In this podcast, Motley Fool senior analyst Emily Flippen and Motley Fool Chief Investment Officer Andy Cross discuss:
- The growing AI battle between Microsoft and Alphabet.
- Lyft shares falling 35%.
- PayPal CEO Dan Schulman announcing his retirement.
- CVS Health buying a primary care business for $10 billion.
- The latest from Disney, Cloudflare, Chipotle, and Pepsi.
- Two stocks on their radar: Domino’s Pizza and Boot Barn.
In addition, Andrew Brandt, a former NFL executive and current director of Villanova University’s Moorad Center of Sports Law, discusses the business health of the NFL, how the playoffs may change, and more.
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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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Andy Cross has positions in Alphabet, Bank of America, Chipotle Mexican Grill, Cloudflare, Home Depot, Microsoft, Netflix, PayPal, PepsiCo, and Walt Disney. Chris Hill has positions in Alphabet, Amazon.com, Apple, Chipotle Mexican Grill, Cloudflare, Home Depot, Microsoft, PayPal, PepsiCo, and Walt Disney. Emily Flippen has positions in Home Depot and PayPal. Rick Engdahl has positions in Alphabet, Amazon.com, Apple, Chipotle Mexican Grill, Cloudflare, Home Depot, Microsoft, Netflix, PayPal, and Walt Disney. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Bank of America, Chipotle Mexican Grill, Cloudflare, Domino’s Pizza, Home Depot, Microsoft, Netflix, PayPal, Uber Technologies, Walmart, and Walt Disney. The Motley Fool recommends Boot Barn and CVS Health and recommends the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short April 2023 $70 puts on PayPal, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
This video was recorded on Feb. 10, 2023.
Chris Hill: We’ve got stock analysis investors want to hear and a couple of predictions NFL fans probably need to hear. Motley Fool Money starts now.
From Fool Global Headquarters. This is Motley Fool Money. It’s the Motley Fool Money radio show. I’m Chris Hill, joining me in studio, Motley Fool senior analyst Emily Flippen and Andy Cross. Good to see you both.
Emily Flippen: Hey.
Andy Cross: Hey, Chris.
Chris Hill: We’ve got the latest headlines from Wall Street. We will dig into the business of the NFL with our guest Andrew Brandt. As always, we’ve got a couple of stocks on our radar. But we begin with the rise of the machines. This week saw two of the biggest companies in the world, Microsoft and Alphabet, hold events centered around artificial intelligence. On Tuesday, Microsoft showed off a new and improved Bing search engine with ChatGPT. Later in the week, Alphabet held an event to show off Bard, the company’s new AI chatbot. Unfortunately, the demo included the chatbot making a mistake and shares of Alphabet fell nearly 10%. Emily, let me start with the stock, is that an overreaction by investors, 10% off of Alphabet shares?
Emily Flippen: On one hand, of course, you want to say that’s ridiculous. Alphabet’s a dominant company, basically owns search. They’re going to figure out AI if AI is the next big thing. But at the same time you’re like, you had one job. You had one job, you had to respond to this demo and the one thing you did had a mistake. It’s a gunshot reaction. I think in this case, it’s probably justified over the short term. Doesn’t make a difference for either of these companies over the long term, definitely not. But it does just show one thing which is, can we stop talking about AI now? Because AI is not smart enough. It might be artificial intelligence, that doesn’t mean that it’s not dumb.
I think if we can see anything from ChatGPT to Bard, it’s that we’re not quite there yet when it comes to artificial intelligence, especially when it comes to replacing our basic search. You know, this is my uneducated opinion, but my two cents here, I think something like ChatGPT works well when there is simple facts. When you’re looking at coding, for instance, that is black and white, the code works or it doesn’t work, artificial intelligence can help you get there. But when you’re asking a question for which there is no true source of truth. Everybody following my homebuying journey, I’m shopping for home insurance. That search takes me hours to get down to find one person that I’m going to go with, what I want the policy to look like. There is no way that AI, as it exists today, can replace that. I’m tired of acting like it is.
Andy Cross: Yeah, this is, for me, this is more, less about ChatGPT, connection with Bing for consumers, and really Microsoft’s interest in really integrating artificial intelligence to all of the tools they have through in their entire corporate suite. I think that’s really where they are seeing the value of my mind. They were seeing the value and I think that will actually be beneficial to them. The risk to Google, of course, and I support Google and I still think it’s a business that you can own and take advantage of price drops like this to buy.
They’ve been so dominant in search, Chris. I think the market saw this as a big existential risk. Google has been investing in AI for years probably. Data is their thing, so they will get this right, they will integrate. Bard was a big mistake, a PR nightmare I’m sure, for them, but the AI push to integrate that with search into their business, I think is just beginning, but for me, it’s beyond ChatGPT and really where artificial intelligence goes. All these big companies, we haven’t really heard anything from Apple about this, either. I can see this on the consumer side, Apple really starting to lick their chops on the AI side.
Chris Hill: But you have to believe Apple enjoys watching two competitors going at each other instead of Apple?
Andy Cross: I think so, too, and I’m sure Amazon‘s not really sweating that after this week, either.
Emily Flippen: Yeah, it’s all fun until you get pulled into the fray.
Andy Cross: Exactly, that’s right.
Chris Hill: Let’s get to some earnings news and we will start with Disney, the parks and experiences division carried the day in the company’s first-quarter profits and revenue beating expectations. In addition to announcing layoffs of 7,000 employees, CEO Bob Iger also said Disney plans to cut $3 billion in content costs. Andy, if there’s one thing Wall Street likes to hear about, it’s moving toward higher profitability.
Andy Cross: Bob Iger was very adamant about pushing toward profitability for Disney+, because obviously with all the billions they’ve lost on that’s been a sore point for him and for shareholders for sure. Chris, there was so much in this report. I was just trying to digest it all from restructurings to reporting on the parks that you mentioned, the parks revenues were up 21%. That even includes reducing the U.S. peak holiday capacity by 20% to really improve the guest experience. Operating margins were up to back the 35%, so very impressive on the park side. But as you mentioned, really the restructuring with that massive plan for Bob Iger to really bring back the brands and the creative side in charge at Disney, which under previous CEO Bob Chapek got separated.
It was more centralized over the business side. Trying to bring back the authority as well as the accountability to the creative side under the ESPN business, under Disney entertainment, and Disney parks. That was a big part of it. Also a little bit of a nod of maybe returning to the dividend. The dividend was cut. Maybe getting back the dividend, I don’t think it will be nearly as big as it was before, and they implied that. But still getting back to the dividend, reducing the costs that aren’t effective. They’re going to still spend billions and billions on content, Chris. But definitely getting that in line toward profitability to Disney+ and really bringing back the creative impetus to drive subscriber growth, drive the entire core part of Disney on the creative. That’s what Bob Iger said from months ago. He said he was going to do this. They also implied that they would have the restructuring and now they announced it.
Emily Flippen: Well you have to think they’re frothing at the mouth, ready to go with these new subscribers because of all the flak Netflix is getting for potentially changing the way that they’re instituting password sharing. If I was Disney at this point, I’m looking for a PR move to say right now, hey, we don’t care, if you share passwords, just stay subscribed.
Chris Hill: Lyft posted decent revenue numbers for the fourth quarter, but shares of Lyft fell 35% on Friday after those results came with weak guidance for the current quarter. Not the same case for Uber, which posted a surprise profit in its fourth-quarter report earlier in the week. Emily, we think of these companies, I mean, they are in the same business that came out at the same time. We think of them as being similar. You look at these very different results, though, boy, Lyft is in trouble.
Emily Flippen: Yeah, from a consumer perspective, there’s virtually no difference. When I hail an Uber, which I refer to as Uber regardless of where, I’m pulling it, but I open up Lyft and I open up Uber, I compare, I pick the cheapest or the fastest, whatever it may be. But these are actually two entirely different businesses and this is a good example their most recently quarterly reports about why. Uber has a level of scale efficiency and then additional segments that Lyft just doesn’t see right now, which is causing the difference in operating performance. Lyft, as you mentioned, they doubled in losses year over year to over $600 million. Uber in comparison their operating loss is only around $120 million.
They’re only profitable because of their equity investments, but their losses are shrinking at Uber and management is confident they’re going to get to adjusted profitability this year, whereas Lyft is still going through their cost-cutting phases and efficiencies, trying to understand how they’re going to reach scale. Uber really outperforms just in terms of efficiency. You can look at it in terms of their employee count, too. In their global business, they have a ton more employees than Lyft, but they pull in 25% more revenue per employee contributing to that scale. Uber just outperforming Lyft here.
Chris Hill: PayPal’s fourth-quarter results came in higher than expected. But that took a back seat to the announcement that CEO Dan Schulman is leaving the corner office later this year, Andy. It’s been a rough let’s just call it 12 to 18 months for the overall business. What is your thought first and foremost on Schulman saying, “I’m leaving?”
Andy Cross: It’s interesting how he will leave, Chris, he announced that he will retire at the end of the year, the board of directors will undergo a search and they’ll have plenty of time for the transition. I guess a little bit different than maybe we’ve seen recently with some of these different transitions we’ve seen with co-CEO and not co-CEO, and of course we had the Bob Iger and Bob Chapek rough handoff. So, he’s 65 years old. He’s been doing this for a long time. I can’t say it’s totally surprising that he’d want to hand this off, but I’m impressed that he announced it and now he’s going to be open and transparent as we go through the quarter, I imagine will be a lot of questions about that.
The quarter was actually pretty strong, Chris, I think we’re seeing that stabilizing in margins, the revenues were up 7%, 10% in the U.S., 6% internationally. The transaction take rate was about flat. Earnings per share was up about 11%. That’s above their own guidance and they guided for a pretty healthy growth in earnings this year as they continue, they had to lay of 7% of their workforce, they’re in their process doing that. They indicated that 2023 is off to a very good start. I think as they continue to expand the reach of both Venmo and PayPal partnering with now Venmo through Amazon. They’re continuing to innovate into that space. It’s very competitive. You’re not paying much for PayPal now at 19 times earnings for a company that probably can grow in the low- to mid-double-digits, and that’s a pretty good as they find the new CEO who will obviously have a different charge and different company takeover.
Chris Hill: PayPal is a $90 billion company, as you say, this is a very competitive space. How attractive is this job? Is this a situation where Schulman and the board of directors are going to get their pick?
Andy Cross: I think it is still attractive. Imagine that a CEO of a company like this in that space. PayPal and Venmo and those brands, very dominant, when we think about wallet search and checkout. I think it’s very attractive and take on of course, it’s a different business than when Dan was running at 5-10 years ago. Now it’s much larger financial institution competing against so many different payment players in the space.
Chris Hill: Coming up after the break, we’ve got the latest in restaurants, healthcare, and just in time for the Super Bowl, snacks. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Emily Flippen and Andy Cross. Cloudflare ended the fiscal year on a positive note, shares of the cloud services provider getting a boost due to record operating profit in the fourth quarter. Emily, when you look at Cloudflare, what stands out to you?
Emily Flippen: Well, Cloudflare is an incredible business, has a lot of white space. But if I was an investor, I would not be looking at this quarter and having a victory lap because I think the lot of the reason why the stock is up and stock has been up over the past month or two, is largely due to valuation less so than business performance. Cloudflare, for instance, the stock is up more than 40% so far in 2023. That’s true for a lot of this unprofitable tech-esque businesses, Cloudflare just being one example, but the quarter was good. As you mentioned, revenue and earnings surpassed expectations.
The business generated the highest free cash flow it has ever generated in the most recent quarter. All of those things are great, but let’s not put the cart before the horse here. Cloudflare and a lot of these growth companies are facing one big challenge which is growth is slowing down. Now growth is still more than 40%, that’s incredible. I don’t want to downplay that, but it is slowing. Gross margins on both the GAAP and adjusted level are falling as well. Operating margins on a non-adjusted level are also falling. The business’s dollar-based net retention rate has contracted every single quarter for the last four quarters.
Still incredible results. Let’s be clear about that. That dollar-based net retention rate’s still more than 120%. Those are metrics that other tech companies would kill to put up. But it is just showing a general trend, which is a lot of these companies are facing the challenges of a slowing economic environment and their businesses are slowing as a result. When you see the share up price up more than 40% this year, I wouldn’t think to myself the business is 40% better than it was in December. I would think to myself, the valuation and the expectation for this company got so low that it’s causing this probably short-term bump in the share price itself.
Chris Hill: Shares of Chipotle down 6% this week after fourth-quarter profits and revenue came in lower than expected. Same-store sales were also. Andy, it is not often that Chipotle’s results disappoint Wall Street, but this was one of those times.
Andy Cross: It was Chris, 5.6% on the same-store growth versus 6.9% expected. That had an impact on both the revenue and then obviously their profitability, even the restaurant operating margin at 24% was up from 20% a year ago, driven by lower delivery transactions, higher menu prices, and lower avocado prices, but offset by higher dairy rice, beans, and salsa prices as well. They opened 100 new stores, that included 90 with a Chipotlane.
The Chipotlane is very interesting. Since starting that in 2018, new restaurants’ productivity that has Chipotlane has improved about 1,000 basis points. They see a lot of productivity. A lot of the stores that are opening will include the Chipotlane. Prices though have been increasing. They’ve increased very aggressively on the pricing side, but up 15% over the past year. Maybe that is starting to have a little impact on consumer demand and that’s showing up maybe in the comp store growth, but there’s certainly making it up on the profitability, too.
Chris Hill: But Brian Niccol, the CEO, made some comments and you go back a year and Niccol talked about how this is a business with pricing power. They’re going to raise prices and test those limits. His comments this week make me think that they’ve hit the upper limit of that and they’re probably holding the line on prices for the foreseeable future.
Andy Cross: That’s exactly right, Chris. He said he expects the same-store growth to moderate in the second quarter and the third quarter, they’ve had a very good start to the year. But in the second quarter and third quarter, because those prices, they increased last year, they’ll be lapping those, so they won’t have those again. That will be a little bit of a drag on the growth. Interesting to note is that they are really expanding the menu. They including a lot more of these lifestyle bowls. I’ve always liked the simplicity of the Chipotle menu so I do worry a little bit that the menu is getting a little bit more complex than in the past.
Emily Flippen: On the contrary, and I know right now it’s not the best time to say this because the price of eggs are insane, but breakfast is still an option. You know, expanding it there; don’t charge more, offer more.
Chris Hill: Two big headlines this week for CVS Health. One is that fourth-quarter profits and revenue came in higher than expected. The other is that CVS Health bought primary care provider Oak Street Health in a deal just north of $10 billion. Emily, which is the bigger story to you?
Emily Flippen: Yeah. Fourth-quarter results, revenue up 10%, another great quarter, pharmacy, healthcare, it’s all doing well. Let’s talk about these acquisitions. CVS Health has a long history of making really bold acquisitions. In fact, it was a retailer that didn’t get into the game of healthcare and pharmacy, except through a number of really expensive, large acquisitions and it’s done wonders for their business. It’s the fastest-growing segment of the company today. But they’ve kept up that strategy in recent years.
The largest acquisition being Aetna Health in 2018, which was a nearly $70 billion acquisition, heavily levered up CVS’ balance sheet. The business has been slowly paying down that debt, but the problem is their debt load is still hanging around $50 billion today. When you see two large acquisitions coming through, this one for Oak Street Health that I believe is around the $10 billion acquisition alongside their pending $8 billion acquisition of Signify Health. On one hand, I say healthcare has been great for them. I like seeing them continuously push in that direction. On the other hand, I’m saying, man, that’s a lot of acquisitions, that’s a lot of debt. They better know what they’re doing.
Chris Hill: Shares of Pepsi up a bit this week as fourth-quarter profits and revenue came in higher than expected. The beverage and snack giant also issued upbeat guidance for 2023. Though interesting to note, Andy, similar to Chipotle, Pepsi basically said they are done raising prices for the year.
Andy Cross: Very similar to Chipotle. Chris, the fourth-quarter gross margin was flat with a year ago, which tells me that they have been able to offset some of the input costs that CEO Ramon Laguarta had talked about because those costs had increased. They’ve had that pricing increase. But also implied that it’s going to be a little bit dicey going throughout the year. They’re going to be very cautious on their pricing with the consumer in a certain state, but it was a very strong quarter with revenues up 11%.
On the organic revenue side up almost 15%. They saw growth. Frito-Lay was up 18%, Quaker Foods was up 10%, Pepsi North America was up 10%. That really showed up now both on the growth side and on the profitability side, and they increased the dividend or at least plan to increase the dividend by 10%. That’s the 51st consecutive increase by Pepsi. Shareholders would like it, like I do, for that dividend will be appreciative of that increase.
Chris Hill: We talk about November-December being such an important time of year for the retail industry. Do you think about the business of Pepsi’s, and they have it all year round. People are loading up on beverages and snacks during the holidays. We got the Super Bowl this weekend. Pretty soon we’re going to be talking about, well, it’s going to be Memorial Day, got to start grilling.
Andy Cross: Well, the other area, they saw some really interesting shifting growth as we were stuck in our houses, essentially during COVID and we started shipping more and more snacks. I know my family started shipping more box snacks and we just have big boxes of Frito-Lay snacks and chips for the kids, just for the kids, showing up on our doorstep. That was a shift and now they’re going to start to see that, but they’re, so why and they have such good distribution that it’s going to be a good spot for Pepsi to plan.
Chris Hill: Andy Cross, Emily Flippen. We will see you a little bit later in the show. A big change could be coming to the NFL playoffs details after the break with our guest, Andrew Brandt. You’re listening to Motley Fool Money. Welcome back to Motley Fool Money. I’m Chris Hill. Andrew Brandt is the director at the Moorad Center of Sports Law at Villanova University. He’s a columnist at the Monday Morning Quarterback and host of the Business of Sports podcast. He’s a busy guy, which is why we always appreciate when he takes time to join us, Andrew, thanks for being here.
Andrew Brandt: Always a pleasure. As I said, we get together usually this Thursday, Friday, Saturday before the Super Bowl every year, and it’s always a nice visit.
Chris Hill: Let’s start with Roger Goodell, the commissioner of the NFL, just had his annual State of the League address press conference. I was saying to you earlier, I feel like the NFL is stronger than it’s ever been. I just wonder if the NFL were a public company, what would they even list in the risk section at this point? By your observation, is the league at the height of its powers?
Andrew Brandt: We’ve talked about threats and risks to the NFL over the years, even with you before. One thing that always came to mind earlier was health and safety and concussions. Even beyond concussions, we had the most serious health event, maybe in the history of the league a few weeks ago in Buffalo, I’m sorry, with Buffalo against Cincinnati. That seems not a memory, but that seems not front-and-center anymore. They seem to have moved past that. They moved past whatever downside there was to the Colin Kaepernick situation. It may be Chris where it’s just kind of too big to fail.
It’s become such a monolith. I say that because I watched that press conference from Commissioner Goodell and it’s like why do we even have this? He’s just saying bland unrevealing corporate statements that don’t reflect any depth. He thinks the officiating is as good as ever. He thinks minority hiring is as good as ever. He thinks the safety thing is as good as ever. He has no concerns about any of the concerns that the media asks. In some ways, hey, they are a monolith as the most popular league in the country, by far the most watched league by far, the most profitable by far, the biggest revenues by far, the best collective bargaining agreement, the best media contracts, et cetera.
Chris Hill: I’m glad you mentioned his comments on the state of minority hiring and refereeing because those were, and I get that part of his job is to just sort of take some hits on behalf of the NFL owners.
Andrew Brandt: Right.
Chris Hill: I even get that it’s not his job to say particularly interesting things, but the comments on those two topics in particular, just struck me as an opportunity to at least say, hey, we can be doing a better job on this. He didn’t even go that far.
Andrew Brandt: No. Quickly look at each one. The minority hiring, obviously people focused on the head coach. That hasn’t been stellar results in recent years. For league, it’s 70% African-American and whatever the numbers have been in recent years, they haven’t been great. But you factor in Ron Rivera, minority hire, who is Hispanic. Mike McDaniel, hired last year, who has some minority blood and in his heritage. You have a couple of minority hires this year, so you’re getting up there in terms of salvageable numbers, but no one feels like it’s a representative sample. But there is positivity on the management side because there are now eight general managers and/or presidents that are African-American.
That’s one-quarter of the leagues, that’s 25%. That’s a healthy number. I’m sure Goodell harped on that and saying that, but it’s taken a while. There has been minority where hiring ups and downs since the Rooney Rule was in place in 2001 when I was in the league and it was more like, hey, you guys got to interview a minority when you hire a head coach. We’re like, OK, sure. But as we’ve talked about before, what do you do when ownership is dead set on a certain hire and no one black, brown, green, yellow, white is going to change that person’s opinion? That’s happened a few times and then these minority interviews truly become sham interviews. I don’t know if we have a solution for that.
Chris Hill: And the referee?
Andrew Brandt: Didn’t look good. In the biggest stages of the year, especially at Cincinnati, Kansas City game. It’s a hard job. Everyone has to realize that and we’re seeing things in super slow motion and the referees are seeing in real time in the cold, people much younger, much more active, fit than them. When he says there’s as best as it’s ever been, that’s where you have to take issue with it. You can say it’s a hard job. You can say no one ever gets it right. You can say there’s human error. But, best it’s ever been, that one got me.
Like we had not only that game, but other games in the playoffs. Side note, Chris, I don’t understand the all-star crews. In other words, they are crews throughout the year that go from game to game, same referees, same line judge, same back judge. A group of 10 people that travel throughout the year. But once you get to the playoffs, it’s quote, “all-star” crews. An umpire from this crew, a back judge from this crew, a line judge from this crew. I don’t get it because cohesion is a big part of that. That would be a question I would ask like, why are we doing this in the biggest games of the year?
Chris Hill: In terms of the finances for individual franchises where I live when one of the big stories is the expectation that sometime after the Super Bowl, Dan Snyder is going to put the Washington franchise up for sale. You tell me how many billions of dollars is this franchise likely to sell for? Seven, eight?
Andrew Brandt: Personal note here, I’m the city where you’re coming from is where I grew up and my fondest memory is going to RFK stadium with my dad as a kid, Washington Redskins fan diehards, we were so my friends and family have all been asking me that question for years and years. When can we have a new owner? He’s not popular as everyone knows. There’s litanies of lawsuits against him, there’s investigations that, one that got buried and one that’s ongoing, Congress has looked into him. With all that as a background, it does appear we’re inching toward a separation. Now, all we know is Bank of America is pursuing potential transactions. That can mean a minority share, that can mean a majority controlling share, we don’t know.
One thought I had was related to your question where Daniel Snyder wants to see the price before he decides I’m selling this much, I’m selling this much, I’m selling out, I’m getting out, taking my money and run. We’ll see. The reports came out when the bidding opened, the first round of bids were due in December 23rd, the reports were up to $6.3 billion. That doesn’t mean all of them were up to 6 and that doesn’t mean there won’t be more coming in higher than that. But you mentioned the seven number that’s been floated around for context. The Denver Broncos sold for 4.6 billion to the Walton family, the Walmart Family, one of the richest families on earth. That was a multiple of two times what the previous sale was, which was the Charlotte I’m sorry, Carolina Panthers to David Tepper for 2.27 billion. We’re seeing this economic geometric growth so far. We’ll see if it applies to their commanders as well.
Chris Hill: Jeff Bezos is one of the names flooded out there as a potential owner, whoever it is. Just for the sake of this conversation, let’s assume that it’s a completely new majority owner of the team. Any new job has its adjustment period. What has been your observation with new NFL owners, whether it’s the length of the learning curve or just to the extent that you see common mistakes or realizations that they go through?
Andrew Brandt: Yeah. This one’s hard to generalize because we do have owners come in and they are very, whatever the word is, submissive, docile, wanting to learn, wanting to spend time. I think of Arthur Blank when he came in on in the Atlanta, Falcons coming in from Home Depot and all the success, but he was very studious in what I observed in owner’s meetings, learning, taking notes, and talking to more senior owners. This was before my time, but as everyone knows then you’d have an owner with tremendous gusto and bravado like Jerry Jones, who’s coming in like a bull in China closet swept out Tom Landry, swept up Gil Brandt, swept out the whole Tex Schramm, the whole former Cowboys, and brought in his college coach Jimmie Johnson. It’s different for that.
I think we’ve seen in recent years owners wanting to get on the map quickly. If we could for a minute, just transition to our timing because one of the biggest trades in NBA history happened this week where the great, I think one of the top 10 players in the modern era, Kevin Durant is traded to the Phoenix Suns who just got a new owner within the last month, a young guy, Mat Ishbia, a 41-year-old mortgage lender. That’s quite a splash first move. You see it in all types where someone coming in will have a learning curve, but they may just want to go for it and use whatever bravado they have just to get it out there.
Chris Hill: Before we get to the big game, I want to ask you about the conference championship games because we had the prospect this year —
Andrew Brandt: Yeah.
Chris Hill: of a neutral site for the AFC Championship game. It was going to be set in Atlanta. It didn’t work out that way, but the league prepared for it very quickly just in case they had to. Now it raised this prospect of future conference championship games moving to neutral sites. I see the economic reason for doing that but it also occurs to me, Andrew, that the NFL, more so than maybe any other major professional sports league in America really does a great job of rewarding regular season performance. I mean, every week in the NFL matters, every game matters, and if you’ve earned the No. 1 seed, you’ve got home field through the playoffs. I don’t know. Where do you think this is going and how do you think owners will react?
Andrew Brandt: Well, two things. Home security is very important. We have it right now. Kansas City and Philadelphia were the top seeds. All they had to do was win two home games, and here they are in Phoenix for the Super Bowl. I’ve been very vocal about this and getting a lot of arrows thrown at me because I say that neutral-site championship games are an inevitability. I say that not to advocate for it, but to say the reality of the business of sports and business of the NFL is you have to.
It is going to have so many opportunities and it happens in college. College football playoffs is two neutral sites then a neutral site championship. March Madness is 64 neutral sites. It’s going to happen and people say, well, how are they going to make more money? Well, let me just say, Philadelphia and Kansas City had a notice of the championship game this year for four days. Imagine knowing where the championship’s game is going to be for eight months or a year and all the sponsor activation you could do, all the ticket sales you could do. They said that Atlantic game had sold out 50,000 tickets not knowing who was going to be in the game.
These are the things that could happen. Think of three Super Bowls instead of one. There will be bidding for the game, there will be hotels bidding, I mean, the whole thing. That’s why I don’t think the owners are going to turn down that revenue stream eventually, not this year, not next year. But I think that will happen. I know that upsets people. But that’s just, whoever thought we’d have a 17th game in the NFL, whoever thought we’d have championship games presented by TurboTax that’s just where we are.
Chris Hill: If you had to put a little wager on Super Bowl 57, what would you be wagering on?
Andrew Brandt: I talk to you from my home outside of Philadelphia, but that’s not the reason I’m going to say this. I think they are a juggernaut. I think it’s the Eagles’ year and everyone else has been living in it since September. I’ve watched a lot of Eagles games and frankly, a lot of them have not even been competitive, including the two playoff games. They outmanned the Giants of course and the Philadelphia’s quarterback got hurt, but he got hurt because the Eagles got him hurt. I think beyond Pat Mahomes, I don’t see a lot of match-ups that favor the Chiefs.
Now, of course, Pat Mahomes is Pat Mahomes, but Jalen Hurts is right there, not too far behind. I like the Eagles, I think they have been historical, good; offensive line and defensive line. For people who aren’t big football fans listening, that’s the trenches. We focus on the skill, the sexy wide receivers, and running backs, and quarterbacks, but the game is won in the down-and-dirty offensive and defensive lines. The Eagles have been built that way where I think they’ll get a lead and I think they’ll just run the ball and impose their will in the second half. I’m going out on a limb here because it’s not just picking the Eagles, I’m saying I don’t think it’s going to be very close.
Chris Hill: A blowout. It’s back to the ’80s for the Super Bowl.
Andrew Brandt: I just think so. I mean, again, people are not big football fans, but Tyreek Hill loss has not bothered the Chiefs that much. But I think it will on this game. I think their receivers are going to be hard to separate to have that big deep threat that Pat Mahomes needs. Yes, I am picking an old-time Super Bowl blowout.
Chris Hill: You can read his stuff online at the Monday Morning Quarterback and listen to the Business of Sports podcast. Andrew Brandt, always great talking to you. Thanks for being here.
Andrew Brandt: Always a pleasure, Chris.
Chris Hill: If you’re looking for Andrew’s thoughts on a weekly basis, go to Andrew-brandt.com and sign up for his weekly email called the Andrew Sunday Seven. Right after the break, Andy Cross and Emily Flippen are back with a couple of stocks on their radar. You’re listening to Motley Fool Money. As always, people on the program may have interests in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear.
Welcome back to Motley Fool Money. Chris Hill is here once again in studio with Emily Flippen and Andy Cross. You’ve heard me talk before about Stock Advisor, our flagship investing service where you get two stock recommendations every month. But if you’re looking for more research and recommendations, check out Epic Bundle. Epic Bundle combines the Motley Fool’s four foundational stock investing services into one membership.
With Epic Bundle, you get immediate access to all of the research and recommendations within Stock Advisor, Rule Breakers, Real Estate Winners, and Everlasting Stocks, and for a lot less money than if you paid for each one of those four services individually. For more details, just go to epicstart.fool.com, that epicstart.fool.com, I’ll put a little link in the show notes for those of you listening to the podcast. Let’s get to the stocks on our radar. Our man behind the glass, Rick Engdahl is going to hit you with a question. Andy Cross, you’re up first. What are you looking at this?
Andy Cross: Well, it’s Super Bowl weekend, Chris, so I’m going with Domino’s Pizza. Hopefully, many people will be eating a lot of pizza. One of the largest pizza companies in the world, more than 18,000 stores, nearly, all franchised across 90 countries. Market share in the US is about 15%. Makes most of the money from franchise operations, like fees from using the Domino’s name, a percentage of sales and equipment and supplies that the franchisees have to purchase. Opened 1,200 stores in 2021.
Has invested massively and early and in technology from things like the heat hot bags, the three card tops, online-mobile ordering. In 2007, self-delivery vehicles, I haven’t seen one of those, but I think that they’re out there somewhere. One of the best-run businesses. Net profit margin of 10%, are impressive. But the returns on capital, so the returns they make on the investment business, north of 40 or 50%, very impressive. Pays a small dividend, it’s increased 19% annually over the last five years. I think the stock was very interesting. A little bit of a yield, so you can get that little bit of yield for yield seekers too. But I’m looking at Domino’s Pizza, DPZ for the Super Bowl.
Chris Hill: Rick, a question about Domino’s?
Rick Engdahl: These days with Uber Eats and Grubhub and all those delivery companies, why would anybody order pizza from Domino’s when you can order it from so many better pizzas?
Andy Cross: Because their pizza is delicious.
Rick Engdahl: Oh, sorry, I missed that.
Chris Hill: Emily Flippen, what are you looking at this week?
Emily Flippen: I didn’t even know it was Super Bowl weekend until right about now. I’m looking at something completely different, although you could probably try to tie it in. I’m looking at Boot Barn. The ticker is a B-O-O-T as in BOOT. I’ll tell you what, when I started researching this company, I thought I was special because I knew about it, from Texas, so I’m familiar with my boots. But this is actually the largest retail chain of specialty Western clothing. And much to my surprise, they have more than 300 locations across 40 states in the United States, so really well diversified in terms of their footprint. The thing that makes them special is that boots are a pretty big purchase as it turns out, and people like to have a very special experience. So their employees are knowledgeable, they have a really strong, nice, easy e-commerce portal, and they have a goal of tripling their store count, which is probably achievable given the fact that they’ve increased their annual sales per store by more than 50% over the last couple of years.
Emily Flippen: Rick, question about Boot Barn?
Rick Engdahl: My family’s from Kansas, so as a kid, I’ve worn my share of Western wear. It’s been a long time though. I have to say, I miss fringe. Does this company have any hope of bringing fringe back to the fashion?
Emily Flippen: I am such a poser here because I’ve actually never worn a pair of those. I claim Texas when it’s easy for me and I don’t want it when it’s not. I didn’t even know fringe was out of fashion.
Chris Hill: I think I know the answer, Rick, but what do you want to add to your watch list?
Rick Engdahl: I need some boots, maybe a hat, too, and something hanging from my sleeves. That’s got to be something. I’m going to check the site
Chris Hill: Andy Cross, Emily Flippen, thanks so much for being here.
Andy Cross: Thanks, Chris.
Emily Flippen: Thanks, Chris.
Chris Hill: That’s going to do it for this week’s Motley Fool Money radio show. The show is mixed by Rick Engdahl. I’m Chris Hill. Thanks for listening. We’ll see you next time.