In this podcast, Motley Fool host Dylan Lewis and senior analysts Jason Moser and Bill Mann discuss:
- Fitch downgrading U.S. credit and why it shouldn't worry investors.
- How slowing iPhone sales are weighing on Apple, and how AWS keeps cruising for Amazon.
- Surprise profits from Uber, impressive traffic from Wingstop, E.l.f. Beauty's epic quarter, and how PayPal might not go anywhere until it announces a new CEO.
- Two stocks on the radar: Topgolf Callaway Brands and Outset Medical.
Motley Fool contributor Rick Munarriz weighs in on the state of Disney's Marvel and whether it can recapture the box office magic any time soon.
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 August 04, 2023.
Dylan Lewis: Fitch weighs in on US credit, Motley Fool Money starts now.
It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me in studio are Motley Fool Senior Analysts, Jason Moser, and Bill Mann. Guys, great to have you here. Hey.
Bill Mann: Hey Dylan.
Dylan Lewis: We've got updates from the biggest companies in the world and a breakdown on what's happening at the box office. But we're going to start today looking at the big macro and a headline that I have to admit was a bit of a surprise for me, credit rating agency, Fitch downgraded US debt to AA-plus from its previous Sterling rating of AAA. Bill, I have a layman's understanding of credit rating and to be honest, US debt. Can you walk me through what's happening here?
Bill Mann: Well, it's big in one certain way, the U.S. treasury notes and bills are the baseline for the entire credit market and a lot of people don't really realize it, but this is a much bigger market than the equity markets. What we're talking about here is an amount of debt for the US government that costs about a trillion dollars a year just for us to service. The stock market didn't take these dues very well. The US credit was downgraded from AAA, which means that there's almost no chance under any circumstances that there would be a default to AA-plus, which is still summa cum laude. That means [laughs] there is maybe a little tiny bit more chance that it's going to default. It's symbolic, it is a meaningful symbol simply because it is such a large part of the global economy as the underpinning of the reserve currency but it's not that big of a deal. We are several steps above almost every country in the world. We're behind Switzerland and Singapore now.
Dylan Lewis: I believe there's eight that currently have AAA ratings, maybe nine.
Jason Moser: It's eight or nine.
Bill Mann: Yeah, exactly like Luxembourg countries that you're like, yeah, their money is good. Our money is basically good. We're tied with Canada now and we like Canada.
Jason Moser: It's a great place to be.
Dylan Lewis: I think Jamie Dimon was calling out that Canada comp there in his interview here earlier this week. He was like listen, this is no big deal. Grand scheme of things. The market determines rates not these ratings agencies, but it felt like it was more for optics. You seemed like you were hinting toward that and it seems like it just felt like this is more for optics.
Bill Mann: Well, I did say $1 trillion and that's in debt servicing that the US government has to pay each year at this point and I don't know if you guys know this, but that's quite a lot of money.
Jason Moser: That's a big figure.
Bill Mann: That is a big figure. But Warren Buffett came out and he said, look, we bought $10 billion at Berkshire in treasuries last week. This next week we're going to buy $10 billion, again in treasuries. It's a little strange being below Singapore, and Sweden, and Johnson & Johnson, but it's really not that huge of a deal. I side with Warren Buffett on this one. I don't know if you know this, that's always a pretty safe side.
Dylan Lewis: Yeah, that's a good side of things to be on. That was, I think in a lot of ways, the macro story of the week. But I also want to zoom in on one that either people missed or if you saw it might've been a little frightening and that's that Kansas Heartland Tri-State Bank was closed by the FDIC, marking another bank failure for 2023. I think we all have a little bit of bank failure trauma going on and we're thinking a lot about this. It seems though, Bill, like this one maybe is different than some of the past ones.
Bill Mann: It's funny because a lot of different media organizations came out and said, banking crisis continues. Now, I have to say, we're talking about a tiny bank and if you look at where it is on the map, it is basically where Oklahoma, and Kansas, and Colorado come together. This bank is not on the way.
Dylan Lewis: Say more about that.
Bill Mann: I think a lot of people were looking at this because they were worried so much after the failure of Silicon Valley Bank that there was going to be a crisis among these community banks so this was a bank that failed and it failed in a very spectacular way $139 million portfolio and they ended up with an insured loss of $54 million which should tell you something very specific, that this was event-driven and not macro-driven, and in fact, they got hit by a scam.
Dylan Lewis: Oh, really.
Bill Mann: Yeah, so we don't really know the details of the scam yet, but it's really important to note for anybody who paid attention to this story at all and everyone did for about five minutes and they did their run around the room with their hair on fire and then got onto the next thing. But this is not another node of a banking crisis. It is simply a small bag that got incredibly unlucky.
Dylan Lewis: Basically, big picture for both of these two macro headlines we just talked about. Don't worry too much about them. I think you can maintain your sense of comp.
Bill Mann: Did you did you just shorten the five minutes I used down into a sentence? I think you did.
Dylan Lewis: I tried to. That is my job, Bill.
Jason Moser: It's the Bobby McFerrin, Don't Worry, Be Happy.
Bill Mann: That's truly the case in this issue with the tiny bank. It's not a portend to hundreds of other banks failing, but it does speak to a little bit a vulnerability in the US. We have more than 4,800 banks in this country and some of the small banks I think that they may be vulnerable to scams into the increasingly sophisticated criminal scams that are out there.
Dylan Lewis: This week we also got updates from, I think, two of the biggest companies that move the US economy. We got Apple and Amazon earnings. Jason, Apple did something that it has not done since 2016 this earnings season, it posted its third consecutive quarter of revenue declines. The story seven years ago was struggling iPhone sales. History has a habit of repeating itself. We are in the same spot again here.
Jason Moser: Sure. I think the big focus is on the slowing revenue as you said. The third straight quarter of declining year-over-year revenue. I think that's just part of the ebb and flow of this business. It's gotten so big through the years thanks to that lightning in a bottle that is the iPhone. Remember too, there are some currency impacts that point to this, so you can fiddle with the numbers however you really want. But I do think it'd be whose investors to remember that Apple does a lot of things well, I think that it's greater than the sum of its many impressive parts. When you look at the numbers, they're leading up to this release of this new iPhone toward the end of the year, overall revenue down just 1%, but that included four percentage points of currency headwinds. iPhone revenue, as you mentioned down 2% Mac revenue down 7%, iPad is down 20. Wearables, home accessories up 2%. I think the real story here we've been talking about Apple as a services business and this quarter that really panned out well for them, services revenue up 10%. They've passed one billion total paid subscriptions. Now they added 150 million from a year ago, I think that's a big part of the story here is they're really doing a good job of monetizing that massive installed base. That massive installed base isn't going anywhere.
Bill Mann: At least part of it for me is that for the first quarter in a long time, I didn't have to replace a pair of AirPods [laughs].
Jason Moser: Like you I never bought it.
Dylan Lewis: Thank you for boosting the AirPods.
Jason Moser: I never bought into the AirPods, trying to minimize the amount of charging in my life. Hey, listen, you talk about wearables and things like that, right at probably everybody wants to know about the VisionPro. You have to really look farther down the road in regard to the VisionPro. That's not going to be anything meaningful for this business for quite some time. They're just shipping it out to developers now. It's just getting started.
Dylan Lewis: Jason, I mentioned that seven-year look before and how we are in a period that looks awfully similar to 2016. Back then, Apple did not have this incredibly strong services business, and it's benefited from that growth over the last seven years. Stocks up over 500% since 2016. Where does the growth come from in the future to offset some of the reliance that this business has in the iPhone segment?
Jason Moser: I think you look at two things. Number 1, you look at the way they continue to return capital to shareholders. Those share repurchases do have an impact over the longer haul. Share count down 17.5% since 2018 alone. Also, look toward India like we've been talking about China over the last decade as the opportunity for Apple, and that's worked out very well. Look further down the road, ten years down the road here at the opportunity that I think is a bubbling up here in India because I think that will be material as time goes on.
Bill Mann: Apple is at 33 times sales, where in the last time it had three consecutive quarters of negative growth which is a weird. But there we go, I'm rolling with it. It was at 16 times sales. One of those things really needs to happen because those two elements don't make sense in common.
Dylan Lewis: Bit of a different story when we look at results from Amazon. Shares up 10% after the company reported earnings well ahead of expectations and built 11% revenue growth. Incredible for a company that size.
Bill Mann: Who's had a good day today?
Dylan Lewis: Amazon shareholders.
Bill Mann: Jeff Bezos is up $12 billion today, that's not half bad. Some of the numbers from Amazon almost truly defy understanding $134 billion in revenue, 7.7 billion in operating income. They've also dramatically lowered their costs through something that they've called regionalization. I don't know if they made up the word. That's what they're rolling with. It was a 1000-basis-point gain. Almost 76% of the packages that they deliver were fulfilled in the region from which they were ordered. They're doing an incredible job at lowering their overall cost structure for a company that if you looked at them five years ago, you would have said they're efficient and they've gotten more and more efficient as time has gone by.
Dylan Lewis: One of the things I wanted to zoom in on with Amazon results is the AWS segment, their Cloud segment, I believe responsible for about 70% of their operating profits. AWS revenue up 12% in the quarter, down from 16% previous quarter. AWS is the leader in enterprise Cloud. I believe they've like 40% market share, something crazy like that Bill. Do we see more applications and usage coming? Or is this the amount of market that they're going to be able to grab here?
Bill Mann: Well, I would say that they're probably at the level that they, you will see in terms of market share. But one of the other things that they were talking about is that every component of the business, Andy Jassy said the words artificial intelligence or AI, something on the order of 5,000 times during the conference call.
Dylan Lewis: Rough rounding. Yes.
Bill Mann: Rough rounding. Exactly. I may be exaggerating, I may not be. AWS plus those AI initiatives inside of the company and outside of the company, it almost doesn't matter what their share is, because that pie is just almost guaranteed to grow exponentially over the next decade.
Dylan Lewis: [MUSIC] Coming up after the break, we've got surprising profitability from one company and another that's posting rate growth without meaning I'm price increases. Stay right here. This is Motley Fool. Fool-on. Welcome back to Motley Fool Money. I'm Dylan Lewis joined in studio by Jason Moser and Bill Mann. We have some updates from a couple of other companies with some surprising storylines. We're going to start with Uber. Bill, this is a business that has been notoriously unprofitable for most of its operating history. But it reported its first-ever operating profit in the second quarter. Would push the company into the black.
Bill Mann: Did you not love Dara Khosrowshahi's, nobody believes in us. [laughs] It seems like a movie moment almost.
Bill Mann: I believe. He actually said it. Many observers boldly claimed we would never make any money.
Dylan Lewis: Yeah.
Bill Mann: Scoreboard. Don't pay attention to the $31 billion in cumulative operating losses since 2014, we're making money now.
Dylan Lewis: It's all about looking forward.
Bill Mann: Yeah. It was a good quarter for them. If there is a follow-through from this moment, it's a big moment for them. They show robust demand. They've got some good growth initiatives. Domino is allowing Uber Eats to start delivering pizzas. That's actually a big deal. Their gross bookings were up 16%. All of that was good and they did in fact, make an operating profit. Fantastic. I don't want to sound too cynical.
Dylan Lewis: Yeah, but you're going to.
Bill Mann: I have appreciated all of the venture capitalists funded rides that I had for mover over the last decade. This positive cash flow comes to the cost of some massive share-based compensation. But all-in-all, it's a good job for them. I in fact did not believe, and now apparently I have to eat my words.
Dylan Lewis: I've noticed recently without that venture capital funding, my Uber Rides have gotten a little bit more expensive Bill. I think it's one of the consequences we're seeing here. One place that I think consumers are not seeing prices go up is that Wingstop, a very well-known wing restaurant chain.
Bill Mann: It's a great segue.
Dylan Lewis: Jason, I do what I can. That didn't even have that one in the notes. But so far Jason, the story with restaurants has been pricing power and that we've seen a lot of impressive results on the pricing side, not so much on the traffic side. Different story with Wingstop.
Jason Moser: Yes. I love that. We were discussing this in production about how Wingstop is held off raising prices for the sake of maintaining value and how does that play out versus companies that have been leaning more into pricing. Obviously, Chipotle stands out as one that has been. I think you could argue that with Wingstop it's working out very well for them. Systemwide sales were up 27.8%. Domestic same-store sales up 16.8%.
Bill Mann: Incredible.
Jason Moser: Just put that together, if your same-store sales were up that much, and it's not because you're raising prices. Why is it? It's because people were going there and buying stuff. It's traffic. Clearly leaning into that value offering is worked out very well for Wingstop. Domestic restaurant volumes have exceeded $1.7 million. That's up from just under $1.6 million a year ago. This is a digital company. Digital sales increased to 65.2% of total sales. You just look at what this company is doing and then at the end of the stock is up like 230% over the last five years. Bill, is this another Buffalo Wild Wings in the making?
Bill Mann: The American eater is undefeated. I think it's where we need to take this. It really may well be. You're talking about a part of the industry where it is mostly mom-and-pop type restaurants. One or two in a chain. Wingstop they've got a formula that is working very well.
Jason Moser: Important to note, they posted these results and it's not even football season. Golfing game was this week, football season starting up could get even better for them as we head into the part of the year where people thinking about wings. I had to double-check the results looking at the accompanying E.L.F Bill because companies up 10% post-earnings, company posted 75% top-line growth. I wasn't sure that that number was accurate.
Bill Mann: Thank you for not calling it elf this time. E.L.F. stands for eyes, lips, and face and it is the third largest of what they'd call the mass market cosmetics industry player in the United States. One of my favorite interviews of the last couple of years was from 2020 when I interviewed their CFO, Mandy Fields, and she just talked about their program and it is working fantastically. They're in stores like Target is a big place for them. Their stock's been an eight bagger since then, so it's not as if they are a turnaround, this is a company that is firing on all cylinders.
Dylan Lewis: Is that Ron Gross on the show? You sounded like Ron Gross there for a second. Bill, I want to ask, this company is at a PE of over 70. We're obviously seeing some incredibly impressive results in the top line. Does it feel like that's warranted?
Bill Mann: I get a little nervous whenever I see a company that is that expensive versus what it's doing right now. They still have a rather small segment or market share of the cosmetics market in this country, and they are mostly in the United States, so they have a fantastic opportunity in front of them. Now, cosmetics, an incredibly competitive sector, absolutely, it's a knife fight.
Dylan Lewis: Slightly different reaction to the results that we saw from PayPal. Shares down 12% after earnings came out, despite top and bottom line coming in roughly where the market was expecting them. Jason, the market did not like the company's update on margins and the outlook for the rest of the year though?
Jason Moser: Yeah. Well, I would say it does feel like this company could have just taken the entire year off of reporting earnings and just picked back up when they announced a new CEO because I think that is something that is really being held against them and rightly so. This is one of the biggest storylines I think. It's a well-established business. Obviously a lot of people and businesses around the world, but it's going through some growing pains and at the same time it's waiting for a new leader to take the reins then we'll understand the focus and the priorities going forward, but the results they fell in line with management's guidance, total payment volume $376.5 billion, up 11%. You look at the metrics that matter, 6.1 billion payment transactions, that was up 10%, 54.7 payment transactions per active account on a trailing 12 month basis, that was up 12%, 431 million active accounts now up from 429 million a year ago. They're doing the right things and they view buy-now, pay-later as this big opportunity going forward, but a lot of investments in the business pressuring those margins and certainly that is a focus for investors.
Dylan Lewis: Jason Moser, Bill Mann. Fellows, we'll see you a little bit later in the show. Up next, we've got to look at whether one of the big screens, biggest brands can get back its mojo. Stay right here, you're listening to Motley Fool Money.
Dylan Lewis: Welcome back to Motley Fool Money, I'm Dylan Lewis. This weekend, Greta Gerwig's Barbie will likely pass $1 billion in global box office, joining the Super Mario Brothers movie, it's becoming the second film this year to pass the milestone. Marvel Studios and Disney are used to pushing out box office darlings, they've had many since the creation of the Marvel Cinematic Universe, but success for the MCU has been a bit harder to find recently. Motley Fool analysts Rick Munarriz has been a longtime fan of Disney stock and Disney intellectual property. He joined me to check in on the state of Marvel and whether they'll have another hit any time soon.
Let's dive right in here, what exactly is the state of Marvel and Disney's IP library right now? Because I look at the box-office rankings and I look at some of the reception for their latest launches and it seems like some of the shine has come off of their releases.
Rick Munarriz: Yeah, it is not good and the recent results are not encouraging and I'm bringing receipts, I have box office receipts. A lot of Disney's different franchises are not working well, but specifically the Marvel, the last Disney Marvel movie, it fared pretty well first glance, this is Guardians of the Galaxy, Volume 3. It came out in early May. Fun movie. I enjoyed it. Generated $359 million in domestic ticket sales and 845 million globally, so that's worldwide, it was very profitable. But then we go back to Volume 2, the second installment in the franchise, 2017, six-years earlier, it was $390 million at the US and 864 million worldwide. Not much, but bear with me. The movie before that, last Marvel Cinematic Universe movie was Ant-Man Quantumania, which sounds more like an album by The Who than a movie, but 215 million domestically and 476 million globally. The second movie in the franchise came up five-years ago in 2018, 217 million stateside, but 623 million worldwide, so clearly lost a lot of juice overseas. These figures, they're just 1% to 24% lower than the previous franchise installments, but it's worse than that because we're talking about ticket sales, were talking about ticket revenue, the total revenue, ticket prices in 2017 and 2018, they're about $9 per person in the US, today there are 15-20% higher. It's not just a 1-24% decline in attendance, we're talking about at least less than 20% fewer people saw these movies, the third installment of the Guardians of the Galaxy and the Ant Man movie than they did the second movie. It's not just this, last year, the top Marvel movie was Wakanda Forever, again, a solid movie, well-liked by critics, but if faired substantially worse than the previous Black Panther movie that came out four years earlier. Clearly, the trend is not going in the right direction for Disney's Marvel Universe and so many of their other franchises.
Dylan Lewis: Rick, you follow Disney as a stock, you also are a fan of the space and someone who enjoys entertainment, enjoys the parks, can you talk a little bit maybe from the fan perspective here on what's going on and why we're seeing some fade here?
Rick Munarriz: It's not just a Marvel fatigue. Did you see The Flash, Dylan?
Dylan Lewis: I did not.
Rick Munarriz: I didn't either and I saw the previews, it's time jump and then I said, "Wait. Michael Keaton's coming back as batman? I got to see this." The movie came in the theaters two months ago and it went $108 million in ticket sales, so it's going to be a big chart from Warner Brothers Discovery, the one that owns the DC Comics. Spider-Man, that is the one franchise and Marvel that's doing well, unfortunately, it's not put out by Disney. Sony's Columbia Pictures puts out the Spider-Man movie. Spider-Man, No Way Home, which was the top box office draw in this country in 2021. The animated, Across the Spider-Verse that came out earlier this year, which is the highest-grossing superhero released domestically, again, these are not Disney movies. For Disney and Marvel, it's time to recalibrate ourselves, our expectations what's happening here. Disney also lost James Gunn, and if you're a comic book fan, you know James Gunn, he's this brilliant director and writer. He has controversies, he has unfortunate tweets way back in the day. But beyond that, he's the one that put Guardians of the Galaxy and the map and now he's a big wig heading up DC Comics over at Warner Brothers, so you're losing some of your key personnel and you're also just losing steam with the audience, they're just tired of what they're seeing before it's getting too predictable.
Dylan Lewis: You mentioned adjusting expectations a little bit. When you take a step back and look at Disney, the business, it's easy to get lost in the Marvel, a Disney property, but when we look at Disney, the business, where does the Marvel IP library sit in terms of the thesis and just your expectation?
Rick Munarriz: Marvel's just like Lucasfilm or properties that Disney paid about $4 billion for each one and was able to milk a lot of money out of it. There's obviously very successful looking back great deals, but we're at the point now where while Marvel is very important, it is not as important since basically Avengers Endgame in 2019, it's been an a lull. 2019 was that year when Disney had the six highest grossing us films that year, it's nowhere close. It doesn't have any of the top three this year. We're getting to the point where with Marvel specifically, the properties are there, everyone knows the characters, if you go to the theme parks, well, not so much in Florida, but in California where they have Marvel's Avengers campus there with a Spider-Man ride, with a Guardians of the Galaxy free-fall ride. It is very important to them that the Marvel ecosystem is fresh and relevant to consumers because it would cost a lot to repurpose rides and land and the same thing that could keep milking it with consumer products. Disney ecosystem is built for that, but they're at the point right now where they need to crack the code, they need to make the experience fresh and I think that's what's happening. You're seeing movies that have succeeded, you mentioned Barbie, second only to Mario Brothers, Super-Mario Brothers was just absence makes the heart grow fonder thing where we hadn't seen Mario on the big screen in so long, that didn't work for Indiana Jones for Disney this summer, but that's one way. Of course then there's all Barbie phenomenon which is, as you pointed out, is basically them taking this property where your expectations are, it's a Barbie movie, I know exactly what I'm going to see and giving you something completely different, retelling the narrative in a whole different way. Totally unexpected unless you knew what you're coming into with the Barbie movie, I think they need to do that with their Marvel properties and all the other IPs that are going still right now.
Dylan Lewis: Looking at what they have in terms of upcoming releases over the next couple of years, we had the benefit of that because they like to project these things out for us, there may be some reasons to be optimistic. They have the Marvel's, they have another Deadpool movie coming out, they have another Captain America movie coming out, I think two more Avengers movies coming out, of those, are there any that you're thinking this may be a title where they can recapture some of that magic?
Rick Munarriz: Earlier this year, I would have told you the Marvel's because it comes out in November, so it comes out at that where just before the holidays, usually a good time to release a movie. It's when Black Panther, Wakanda Forever was released and the original Black Panther. Movies can hit well then, but it's following the same stale formula that they've used a lot with Marvels, let's just have one character, but putting all these other characters from other franchises in there to get people excited and I think they need something more than that. The Marvels, while you asked me maybe a year ago and when I saw the first trailer and it's like, oh, there's cool character time jump and all these things are happening, it seems very interesting. I don't think it'll be the next billion-dollar releases for Disney to break it from that slump. Hopefully I'm wrong because the whole Captain Marvel thing is a valuable franchise, but to me, it seems like consumers are just hesitant right now to go see a Marvel movie put up by Disney until they've proven that, hey, you're going to give me something that is not something that I know I can watch on Disney+, 2, 3 months later without missing anything.
Dylan Lewis: Let's talk a little bit about the streaming side of this too. You just mentioned Disney+ there, Rick. Do you think some of the fatigue is the combination of what we've seen in terms of just this incredible number of box office releases, but also all these streaming releases and just the complexity of these universes?
Rick Munarriz: I think it is. I think you get to the point where there's always something good to see at home on TV. You know that there's always something streaming and Disney+, of course, since the release windows have narrowed, and I'll tell you, there's nothing like seeing a movie in a big screen. I saw Oppenheimer earlier this week in a 70 millimeter screen, I saw Barbie the week before that at the largest Disney screen at the AMC 24 there and I went on a Monday night after the opening weekend thinking, it was hard to get tickets even for that and a very big theater and the moment where we start to AMC has a thing where Nicole Kidman starts walking down the stairs and we come here to be that whole thing, the audience started applauding, and I'm, I don't know if they're clapping because they're Nicole Kidman fans or because they think the movie is about to start, but there was excitement there. I really haven't seen that excitement for a Disney movie, Haunted Mansion, which opened last week, clearly not doing well, but as far as the Marvel's go, I hope it does well. I don't think it's going to flop the way, let's say in Indiana Jones did because even the worst of the Marvel movies, they may not make back their production and their distribution cost initially, but at least they're not going to be $150 million in the US like Indiana Jones and the Dial off Destiny was this summer. If the Marvels doesn't do it, I think we may be down to the Avengers at this point because we know that Guardians of the Galaxy, with James Gunn moving on, that franchise is going to be hard to sustain.
Dylan Lewis: You've used the word milked to talk about the relationship a couple of times while we've been talking here and I think anyone with IP looks at Marvel and the Marvel Cinematic Universe and really sees a playbook for making money on things that they own the rights to. It also seems like consumers are increasingly aware of the game that's being played here. Do you think that this can be replicated by other people who own valuable IP like Barbie or like some of the other players out in entertainment?
Rick Munarriz: I think you can. Obviously, with Barbie, Mattel is basically going through their whole toy line and saying, OK Polly Pocket, and they're just going through everything and they're going to try to basically catch this Aladdin genie in a bottle, so to speak again. The problem is that Disney hasn't learned its biggest mistake is that too much of a good thing can be a bad thing. It's 24 summers ago, I'm going to take you away from the Marvel world, I'm going to take you to Regis Philbin, to Who Wants To Be A Millionaire. Summer of 1999, there was a UK hit game show, Who Wants To Be A Millionaire. Anybody who's as old as me, note remembers it and it was a hit. It was such a big hit that they brought it back the following year and then it played one night, then two nights, then three nights. I believe it played four nights a week because ABC had nothing going on to the point that they just got Who Wants To Be A Millionaire fatigue and people just didn't want to do it anymore. I think you're seeing that happen now, not just with Disney. Maybe they went to this Toy Story well, one too many times with Lightyear based on last year's disappointment. This year, did we need a tenth Fast and the Furious movie? Because it did worse than the ninth movie. That ninth movie came out in 2021 when a lot of people were afraid to go to movie theaters. I don't think it's just a Disney Marvel thing, I think we're seeing Dreamer's Animation Shrek Two was their peak, was financial peak of the Shrek franchise and that thing just keeps going. I think it's Hollywood, not just Disney that can keep a franchise on top consistently sustainably. I just think it's important for all companies that once you get that first wave of a dip, not that you have to throw in the towel, but you definitely need to pivot. You definitely need to try something new and something different, which is what the Marvel Universe did when they said, let's put all these characters in one movie to just raise the marquee value of this. But at the end of the day it's a struggle. It's hard to keep even that going. They need a new trick.
Dylan Lewis: I was going to say it sounds exactly like what it is. Maybe there'll be able to pull one out of their bag. It sounds like to me also Rick, the lesson here is discipline and trying to be relatively careful in your release schedule and not over saturating things. Any other advice for people that are looking at IP libraries and looking to do something similar to the MCU?
Rick Munarriz: Again, they're doing that. Even Sony, even the Across the Spider-Verse was such a big hit this year, they released the next movie in that franchise. Everyone's realizing that too much of this as an issue. But I do think specifically to Disney and Marvel, they're pushing out releases and this was before the actors and the writers' strike forced their hand that, hey, we really got to slow down the flow of content here, the pipeline here, because we have a production issue right now, spacing things out will help. But again, I would have probably said the same thing when Indiana Jones, this was the fifth movie and it came out well after more than a decade before the last movie. Disney didn't even own Lucasfilm the time that the fourth installment came in, and it did not do well despite Harrison Ford back. It's hard to tell. Time isn't always the thing. Spacing things out isn't sometimes enough. You need to come in with a fresh angle. I think moviegoers right now, they're very jaded. We've been spoiled by the fact that we can watch quality television at home, commercial-free for several hours at the end of every day. We need stuff that's going to challenge us, the stuff that is fresh. I think that's why Barbie did so well. That's why I think Oppenheimer, despite not doing as well as Barbie, but clearly, a successful release is the movie that comes in as a this is something I have to see in a theater because it's three hours of entertainment that I don't think I've seen through a streaming service. For investors following these movies, look for the people that are being creative with the process. Right now, that's not Disney unfortunately, but hopefully, they'll get it back because they've always found a way back.
Dylan Lewis: We'll get a look at Marvel's next swing this fall with The Marvel's. I plan on adding to Barbie's box office hall by heading to the theater this weekend. If you've got thoughts on the summer blockbusters or a question you want us to tackle on the show, we want to hear it. Shoot Motley Fool Money a note at email@example.com. Coming up after the break, Jason Moser and Bill Mann return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool Money.
As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy yourselves stocks based solely on what you hear. I'm Dylan Lewis, joint again by Jason Moser and Bill Mann. If you're at a barbecue this weekend, make sure to put some of the yellow stuff on your hotdog. Saturday, August 5th is National Mustard Day and to commemorate gentlemen, French's is giving out mustard-flavored skittles in New York City on Saturday, August 4th. Jason, if you were in New York, would you be trying those skittles out?
Jason Moser: No. I won't.
Dylan Lewis: Emphatically no.
Jason Moser: Dylan, there are things, the times in life where you can like a lot of things but then you put them together and you're like, oh, I don't like that. Listen, skittles are delightful and I'm a mustard guy. I will never understand how someone puts ketchup on a hot dog.
To put those things together. Let's bring McCormick in in the conversation because they own French's. That's my obligatory. But no, I love the marketing idea. I love the buzz it creates. It's not something I'm terribly interested in trying, but I do consider myself a mustard guy.
Bill Mann: I feel like you're giving this short shrift because I feel like honey mustard skittles.
Jason Moser: Well, no. Now honey mustard, I can.
Dylan Lewis: We're talking about the classic yellow stuff here.
Jason Moser: We've got to sweet dynamic. Now I'm starting to.
Bill Mann: What I'm saying is that that sweet slash mustard thing is something you're actually familiar with? I think I 100 percent would try.
Dylan Lewis: What does it cost you? It's a moment in time.
Bill Mann: There are plenty of things that cost nothing that I would not try.
Jason Moser: Now I have to try because I didn't think of this before that maybe there's the sweet dynamic tied in already because they're skittles. If it's the sweetness of the skittle with that tardiness of the mustard. I could see that actually working out.
Bill Mann: I'm so much for this than I was mustard doughnuts. What was that? By the way, I celebrate National Mustard. I'm in.
Dylan Lewis: He's a card-carrying member.
Bill Mann: I'm a card-carrying member.
Dylan Lewis: Well listeners, if you want to get your taste buds a chance at this, you can go to frenchs.com/mustardskittles through Saturday. They're also making some of those candy available online, if you're one of the lucky people they pick. Let's get over to stocks on our radar. Our man behind the glass, Rick Engdahl is going to hit you with a question. Bill, you're up first, what are you looking at this week?
Bill Mann: I am interested in the earnings of a company I don't know that we talk about very much. But Callaway Topgolf. Callaway, an old-line brand in the golf industry, purchased Topgolf a little while ago. I was not a fan of the acquisition and I am now interested to see how it's going.
Dylan Lewis: It's on your watchlist right now because you want to see how this acquisition winds up working out for the business and how they're able to absorb this brand?
Bill Mann: See, I'm glad you put it that way because so far I've been right. [laughs] But I'm wondering if there was something that I was missing by focusing too much on what this is going to bring Callaway, as opposed to the fact that golf is moving away from being out on the lengths and being more entertainment-driven, and Topgolf is great entertainment.
Dylan Lewis: Well, I can tell you what grinds is gears regarding this acquisition. It boils down to one word and I'm going to let him take it from here. Synergies.
Bill Mann: Synergies.
Dylan Lewis: Ain't that right? We talked about this.
Bill Mann: It's true. I just don't know that. I think from this quarter we're going to see what the synergies are. It's not to me what I really thought it was they're going to sell more Callaway gear. I don't think that's the case.
Jason Moser: I agree.
Dylan Lewis: Rick, our man behind the glass. I hope I didn't steer your question. You have a question or a comment for Bill's suggestion here of Callaway Topgolf?
Rick Engdahl: Yes, so we've had Golf. I've seen curling, axe throwing. What is the next happy-hour pseudo-sport that's going to blow up for us?
Bill Mann: It's going to be drinking, I think.
Jason Moser: [inaudible] .
Dylan Lewis: Well Topgolf has something to do with that. They have their hands in both those markets. Jason, what about you? What's on your watchlist this week?
Jason Moser: Outset Medical ticker is OM, they reported earnings this week. The bad news is the market's reaction to the release. The stock is down about 12, 13 percent since that announcement. The good news is though this really was a good report in virtually every regard, save one little news item that I'll get to, but you look at revenue of $36 million for the quarter that was up 44 percent from a year ago. Product revenue up almost 50 percent, the service and the other revenue grew 23.4 percent. I like this business because they install that base of those dialysis machines and then they benefit from the ongoing sales of these consumables. That really the consumables have to be Outset Medical produced. That really does give them very high switching costs as time goes on there. Gross margin continuing on that track to the target of 50 percent there. But back to that hiccup. The hiccup came from a news item that came out several weeks back. They received a warning letter from the FDA. Unfortunately, this isn't the first warning ever.
Bill Mann: I was going to say, that sounds bad.
Jason Moser: But it is interesting to note the letter stated that they need to file a Form 510K essentially for this Tableau cart product that they have. Ultimately this was more or less a disagreement. Management didn't really think they needed to file this form. The FDA begs otherwise. Management is going to go ahead and file this form. Until they get it filed, they're going to postpone the sales of that Tableau cart until they get the approval, which I'm certain they will. This led them to guide more down toward the lower end of the range of guidance they provided earlier before and I think that's got investors of a little bit up in arms.
Dylan Lewis: Rick, a question about Outset Medical.
Rick Engdahl: I get it. I hate filling out forms but don't they have somebody to do that?
Jason Moser: Well, you would hope so, but hey, maybe there's an AI for that Rick.
Dylan Lewis: Rick, which company is going on your watchlist?
Rick Engdahl: I fell asleep during Jason's so I'm going to have to go top up.
Bill Mann: So did Jay.
Jason Moser: A mustard's going to wake you up.
Dylan Lewis: With that, said Jason Moser, Bill Mann. Thank you both for being here. That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Rick Engdahl, I'm Dylan Lewis. Thanks for listening. We'll catch you next time.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. SVB Financial provides credit and banking services to The Motley Fool. Bill Mann has positions in Berkshire Hathaway, Walt Disney, and Wingstop. Dylan Lewis has no position in any of the stocks mentioned. Jason Moser has positions in Amazon.com, Apple, Chipotle Mexican Grill, Outset Medical, PayPal, and Walt Disney. Rick Munarriz has positions in Apple, Target, Topgolf Callaway Brands, and Walt Disney. The Motley Fool has positions in and recommends Amazon.com, Apple, Berkshire Hathaway, Chipotle Mexican Grill, Outset Medical, PayPal, Target, Uber Technologies, Walt Disney, Warner Bros. Discovery, and Wingstop. The Motley Fool recommends Johnson & Johnson and Topgolf Callaway Brands and recommends the following options: short September 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.