatience) at Appleof (NASDAQ: AAPL) today's event and what Apple's evolving business model represents for the company in the long run. Tune to hear more.
A full transcript follows the video.
This video was recorded on March 25, 2019.
Chris Hill: It's Monday, March 25th. welcome to MarchéFoolery! I am Chris Hill. Join me in the studio today, Jason Moser. That's half of the former Monday crew!
Jason Moser: I know. I think of it from time to time. These days back when …
Hill: [laughs] Well, thanks for being here!
Moser: Listen man, it's always a pleasure to be here with you!
Hill: Especially after the loss of your school on weekends.
Moser: [groans] Although I have been screaming all season, all good things must come to an end at some point. I would say that, as disappointing as the game was lost, against Kentucky, I think what these boys have proved over and over again this year is that Wofford is clearly in the top 20. I think They were probably closer to the top 10, to be honest with you. They could play with anyone. They have nothing to be ashamed of. They can keep their heads high. The only word I could find was "magic". It was a magical season. I thank everyone involved in this program for providing us with a wonderful and wonderful basketball season.
Hill: Speaking of magic, we are going to talk about unicorns. We will arrive at the Apple event, we will arrive at the World War for money. But let's start with unicorns.
Let's start with Uber, who is making the headlines today. Uber buys Careem Networks, a Dubai-based carpool company, for just over $ 3 billion. This is one of the things for which it has not been finalized yet, but there are all kinds of reports. Uber is preparing to go public in a few weeks. Apparently, they are simply trying to block the global market as much as possible.
Moser: Get ready before they go out and really make it all public. I think it's logical that Uber eliminates this before the IPO [initial public offering]. What they want is to avoid skepticism or questioning, really looking at things, and we would probably do more if it was announced after the IPO.
Lyft prepares to go public, Uber soon after. In fact, the goal of the current market is to make your network as large as possible, and ultimately to determine the different ways in which you can leverage that network. It's more than just carpool now. This is carpooling, food delivery, parcel delivery; we must believe that it will become a little more permanent. Apparently, self-driving cars are just down the road here. So I think we will really make ourselves known, become the largest and the most global possible, and then find all the different ways to take advantage of this great network.
Hill: You mentioned Lyft. Lyft will be made public this Friday. [groans, laughs] The numbers are staggering for me. Lyft seeks to go public at a range of $ 62 to $ 68 per share. They will raise a few billion dollars. I have no problem believing that they will be able to do it. The immediate assessment will be between $ 20 billion and $ 25 billion. I look at this and I wonder: how many individual investors will get involved in this area in a meaningful way? During all our speech – and we talk from time to time, the stock division does not matter, it's really the number of pizza shares you want, you want eight or sixteen people, the size of the pizza does not change – – I understand all that. But I think the instinctive reaction of many investors – and I 'm included in this – is the initial price, no matter what you think of the company, especially with an IPO. from the start: it must be intentional, no? What they say: "Look, we only want people who will cross this hurdle"?
Moser: I am sure that they think that optics is better with a price of $ 60 or $ 65 per share, as opposed to a price of $ 5 or $ 10. Your remark is however perfect. It's really the size of the pizza that counts. With respect to the size of these two companies, Lyft becomes public somewhere in the neighborhood of a $ 25 billion market capitalization; Uber [is] talk about something like $ 130 billion. Maybe a little more, maybe a little less. In both cases, the question of Uber is this: have the easiest fruits already been picked? How big can a company like this be in the short term? I'm not questioning its potential there, but part of the investment is looking at that timeline and trying to figure out if this risk-return scenario makes sense. And these companies are massively unprofitable. You must take all of this into consideration.
I have the impression that they will have no problem selling the shares. But I strongly encourage individual investors, like the ones we talk to every day, [to] take a step back, take it with a grain of salt, review the documents filed, get a better idea of the business behind these assessments. My bet is that there will be a time, in the near future, where we will be able to get these actions for a lot less than at these IPOs.
Hill: Think back to last week when we were talking about Levi Strauss go in public. Levi's range for public access ranged from $ 14 to $ 16 a share, that sort of thing. It was up 30% on the day of opening. Part of the story we saw was an increased demand for Wall Street for this type of IPO. And they only sell jeans. So, to echo what you were saying: Listen, it's exciting, it's interesting, but we have to remember that what's happening on Wall Street with these funding events – and that's what it's all about. what they are, what are financing events – is different from what happens to us as individual investors. There are fewer companies open today than 10 years ago or 15 years ago. So part of the demand we see not only for [laughs] Levi Strauss sells jeans, but for Lyft and Uber, Lyft rising to the public at $ 60 a share, some of that is right, the demand is growing on Wall Street and it's hard for us to part ways as well. individual investors. But we have to somehow do that.
Moser: It's our job, right? That's why we exist. That's why we talk to the public who chooses to listen to us. I think back to what we were talking about Motley Fool Money last Friday. Emily really did find a good point in that, in that there seemed to be very high expectations in Levi's IPO. I am struck by the fact that, probably, Wall Street is really thirsty for an IPO. No matter the company behind her, she just wants new actions. They play a bit of a different game. Banks that subscribe to all these IPOs earn money. It's a business for them. For us, we have nothing to do with it. The game we play is about finding good companies and investing in them.
So, yes, you look at something like Levi's, you say to yourself, "Dude, that does not make any sense." You must take this mania, understand why it exists and see if you can not make it your own. As for Lyft and Uber, this mania still exists. I would discuss [that] these are better market opportunities than jeans. I think Lyft and Uber are doing very well –
Hill: By the way, we do not hit jeans.
Moser: I do not hit the jeans! I'm wearing Levi's right now!
Hill: The jeans are fine!
Moser: They are awesome! I love them! It's next to the point. Yes, again, I think Wall Street is looking for IPOs, period. We appreciate IPOs because we are talking about them, but in reality, it boils down to the fundamental companies that support these IPOs. Again, I think with Lyft and Uber, two companies that interest me a lot more, and I can see that they want to own them, but dude, oh, dude, to those assessments, given the current state of their finances. ..I do not mean I'll bet my life on it, but I'm damn close, Chris. I am almost certain that we will be able to get these much cheaper actions over the next two years.
Hill: Very quickly, another unicorn. Pinterest will be public in a few weeks. They dropped their S-1 Friday last week. Help me understand that.
Moser: [laughs] You seem more skeptical about it.
Hill: Well, it's an advertising business, right?
Moser: Yeah.
Hill: Last year, they realized revenues of about $ 750 million. It seems that the bulk of this figure is for brands that promote their brands, paying for Pinterest to promote their brands on the platform. Yes, I'm skeptical, but Pinterest seems to be closer to profitability than Uber and Lyft.
Moser: Sure. I think it's probably the pleasant surprise of this S-1, to better understand the underlying activities. And it's not actually a bad one. It's maybe because they've been around for a while and they've waited until then, where the company was a little more mature and established, so that they do not throw out these brand new financial start-up type data.
But I think where Pinterest has really run over time, they know their audience. I think there is a company out there. It's growing. They know their audience, they understand why the public uses the platform for the most part. When I say that, it's a platform that seems to work a little better from a trade point of view. This is an advertising business today, but there is also plenty of data that supports the idea that consumers are far more likely to use Pinterest to buy products than they are. any other channel – Facebook, Snapchat, Twitter, no matter. So, from this point of view, I can see why some brands would like to be affiliated with Pinterest on an ongoing basis.
It is also very interesting to note that 97% of the 1,000 most popular searches on Pinterest are unbranded. In other words, someone comes in and says, "I want to find blue jeans." They do not say Levi's jeans. I think that also opens the way for particular brands that want to pay a little more for their product placement because they know their audience.
I had never really used Pinterest before. Now, I say "had". My dad and I love to paint in watercolor and he showed me that he used Pinterest all the time. It's a 76-year-old doctor [laughs]and he uses Pinterest all the time to look for different artists and all the paintings they realize, to see only their paintings, to learn new things, to try new ways to paint and so on. In fact, I found that Pinterest was a very useful tool in this regard. So I use it more recently than I thought, which makes me perhaps a little more interested in the trade.
But after going through the business itself, I will continue to dig. I think there is probably something out there.
Hill: You have an email from Nod Muller in Namibia. You mentioned Motley Fool Money. He writes, "I really liked listening to Joe Magyer on Motley Fool Money. He mentioned Afterpay and the progress made in the United States. I also think that we will hear more about this type of disintermediated payments, but the mentions on conference calls will be Klarna and not Afterpay. "
I did not know Klarna at all. I do not know if you know them.
Moser: No.
Hill: He included a link. It is a payment company based in Sweden. One of the things they have on their site is a side-by-side comparison of Klarna and Afterpay. The best I can say, Klarna is not yet public. But if the business is so strong – they have investors, I think Sequoia Capital is one of them. I do not want to put words into anyone's mouth, but it would not surprise me if Klarna were public in a year or two.
Moser: That would not shock me. I had not heard of this company until now. I know the concept, with Joe talking about Afterpay, and Square also engages in this field with its installment payment product. I've dug a little in Klarna. Founded in 2005 in Stockholm, Sweden. Today, its head office is located in Columbus, Ohio, birthplace of Jack Nicklaus. Before!
Listen, the idea back in 2005 –
Hill: You see, it's the difference between you and me. You went directly to golf. I just thought "Wait, were there people who lived and worked in Stockholm who then learned the news?" Hey, guess what? You have to move to Columbus, Ohio. "
Moser: Jack is the bear of gold! Known worldwide. The company was founded in 2005 while the technology really took off. He had the chance to evolve with the evolution of technology. Total end customers, 60 million. They are in 14 countries. Total number of merchants using the platform, 100,000. Number of transactions per day, 800,000. This is not trivial.
The basic idea is to give customers a chance to pay in several installments. You see something you like, it's $ 500. Maybe you do not have it all at the same time. Companies like Klarna give you the opportunity to buy this product and pay it in several installments. Generally, predictable, interest-free contracts are designed to give their merchant customers a better opportunity to sell more products, and consumers a better opportunity to pay them a little more reasonable.
I like this feature. I really do. I tell you who else likes it: Visa. Visa is also invested in Klarna. Again, come back to the other companies that do it. Square, that's definitely what I do. They mentioned their installment business in the most recent call. I thought it was pretty fascinating in the third quarter, and that it's a brand new product for Square, by the way. They still consider themselves a lot in the testing and learning phase here. They saw 10 million Square transactions per block that exceeded $ 250. So you think of the dollar volume that helps merchants use their networks, which gives consumers a slightly simpler way to buy products.
The good thing about these types of businesses, they are technology-based, they use this technology to make informed decisions. This seems to be a winning solution for consumers and traders. I would not be surprised to see Klarna continue to do well.
Hill: Afterpay is a public company. I think the market capitalization is about $ 4.5 billion. It will be interesting to see, especially with Visa as one of the investors, if Klarna eventually becomes public or if, in the same way as Pay Pal caught Xoom, that Visa decides to make an offer of godfather to Klarna and bring them completely internally.
Moser: Based on these numbers, it would not shock me at all. We talked about how MasterCard and Visa are trying to find the easiest way to bring a little extra value to their networks because they are very important now. They are a bit like Buffett in that they have trouble finding meaningful acquisition. But you can still win by making a lot of good little acquisitions. Although Klarna may be a small, he would be hooked up to a very large network with Visa, so it would not shock me at all to see this happen.
Hill: In about an hour from now, Apple will host its event, which makes, I do not know, the 20th consecutive event of Apple, which did not send us an invitation. It's very good. We are not bitter.
Moser: Thank you guys!
Hill: Qu & # 39; you expect? What are you going to monitor? I know what I'm going to watch.
Moser: I must say that this comes from a person who loves Apple: I have an iPhone, I have been using an iPhone for many years and I think I will probably use one up to my departure. But I am very willing to be extremely disappointed by this event today. And I really do not say that to be rude or critical. First, it seems that this event focuses on a television offer. And when I think about that, and how they might be able to get in and change the TV space at that point or disrupt it, it's very hard for me to understand what's the value proposition that they can offer could possibly be. If you are talking about original programming, who cares? I mean, you have so many, so many companies doing it now and doing well. Apple is just starting with that. It 's not because they are Apple and they' ve got money that it 's going to be good. Netflixit's not because they have all this data that they can automatically create good content. Good content is hard to do, that is what makes it special.
You can spend whatever you want – they should reach $ 4 billion in content spending by 2022. Do you know what I call it? I call it a start. When you face Netflix and AmazonFor starters, these companies are already spending a lot more today. By 2022, this will have made things worse. I simply do not see money as the only barrier to content. Whether they are grouped or unbundled, I do not know what they think they can offer, but it is not already done today.
Do not forget that they had a TV app some time ago. It was something where they thought you could just have all your belongings in one place. I appreciate that. But all you have to do is launch a button on your iPhone and place all your streaming apps on that same button, so you have all your things in one place. That's already done. I simply do not understand what value proposition they are going to propose here.
That said, I think they need to do something because if they become more and more a service company, they will have to find ways to give people something beyond the iPhone. I think that between video streaming and music and the reorganization potential of this information service – which, I think, everyone has their own way of receiving their information; some people will use Apple News, most of them probably will not. While the iPhone has allowed them to earn a lot of money with a product, they will have to find a way to get some money through many different offers, from the side business services and others. small material contributors like AirPods and Watch, etc.
Hill: I have seen reports on the games. It'll be interesting –
Moser: I'm glad you mentioned it.
Hill: – to see if they are doing something in that direction. In terms of your content, that's what I'm going to look at, specifically to find out if we're getting specific names in addition to the amount they're spending. We have seen various reports on this subject. I think it would be interesting to note Tim Cook, that it is great presenters or an announcement regarding intellectual property. That's "We bought the rights on ____", no matter what that is. In that sense, it's not pretty much the same thing, but it's at least, as I would say, in the stadium as it was years ago, when Hasbro make the deal with Disney, basically outbid Mattel for Disney properties. It's as if, well, a single toy company was going to get this deal, and Hasbro is taxed as such. In the same way, Apple has the ability to lock some high-end IP addresses. [intellectual property]. We'll see what happens.
Moser: This would give them the best value for money if they kept intellectual property that had already been proven. Trying to develop your own and then live behind it takes a lot of time and money, and it's still not possible for you to succeed.
I'm glad you mentioned the games part. To put this in context, Google has just made this great announcement about Stadia and its streaming game service. I'm looking at something like this – I'm not saying a short title but a long title, but in jargon, I say I'm long Google Stadia and Apple's short streaming video. I am much more excited about the potential of Google's gaming service than Apple's TV service. Unless they disappoint me – and it's entirely possible, I'm not saying that they can not – I do not think they'll do it.
Hill: Really fast, what happens on today's episode of Focus on the industry?
Moser: Today will be a pretty good day because last week I had the opportunity to interview Sallie Krawcheck. I know a lot of people have heard the name. She had an amazing career on Wall Street. She is now helping Ellevest and the Ellevate network reach new heights here. It advocates for women in the workplace, women who invest, in fact greater equality in all areas. That's the purpose of it all. Great interview with her. It will be about 30 minutes, but I think everyone will really enjoy it.
Hill: Jason Moser, thank you for being here!
Moser: Thank you!
Hill: As always, program participants may have an interest in the actions they are talking about and the Motley Fool may have formal recommendations for or against, so do not buy or sell any stock on the sole basis of what you heard. That will do it for this edition of MarchéFoolery. The show is mixed by Dan Boyd. I am Chris Hill. Thank you for listening! Well, see you tomorrow!
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