In this podcast, Motley Fool senior analysts Matt Argersinger and Jason Moser discuss:
- The lack of clarity (at the moment) facing investors.
- PayPal, Netflix (NASDAQ: NFLX), and Meta Platforms are being added to the Russell 1000 Value Index.
- What the latest results from homebuilder KB Home reveal about housing.
- The latest from DocuSign (NASDAQ: DOCU), Darden Restaurants, and Kellogg.
Jason and Matt answer a listener's question about Activision Blizzard and share two stocks on their radar: Qualcomm and eBay (NASDAQ: EBAY). Motley Fool senior analyst Jim Mueller analyzes the companies competing for Netflix's ad business, opportunities in the metaverse, and big tech's pursuit of streaming live sports.
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 June 24, 2022.
Chris Hill: It's Motley Fool Money radio show. I'm Chris Hill and I'm joined by Motley Fool senior analysts Jason Moser and Matt Argersinger. And it's good to see you both.
Jason Moser: Hey.
Matt Argersinger: Hey.
Chris Hill: We've got the latest headlines from Wall Street we'll get an update on the entertainment media landscape, and as always, we've got a couple of stocks on our radar. But we begin with the big puzzle. On the one hand, data out Friday indicates that both gas prices and mortgage rates are starting to drop. On the other hand, some major companies are either freezing, hiring or laying people off. Matt, let me start with you. Everyone is looking for clues to where the economy and the stock market are going. But it seems like clarity is weeks, if not months away.
Matt Argersinger: Absolutely. Chris, I'm trying to figure it out myself. But I think what I can say confidently is, that this isn't like 2008. There's not a systemic crisis that is going to bring everything down. Jobs, the economy, asset prices, energy prices, credit markets, and the whole world basically crashed back in 2008. I think we all agree on that. I think what we have today is just really a big jumbled mixed bag. It's the best way I can describe it. Because I think on one hand you've got industries. You've got the homebuilders, you've got manufacturers, you've got technology companies seeing a pretty sharp slowdown. But on the other hand, you've got the energy industry, which is having its best moment in more than a decade. You have hotels and resorts that are charging rates that are higher than before the pandemic, to travel, it feels pretty strong. Retail is doing fine for the most part. It just feels really unsettled. I think you can make good arguments for the economy to go in either direction. I think that's being reflected in the stock market right now, investors have a sense that there are opportunities and there always are opportunities. But they're hesitant because you just don't know what kind of shape the economy is going to be in several months from now, and what higher interest rates are going to mean for a lot of businesses. I think a holding pattern is where the investors and the stock market are right now.
Chris Hill: Jason, I want to key in on one word Matt said at the end there and it hasn't, because I think that as much as anything, that sums up the mood for a lot of individual investors and also for the fund managers and institutional folks on Wall Street, there is a hesitancy to jump into this market with both feet.
Jason Moser: It reminds me of that Larry David GIF or GIF, whatever side of the argument you fall on there. But he is like uncertain. He is like maybe so maybe not. I don't really, we're doing that right now, it does feel that way. I like your use of the word puzzle because it feels like we're trying to just put these pieces together and it's just right now that picture just isn't there. I mean, there's so many signs pointing in so many different directions and consumer sentiment at a record low, personal savings rate is around 4.4 percent now and falling, there's not going to be more stimulus really to help prop up the consumer spending in that regard, credit card balances going up, starting to see some pressure in the jobs market.
Then you look at the way the market has been performing. I'm glad many brought up 2008 because that's an important time to remember. We all lived through that as investors have felt like the prevailing attitude at the time was the world was coming to an end. It felt like it was because there were some fundamentally structural issues at play there that don't exist today. If you look at the way the market performed in 2008, it wasn't good Chris, meaning it was down 36 and a half percent and that's right about in line with the average bear market since 1929. The S and P Blues is on average about 36 percent. We're not even close to that right now. I mean, there is every reasonably we could see the market go lower, but it doesn't necessarily mean it will. Then you add to that this dynamic in play that over the last 20 years, half of the S and P strongest days occurred during a bear market and certainly we're all seeing that play. I mean, there's just some very big moves to the upside on certain days when the headlines look a little bit better than others and so it makes it for a very confusing time I think. Honestly, it really does point back to why we invest the way we do here because it is very difficult sometimes to try to ascertain exactly what's going on on a daily basis.
Chris Hill: Adding to the confusion is the fact that at the close of trading on Friday, the Russell 1,000 Value Index will do some rebalancing. Among the stocks being added to the value index our Netflix, PayPal, and Meta platforms, the parent company of Facebook. Jason those are three of the biggest growth stocks of the past executive. What are they doing in a Value Index?
Jason Moser: Well, other than the obligatory rebalancing that comes from stocks headed to different benchmarks, I think it's interesting to think about why these businesses are where they are today. You look at the performance year-to-date, Meta down 50 percent, PayPal down 59 percent, Netflix down 68 percent. There are reasons why that's happening though. The bigger question investors need to ask themselves as opposed to why are these value stocks? Why are these companies where they are today? I think these are all businesses they're all market leaders in their own right. There is uncertainty about at all three as well. What is that uncertainty and what are the chances that they can turn this conversation around? You look at something like metaphors to me, Meta stands out as the one with the most uncertainty because it seems like it's placing all of its chips on the metaverse. Which right now is just a big fat question mark for a lot of us. We don't know what that's going to look like. We don't know how many people are going to choose to participate. We don't know how really that's going to monetize video streaming and digital and mobile payments. I think the uncertainty is very much just been last. There's just less uncertainty in regard to those long-term tailwinds there. It's going to be interesting to watch how these businesses recover from this value territory. But it's also worth remembering that as businesses get bigger this just becomes more and more of the part of the conversation. We had a point that we're talking about Apple in this light. As it became a dividend-paying stock, wow Chris, that worked out pretty well for investors. I would encourage you to see the glass half full in this case.
Chris Hill: From value stocks to bellwethers shares of FedEx of nearly 10 percent on Friday, fourth-quarter results were mixed, but FedEx escape strong guidance for the new fiscal year. I'm done, shareholder Matt, but this is one of those companies that I root for because of its role in the broader economy.
Matt Argersinger: I'm not a shareholder either Chris, but after these results, I'm thinking about it because, go back to our earlier discussion on the economy. If you want to feel pretty good about things, look at FedEx's earnings. In the quarter just ended in May, revenue was up eight percent year-over-year, get adjusted operating profits up 13 percent, and pretty much better profit margins across the board. This was a quarter by the way, where we had significantly higher fuel prices. That's a huge line item for FedEx, yet they managed through a pretty darn well, and yet the guidance was where the strength was really. You had forecast earnings-per-share growth around 14 percent in the current fiscal year, which just started. Now some of that growth is coming from buybacks. So FedEx, which really hasn't been a big repurchase serve its stock. They bought back more than two billion dollars worth of stock over the last fiscal year. That's really helping the earnings-per-share. They also recently raised our dividend by 53 percent. You step back and you have this bellwether business. There stock is trading for roughly 11, 12 times forward earnings and now the dividend is yielding two percent, and you got double-digit earnings growth potentially this year. Like I said, I don't own shares of FedEx, but I think if you're a shareholder today, you've got to feel pretty good about it, and it tells you a pretty good story about the economy.
Chris Hill: On Tuesday DocuSign announced that CEO, Dan Springer was leaving effective immediately. Board chair Maggie Wilderotter takes over as Interim CEO, as DocuSign looks for a permanent replacement. Jason we've talked before about how a rising stock price provides a halo effect for CEOs were in a bear market. Shares of DocuSign are down more than 50 percent year-to-date. They are not alone, as we have discussed before. I'm wondering if you expect to see more changes in more corner offices.
Jason Moser: I absolutely think it's a possibility. A business that stands out to me as being a part of this conversation is PayPal. It wouldn't shock me at all to see CEO Dan Schulman, at least feeling like the spotlight could be turning his way. You look at what's going on with DocuSign, these companies have found themselves on the tricky spot. I mean, this is a business that's fundamentally far better than it was even just a couple of years ago. If you've look at first quarter of 2019 revenue for DocuSign, 214 million dollars, you fast-forward today, first-quarter of 2022, those revenue of 588 million dollars. I mean, it's, it's the working its way toward profitability, but it is cash flow positive. I mean, this is a business is fundamentally a better shape, but there were some unforced errors along the way that we're committed in regard to forecasting, there's employee attrition.
Dan Springer, to be fair, took his lumps here recently talking about how they did such a great job of fulfilling demand during a tough time. That demand more or less just showed up on their doorstep though. They didn't do as great a job. They took their eyes off the ball in creating demand. I think that could be where the concern for this business is today. Perhaps there's another shoe to drop. It's hard to say. But I do know when you look at the recent language in PayPal's call, there was a tone of humility on the part of Dan Schulman and Singleton, "We need to rethink our philosophy and methodology around forecasting. We need to get back to where we were before the pandemic, and making sure we give the ball to our teammates and let them develop and run and grow this business as well." I said it before. It felt like maybe PayPal became a little bit of a Dan Schulman-centric story. It felt like maybe DocuSign became a little bit of a Dan Springer-centric story. That's a sword that can cut both ways. Unfortunately, in this case, it resulted in Mr. Springer having to step down.
Chris Hill: I don't mean to indicate that the sole report card for any CEO should be the stock price. It just seems though that because of the environment we are in, you used the word rethinking, I can see more boards of directors, and in some cases maybe CEOs themselves, evaluating where they are, where their business is, and saying, "You know what, it might be time for a change."
Jason Moser: Yeah. It's just no two ways about it. Leadership can make or break a business in certain cases. You can never take these types of situations for granted. A good business is a good business, but you'd still have to have someone leading the way.
Chris Hill: Up next, we've got the latest in housing, restaurants, and more, so stay right here. You're listening to Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money. Chris Hill here with Matt Argersinger and Jason Moser. Shares of Darden Restaurants up nearly five percent this week. The parent company of Olive Garden raised their dividend 10 percent and posted higher-than-expected profits in revenue for the fourth quarter. Jason, we talked about this earlier in the week, Olive Garden drives the bus for Darden [LAUGHTER] but they've got a fine-dining segment that's doing much better although management is being cautious with their guidance.
Jason Moser: They are. Darden has always been very good about using its size to its advantage and keeping prices low, maximizing efficiencies, and reaching every level of consumer from the lower-end to the higher. It certainly feels like they've been able to keep that ball rolling here over the last couple of years, which have been a tough time for really all restaurant businesses. But to your point there on the numbers, total sales up 14.2 percent. That was driven by a same-store restaurant sales of 11.7 percent. Now, like you said, Olive Garden drives the bus. That's the biggest contributor to the business, and those comps were up 6 and 1/5 percent. But the fine dining to your point, 34 and 1/5 percent, Chris, people wanted to treat themselves this quarter it sounds like.
That's all very encouraging. I think the 10 percent boost to the dividend from a quarter ago is a sign of strength as well. Interestingly, what Darden does, and you heard the on the call a lot, they continue to under-price inflation and their competition. Inflation has really been a key theme for a lot of these calls. They continue to focus on under-pricing inflation in their compensation to present a value proposition and bring people in. It certainly worked out very well for them on Mother's Day. It was the highest sales day ever for Olive Garden and the second highest guest count day in history. Interestingly also, on staffing, right now they have more managers per restaurant than pre-COVID times. So at the manager level they are doing great. They're back to basically pre-COVID levels on the team member side as well. Though they did note there's some pockets of restaurants where there's some staffing issues. But generally speaking, in a world where staffing in the service industry has been very difficult, it feels like Darden has managed their way pretty well and that is playing out on the business.
Chris Hill: Am I the only who thinks that when earnings season hits up in July and August we're going to hear the phrase staffing issues for more than a couple of retailers and restaurants out there?
Jason Moser: I feel like we will and it feels like Darden's put themselves in a pretty good spot where this is concerned.
Chris Hill: KB Home's second-quarter profits and revenue came in higher-than-expected and shares up nearly 15 percent this week. Matty, you watch real estate and housing more than anyone I know. What, if anything, does a home-builder like KB Home tell us about the housing market?
Matt Argersinger: Well, it tells us a pretty good story, I think. I was looking at KB Home's results and to me they told us exactly what I think most of us think is going on with the housing market, which is housing market is not crashing. It's not falling off a cliff by any stretch. People are still buying homes, especially in strong markets like the Southeast, Southwest, and even California, where KB Home does a lot of its building. There has been some moderation though, as we've seen, interest rates, mortgage rates surge higher really historically over the past few months. If you look at KB's result, even though revenue and margins were higher, that's really mostly reflective of higher home prices. Deliveries, on the other hand, were flat. Orders have actually come down and cancellations have picked up a little bit. To me, KB Home going up as much as it did recently is really just a relief rally because home-builders have just been hit really hard. You got the higher revenue, higher margins, but lower growth. I think that's the same story a lot of home-builders are telling right now.
The one disagreement that I have with KB is their guidance. It has been a little worried. They're guiding that the average selling price is going to keep moving higher to about $500,000. Right now it's around $490,000. That strikes me as pretty optimistic. I expect we're going to see a moderation in prices. We're going to see those orders continue to come down. I feel home-builders are probably going to protect margin more than anything else. They're already facing a lot of pressure on the supply side and the cost side. I'm a little concerned, but I do think the home-builders, are just being beaten down so hard, including KB Home that any decent continues. In other words, housing market is not crashing, good news, is going to send their stocks probably higher.
Chris Hill: Should we be looking for similar guidance from other home-builders as well and essentially compare what they think is going to happen to home prices going forward to what KB Home is saying?
Matt Argersinger: I think that'd be smart to do. We're going to see this coming quarter when the home-builders report what they say about the average selling prices. I expect a lot of the other home-builders, like NVR, and D Horton, are going to come out and say, "Now we actually think prices are going to stay roughly flat, maybe even slightly lower over the next fiscal year, so we'll have to see."
Chris Hill: This week, Kellogg announced plans to split into three separate public companies, one for breakfast cereal, one for snacks, and one for plant-based foods. CEO Steve Callahan is planning to run the snack business. Jason, I'm already a consumer [LAUGHTER] of both Cheez-It and Pringles so I might have to invest my money where my mouth is.
Jason Moser: Well, I feel like you're probably right there. The snacks company, to my mind, seems like the more attractive of the three opportunities. When you look at the overall business, Kellogg has been relatively stagnant here over the last five years. Compound annual growth rate on the revenue side of 2.1 percent which is just nothing really to write home about. Although I will say, it's had a very good year to-date, stock is actually up and outperforming the market handily. That's nice. Chris, I just had very strong feelings on the tickers here, OK, in two ways, the cereal company's ticker better be pops, P-O-P-S [LAUGHTER], if not missed opportunity. For the love of God, I'm with you on Cheez-Its, [MUSIC] I'm going extra toasty, and it feels like it's a perfect opportunity for that snacks division ticker to be C-H-Z-T. If it's not Cheez-It, color me disappointed.
Chris Hill: Jason Moser, Matt Argersinger, guys, we'll see you later in the show. Up next we will get the latest on the metaverse and the entertainment industry with Senior Analyst Jim Mueller. Stay right here. This is Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money. I'm Chris Hill. Earlier this week, The Wall Street Journal reported that Comcast and Alphabet have emerged as the top contenders to work with Netflix on the ad-supported tier of their service. Joining me to discuss in that and other parts of the entertainment media landscape is Motley Fool Senior Analyst Jim Mueller. Jim, thanks for being here.
Jim Mueller: My pleasure, Chris. How are you done?
Chris Hill: Doing well. I want to get your thoughts on Netflix apart from this, but let's start with this story. Is this a lucrative opportunity for whoever wins the right to work with Netflix on advertising?
Jim Mueller: Not right off, certainly not this year, probably not next year, it's going to take a little bit because Netflix and whoever wins, Google, Comcast, whoever, need to figure out how to serve the ads, who gets to see the ads, etc. It could be, but if Netflix shareholders are thinking this is going to be the savior of their company, it's going to take a few years for this to really get going.
Chris Hill: What do you think is a reasonable success metric? What should people be looking for? Because it seems as though Netflix is very focused on launching this in this calendar year.
Jim Mueller: Look for revenue growth as our management said at the end of the call, last quarter, I think the first quarter call, but for quite a while, Netflix's revenue growth is going to be still subscriber counts. How many subscribers do you have? Because remember anyone who goes to ad-based here and is willing to be served those ads, Netflix is losing money on, because they're going to lower the price. They have to make that up plus whatever extra they can get per person for that. If you're thinking of billions and billions of dollars of revenue from advertising, they're going to have to overcome even more billions of lost revenue because of the drop in the pricing tier.
Chris Hill: Why do you think Netflix is going the route of partnering with someone? Certainly, Google is as experienced at advertising digitally as any business out there. Is it just so that they can launch this sooner? Because I'm sure there are people within Netflix who are making the argument saying, no, we should build this thing ourselves.
Jim Mueller: You answered your own question. Yes, this is to get it out there quicker. Get someone who knows the advertising business because Hastings and Sarandos and those guys, they do not know advertising at all. They know content, they know subscription, they diddly on advertising. Get somebody who is experienced on that, learn from them, and in comments made today in another Wall Street Journal article, Co-CEO Ted Sarandos is quoted as saying that basically they want to end up building their own and iterating and making it their own thing, which means that this partnership is going to be a few years, maybe a decade at most, I think, just from what they were saying. They definitely want to do it themselves, but I think they recognize that in order to start generating more revenue, they need to get in this faster than the two year timeline they mentioned at the end of the first quarter.
Chris Hill: What do you think the current state of Netflix is? Is this a stock that looks, certainly, it's lower priced than it was, say, a year or so ago and it's always fascinating to me when there is a business that is the clear leader. Let's be clear about this, all other subscribing services would love to have the number of subscribers that Netflix has. They're the clear leader in that category, but the stock is really beaten down right now.
Jim Mueller: You're asking is it a value play? No, I think it's a value trap at the moment. They're in trouble. They lost two million subscribers this last quarter. They came in two million subscribers light against what they had guided to Wall Street, and when they issued that guidance in January, it was half of what Wall Street was expecting. They got pounded about that and they couldn't even make it because of a near one percent churn. For the current quarter, Q2, which they report in middle of July, they're guiding to a two million subscriber drop. That's the first time they've ever guided in 16 years. I've been tracking this for 16 years. That's the first time they've ever guided to a subscriber drop, and if they miss on that and the drop is three or four million, you don't want to be buying shares at today's price. That means the virtuous cycle of more subscribers means more revenue, means more spending on great content, which brings in more subscribers. That's been the driver for the company so far, but now if their subscriber count is actually beginning to go down, you're going to start running that backwards and that is death to the company. They need to get revenue, that's why they've finally caved on the advertising campaign, that's why they're starting to focus on very carefully so they don't push people away on the sharing issue of passwords and so on. I think they are reacting to things and in trouble and before investing in it again, I would like to see them start to solve these problems. Full disclosure, I do not longer own any shares of the company.
Chris Hill: Earlier this month, there were reports that Netflix might be buying Roku. Certainly, the more recent reports about Comcast and Alphabet probably put all of that to rest. If you're a Roku shareholder, are you disappointed or are you relieved?
Jim Mueller: As Sarandos confirmed that in the same article, we don't need it, as a quote, declining to comment on reports that Netflix could be interested in buying the streaming of Roku. I was quoting from the Wall Street Journal article, we don't need it. Frankly, anyone who actually thought about it said they've got six billion dollars of cash on the books, how much are they going to spend to buy Roku and what is it going to give them and how else might they use that money? Remember, they are spending a lot of money on that content. I don't think the Roku thing was anything more than a rumor and not even much of one. As a shareholder of Roku, probably relieved. Roku has pretty solid business by itself. They've just hit a little bit of rough patch and I think shareholders give that management team time to get through it, they should be all right.
Chris Hill: Let's move away from streaming video and into the metaverse. Meta Platforms CEO, Mark Zuckerberg said this week, his goal is to have one billion people in the metaverse, each spending hundreds of dollars a year. Let's put aside whether or not you or I think it's going to get to a billion people and how long that will take. I am curious though about the commerce part in all of this. When you think about the metaverse, do you think there are public companies that are among the likely candidates to either enabled e-commerce in the metaverse or provide the entertainment or services or whatever that people are going to actually spend money on?
Jim Mueller: Sure, advertising. That's what Facebook, I'm sorry, I can't say Meta Platforms [laughs] without cracking up. That's obviously where Zuckerberg is going with that, but there's so many ways to play the metaverse. You've got advertising, you've got companies like the Trade Desk that do a good job of placing ads where they do the most good and they'll learn from the patterns of what people do inside, whatever platform they're on about which ads would serve those people well. You've got Google, Alphabet, of course, and their expertise of advertising. Then you've got the platforms. The way a lot of people are talking about it is as if the metaverse is a single thing, it's not. It's scattered all over the place. You've got Facebook's version, you've got Roblox's version, and within that you've got a whole hundreds, if not thousands, of different little worlds to go explore. You've got live baseball that has metaverse. You see what they call stat cast, the arc of the ball, the speed of the pitch, the placement. All of that is using data from the real world and adding a layer of computer-generated imagery and information on top, which is what's called augmented reality, if I've got my terminology right. You could play into, Major League Baseball is not public, but there are companies that collect that data and provide it. Sportradar is probably the biggest player there. Lots of different ways to play it. If I were going to be investing in this long-term trend, I'd want to be willing to sit for at least a decade as it slowly builds out. It took a long time for the Internet to really get going, and this I think is bigger and requires more of a commitment by people to have some hardware permanently on, if they're going to be in it all the time. That is going to take longer for this to come into reality for most people.
Chris Hill: You mentioned live baseball and that's actually where I want to wrap up because I know you're a big baseball fan. Apple and Peacock are each paying Major League Baseball $100 million for the rights to stream games. Amazon Prime is doing New York Yankee games on Friday nights. As someone who is a subscriber of ApplePlus, they are pushing the baseball on a regular basis. I'm curious if these are services that you think are going to lure people in because the larger trend, obviously, is something that I think we all talked about for a while and it took a while to get going, but it was this idea that big tech companies like Apple and Amazon would actually start bidding on live sports. There are people back in 2008, '09, and 2010 saying this is coming. It actually took a little bit longer. But do you think Apple and Peacock dipping their toe into major league baseball as waters. Do you think this is a prelude to larger things?
Jim Mueller: Oh, definitely. Apple in addition to that baseball stuff, they are the likely winner of the NFL Sunday ticket. Just hasn't been announced yet but that's the speculation, which means they will have a bunch of American football games on every weekend starting probably next year. I think directed to you. DirecTV has the contract through the end of this year. So not not only baseball but sports in general. I mean, I ran across a story while thinking about this. Sinclair, the television network company there, they just launched, in fact, that went live this past week their regional sports and network valley sports as a independent streaming service to play baseball games for the five baseball teams in their regional sports network and regional sportsmen networks like yes, Yankees. I don't know what the ES stands for but it's the Yankee 1. Any SM covers the Boston Red Sox, all these regional sports networks, they're starting to launch their own little subscription services to this. Major League Baseball, of course has the whole thing, except for your regional teams for 150 a year finally, pulling it up. [laughs] [MUSIC] Just to watch them on my Mariner games. This is definitely happening and this is definitely a thing and you can expect more and more of it to come going forward.
Chris Hill: Jim Mueller, good luck to your Mariner. Thanks for being here.
Jim Mueller: Thanks.
Chris Hill: Up next, Jason Moser and Matt Argersinger return. I got a couple of stocks on their radar, so stay right here. You're listening to Motley Fool Money.
Chris Hill: As always, people on the program may have interest in the stocks they talked 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 here once again with Jason Moser and Matt Argersinger. Our email address is firstname.lastname@example.org. Got a question from Levi in South Dakota who writes, any updates on the activision blizzard buyout? We're saving to build the house and I'm wondering if this is too risky to put some of our house savings into for an arbitrage play. Warren Buffett likes it. So does that indicate safety? Let me just thank you for the question Levi. Let me just review for folks who haven't been following this closely as we have back in January, Microsoft announced it would buy Activision Blizzard for $95 a share. The deal is expected to close next year. At the moment, Activision shares are around $77. At the end of April, Warren Buffett said at the Berkshire Hathaway Annual Meeting that Berkshire owns 9.5 percent of Activision Blizzard, and it's because he said, sometimes I will see an arbitrage jail and I'll do it and I'm coding here, it looks like the odds are in our favor, but absolutely we can lose money on this company, fairly large sums of money depending on what happens if the deal blows up. So map, we can't give specific personalized guidance for Levi, but I don't know. I think the fact that Buffet himself is signaling like, yeah, we like our odds, but there's no guarantee. I feel like that in and of itself provides even more guidance.
Jason Moser: That's the guidance. These can be a dangerous effort through said at first, but it's the metaphor of picking up pennies in front of a steam roller. In this case, it's a little different though the spread is so wide and you've got buffered behind it. I have to say this is one of those arbitrage plays. Just speaking from my own personal perspective, I own shares of Activision Blizzard, not because of the arbitrage play. I've owned the shares for years, but it's one of those situations where I do think there's probably not as much downside because of you said the stock's at 77, well, that is just slightly above where Activision's been trading the last five years. I feel like even if the deal falls through regulatory concerns or what have you, I don't feel like it's a situation where the stock is actually going to plummet. It will fall, but maybe the downside isn't as sharp as it might be, say, for another arbitrage play. So maybe one of small bet for the average investor, I don't know.
Matt Argersinger: Jason, I feel like this is one of those situations. If you're interested, maybe make it a small percentage of your investing dollars.
Jason Moser: Yeah, I think that's fair. The old saw goes if something bookstore seems too good to be true usually is. It feels like in this case I'm with Matt, it does feel like this deal likely happens, and even if it doesn't, I mean, Activision Blizzard around zone is still a good business, so the downside is relatively limited, but you go back to the funds. I mean, it's funds are for building a house. So this is a big deal. You don't want to put that stuff at risk. I think it all goes back to just these are the types of situations. Maybe you have a small portion of your portfolio that's dedicated to special situations investing, which is what this would qualify as. Also remember, there are going to be short-term capital gains taxes here replay depending on the type of account that you use. But I tend to agree with Matt, it feels like the downside in this case is probably somewhat limited.
Chris Hill: Let's get to the stocks on our radar. Our man behind-the-glass, Dan Boyd is going to hit you with a question. Matt, you are up first. What are you looking at this week?
Matt Argersinger: Chris, I am looking at eBay and the tickers, E-B-A-Y, simple as the comps, everyone knows eBay and it's still an e-commerce powerhouse. I mean, they did 10 billion in annual revenue last year. Still have 147 million active buyers, 17 million active sellers, so it's a huge platform, huge marketplace. It's just a huge big-time cash-generator. Nearly 1.8 billion in free cash flow over the last 12 months. They've used a lot of that cash flow to reduce share count by buybacks. They bought back over 50 percent of the stock over the last nine years. Trades at a 4P multiple 11, they start paying a dividend 2019. They've raised that a few times already. I hate disagreeing with the market, but I think eBay is way too cheap right now.
Chris Hill: Dan, question about eBay.
Dan Boyd: You know, it's not too cheap, Chris. All the stuff that I want to buy on eBay [laughs] I got to tell you boys, I do like eBay as-a-service. It is a wonderful way to get things that are out of print or special or signed or anything that is commemorative, remember Bill or whatever. I love the service. I think that as the stock if it's super cheap right now, might be a good opportunity because I don't think eBay it's going anywhere.
Matt Argersinger: There you go, Dan.
Chris Hill: Jason Moser, what's on your radar?
Jason Moser: Keeping an eye on Qualcomm ticker, Q-C-O-M, I'm going to have a good fortune next week to interview CFO Akash Palkhiwala. We'll be talking hopefully about a wide range of topics, things like how they're handling the ongoing supply chain issues, Apple's moves to becoming more vertical. They have an ongoing partnership with Microsoft and of course, their ongoing efforts in building out 5G. But hey, it's also worth noting dairy founding affiliate of 6G and UT, a program at University of Texas that is working on the inevitable rollout of 6G and all of its applications. So it should be very fun and educational interview, and folks probably know I've recommended Qualcomm and both of my services here at the fools. [MUSIC] So I'm especially excited.
Chris Hill: Dan, question about Qualcomm.
Dan Boyd: Now, Qualcomm seems like one of those stocks from the '90s that has just stuck around for whatever reason, I'm sure that they have been very important in developing technology and stuff in the past. But all I can figure when they think of Qualcomm is like a landfill lines.
Jason Moser: Well, Dan, that's not really a question, but I'm going to put it into question forum and added to the interview next week. So thanks for the help. [laughs]
Chris Hill: A love the reference to landlines, Dan, of those two, do you have one you want to add to your watch list?
Dan Boyd: You know what Chris? As much as I like the old rotary phone, I think I'm going to have [laughs] to go with eBay on this one again it's service that I love. I think it's a great site.
Chris Hill: Matt Argersinger, Jason Moser guys, thanks so much for being here.
Matt Argersinger: Thank you.
Jason Moser: Thanks, Chris.
Chris Hill: That's going to do it for this week's Motley Fool Money radio show. Show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you next time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. 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. Chris Hill has positions in Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, DocuSign, Microsoft, PayPal Holdings, Roblox Corporation, and eBay. Dan Boyd has positions in Activision Blizzard, Amazon, and Berkshire Hathaway (B shares). Jason Moser has positions in Alphabet (C shares), Amazon, Apple, DocuSign, and PayPal Holdings. Jim Mueller, CFA has positions in Alphabet (A shares), Alphabet (C shares), Amazon, Microsoft, PayPal Holdings, and eBay and has the following options: long January 2023 $115 calls on Apple, long January 2023 $210 calls on Microsoft, long January 2024 $2,650 calls on Alphabet (C shares), long January 2024 $80 calls on Activision Blizzard, short January 2023 $125 calls on Apple, short January 2023 $220 calls on Microsoft, short January 2024 $2,700 calls on Alphabet (C shares), short January 2024 $82.50 puts on Activision Blizzard, short July 2022 $92.50 puts on PayPal Holdings, and short September 2022 $50 calls on eBay. Matthew Argersinger has positions in Activision Blizzard, Alphabet (C shares), Amazon, DocuSign, NVR, Netflix, PayPal Holdings, Roku, and eBay and has the following options: short July 2022 $2,000 puts on Alphabet (A shares) and short June 2022 $195 puts on Meta Platforms, Inc. The Motley Fool has positions in and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), DocuSign, FedEx, Meta Platforms, Inc., Microsoft, NVR, Netflix, PayPal Holdings, Qualcomm, Roblox Corporation, and Roku. The Motley Fool recommends Comcast, KB Home, and eBay and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $60 calls on DocuSign, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), short July 2022 $57.50 calls on eBay, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.