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Google Banks Ads, Chipotle Eyes Mexico
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Alphabet’s ad business keeps putting up huge numbers, but a DOJ breakup, generative AI threats, and potential macro slowdown loom.
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- [00:05]
Dylan Lewis
Gotta look at big ads and big burrito. This week's Motley Fool Money radio show starts now.
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Jason Moser
Everybody needs money.
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Asit Sharma
That's why they call it money.
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Dylan Lewis
But you can give them to the.
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Jason Moser
From Fool Global headquarters, this is Motley Fool Money.
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Dylan Lewis
It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me over the airwaves, Motley fool senior analysts Jason Moser and Asit Sharma.
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Asit Sharma
Fools.
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Dylan Lewis
Great to have you both here.
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Asit Sharma
Hey, hey, hey, Dylan.
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Dylan Lewis
We've got earnings with the side of guac, some recession resistant stocks, and of course, stocks on our radar. This week we're going to kick off with some quarterly updates from Alphabet and Tesla asit. For right now at least, the ads are all right. Google parent Alphabet reporting better than expected results this week. They're the first of the big tech companies to report. Our first look at the big health of ads and cloud markets. What are you seeing in the results?
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Malcolm Etheridge
I mean, Dylan, but for one legal wrinkle that we'll get to, results look great to me. I mean, Alphabet added about 10 billion bucks to its top line in the first quarter of the year to $90 billion. That's a 12% increase versus last year. Also, just looking at operating margin, very healthy, 34%. The company also grew its net income by about 46% to 35 billion bucks. These are big numbers. What happened to all this competition from AI that was supposed to take out Google Search? Well, it hasn't really materialized. The advertising business was pretty healthy, Dylan. It grew about 8.5% to $67 billion this quarter. And one of the things we're seeing is that Alphabet is doing a good job of using generative AI and those AI search results to keep people interested in that platform. And it's also helping advertisers reach customers with its AI tools. So it's sort of coming full circle at the problem that its own legacy Google search isn't as in demand as it has been, but it's still generating a lot of revenue. I thought it was a fun quarter from the perspective of AI. Sundar Panchay, the CEO of Alphabet, talked about the successful launch of Gemini 2.5 and how much traction its AI tools are gaining in the marketplace. But, you know, Alphabet talked about something very interesting, which is nerdy. I have to go here because I was waiting for one CEO to talk about this. They've started signaling that their depreciation expense is growing because they're investing so much in these data centers. So Alphabet confirmed that it would spend about $75 billion this year for data infrastructure, CapEx, GPUs, all that stuff. Dylan and depreciation expense. So think of the non cash expense associated with the wear and tear of all this stuff. Group I billion bucks versus this time last year and it's going to keep growing. So what the company is saying in advance is like, okay, we're in. If you build it, they will come. Mode, we're building it, they will come. But if you start to see our net income, our operating income decline in the coming quarters, it's because we're spending money on all this AI stuff in advance of getting a really big yield out of it. It's growing, but not quite enough to cover the depreciation and I found that pretty interesting.
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Dylan Lewis
Spoken like a true accountant. Asit. I love it. Thanks for digging into the details on that. You teed up the fact that there are some other non earnings stories related to Alphabet, the big one, the fact that they are in remedy mode with the DOJ with their antitrust case, looking at different ways to break up what the government has determined is a monopoly. There are a lot of different ways that this business might get broken up. Jason, I am curious if we see a broken up Alphabet, what part of it is the most attractive to you at this point?
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Asit Sharma
Oh wow. Yeah, the most attractive. I don't know. I mean there are a lot of pieces to this business that really strike me as worth investing in. I mean ASA didn't even hit on the cloud segment of the business. I think that was up 28% for the quarter with operating margin of 17.8%. That was up from 9.4% a year ago. So it's really encouraging to see them making a lot of progress on the cloud side. Again, I think Gemini is really starting to pay off 1.5 billion AI overview users per month. I mean those results. YouTube up 10%. Subscription and device revenues up 19%. There are just a lot of things this business does very well. It seems like one of the remedies that's being bandied out there at least is splitting off the Chrome side of the business. And I get that Chrome is the market share leader in browsers, somewhere in the 66% range globally. I thought it was an interesting headline we saw this week with OpenAI saying hey you know what, we would be open to buying Chrome if it were out. And I bet you they would. ChatGPT chief Nick Turley said in the court hearing they would absolutely be open to acquiring because they feel like they could offer a really incredible experience in introducing users to what an AI first browser looks like. I'm certain they could do that. But the thing is, I think Alphabet and Google are able to do that as well. And again, we're seeing so much success with Gemini, it just sort of flies under the radar because ChatGPT is the one that continues to dominate the conversation.
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Malcolm Etheridge
OpenAI is so altruistic. Jason, let us help you with your little problem.
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Dylan Lewis
In addition to quarterly updates from Alphabet, also got a look at what's going on at Tesla and asit. This was maybe one of the most anticipated earnings releases of the quarter. A lot of people saying it was kind of a make or break report for the company. The numbers weren't great, but the market didn't really seem to care either.
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Malcolm Etheridge
The market was looking for a signal that Elon Musk will focus his attention back on Tesla. And at the beginning of the conference call, Dylan, that's just what he said he would do. He said he would reduce his time with Doge to maybe one day a week. I think he's got actually some kind of time limit if we look at cumulative days. But that aside, even four days out of the week devoted to Tesla, shareholders seem to appreciate. And it was sort of a break quarter in terms of recent performance. I mean, automotive revenues were down 20% to $14 billion. Net income dropped 71% to $409 million. Many people pointed out that if you looked at the automotive regulatory credits that Tesla receives, Those were about $600 million. It would have been a loss quarter. So they got bailed out by the credits. And the same, if you look at the statement of cash flows barely above water there, this is due to, you know, production being down by 16%, deliveries stalled by 13% year over year. And what we're seeing here is, you know, a few things. Tesla did say that it's been retooling some of its production facilities. And it also pointed out that the first quarter often is sort of tricky for consumers as they're plotting out when to buy their vehicles. But it's undeniable. Some of the brand tarnish that is on Tesla is really sucking some, some of the deliveries out of this business. And here I just have a question. I mean, Elon Musk talked a lot about an autonomous future. Autonomous vehicles, autonomous robots. He promised millions of optimus robots, maybe 1 million robots in production a year by 2029 at the earliest. But you need capital for that. And up until now, Musk has had this great talent for issuing new shares, raising capital when the price of Tesla was high and the company's also generated a lot of free cash flow in the past several years. But if that free cash flow goes away because of decreasing demand from Tesla, it's not all brand damage. Some of this is competition from some very formidable Chinese vehicles. What happens if it doesn't have the ready money or the capital on its balance sheet to provide for all the GPUs and infrastructure and tooling for a robotic autonomous future? It could really, really call into the question the thesis that this is a software company that's going to churn out bots and autonomous cars in the future.
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Dylan Lewis
Asit, you talked a bit about the year over year declines with deliveries. This is not exactly a new trend for Tesla. Deliveries have been flat essentially since Q4 of 2023. As you noted, a lot of different things that work into that picture. Some people have theorized there might be a little bit of a delay in purchases happening because the company had not updated their lineup in a long time. We have the Model Y out. Deliveries began in March. How much leash are you going to give the Model Y and the early delivery numbers that we see before you start being a little bit more concerned?
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Malcolm Etheridge
We'll give it some leash, Dylan. To me, what's really important here is perhaps a bit of a missed opportunity. And Tesla can still make up this opportunity, but for years they promised a low cost vehicle, an entry level priced vehicle and never delivered on that and actually pulled back on that last year. And we keep hearing in calls that no, we are going to eventually come out with this vehicle. That would be something that could lift volumes up enough to get that marginal incremental profit per vehicle up and hit that cash flow statement for them to do this other stuff. So we'll give it a little bit of leash, couple of quarters.
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Dylan Lewis
All right, coming up after the break, we're checking in on the burrito indicator. Stay right here. This is Motley Fool Money.
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Jason Moser
Right now the Home Depot has spring deals under $20.
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Dylan Lewis
So what are you working on?
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Jason Moser
If you're planning on cooking out this season, head to the Home Depot so you can fire up the grill with deals on charcoal. Right now, get two 16 pound bags.
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Dylan Lewis
Of Kingsford Charcoal for only $17.88.
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Jason Moser
Was $19.98. Don't miss spring deals under $20 now through May 7th at the home Depot, subject to availability, valid on select items only.
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Dylan Lewis
Welcome back to Motley Fool Money. I'm Dylan Lewis, here on air with Jason Moser and Asit Sharma. Jason, it's Officially burrito season. Late spring is when Chipotle tends to do its best business. According to management. We have fresh earnings from the company. What is the state of the burrito eating public?
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Asit Sharma
Well, let's hope that this spring brings a little bit better results than this first quarter of the year. We talked about a before. I mean the. For all of the outperformance Chipotle has chalked up over the last several years. We've also noted those comps, they don't just go straight up forever. And, and that certainly was the case this quarter. I. It's just a bit more of a positive reaction from the market than probably most of us anticipated. But the numbers were, they were okay, I guess. Sales up 6% to $2.9 billion. But back to the comps numbers there. Comps down 0.4%. And that is a problem for a company that we have just gotten used to reporting these just massive comp numbers. Restaurant level margin was 26.2%. That was down 130 basis points from a year ago. In adjusted diluted earnings per share of $0.29, that was up just 7% from a year ago. They did open 57 new restaurants with a big focus on the Chipotle tariffs, of course, got some attention on the call. They see an ongoing impact of around 50 basis points to operating costs. But again, that of course can and likely will change as the tariff conversation continues. I do think it's important to know they said this on the call, the recent price increases. Right. We've seen them bumping prices up a little bit here and there. Those recent price increases, the benefit from that was more than offset by, by inflation. And I think it's reasonable to assume that will likely continue as well. So we may be going through a little bit of a lull here for Chipotle.
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Dylan Lewis
Yeah.
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Malcolm Etheridge
Jason, you know that you're in a Chipotle lull when management goes back to talking about throughput. Okay. Chipotle always talks about throughput every conference call. Right. But they seemed especially keen to point out the little details to serve customers faster. I mean, they're talking about the rollout of new kitchen equipment, the dual sided plancha, the three pan rice cooker and the high capacity fryer. I sort of like those days because what you're trying to do when traffic declines is make sure you can adjust on the margin side, the restaurant margin side. And throughput helps you do that, get people through the line faster. Watch those costs. Maybe you can offset some of that commodity pressure. And that's the ticket. So they're back to basics.
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Asit Sharma
Something else to keep an eye on too, because we know Chipotle is relatively a domestic story today, but they have a new partnership agreement with Alshaya, which is a leading operator in Latin America and Europe. They're actually going to start opening restaurants in. Wait for it, Mexico. Dylan, I'm going to be fascinated to see how this is received.
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Dylan Lewis
Me too. I can't wait. I think they have some stiff competition there. All right. Over at ServiceNow, a great week for Bill McDermott and company. Shares up over 15% following earnings from the software business this week. Asit, if these results are any indication, private and public software spend hasn't really slowed down too much yet.
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Malcolm Etheridge
Well, this is one way we can all try to insulate ourselves from tariffs on the corporate side. Right. Is become more automated, cut costs, and this is what ServiceNow is really good at. So one number I follow is current remaining performance obligation. This is just sort of like revenue backlog that grew at a healthy 22%. So to me, that's almost always more important than subscription revenues, which is the recognition of revenue that still was healthy at 19%. And the customer is just as strong in the enterprise as ever. If you don't know about ServiceNow because it isn't a household name, they basically help with digital transformation and they sell to the Fortune 1000 and just huge companies globally. And also, Dylan, as you said in the public space. So governments and this is something we should talk about, the U.S. government. I thought from Accenture and Deloitte that governments don't want to deal with these big companies that help with transformation. Well, it turns out that if you're talking automation, if you talk software robots, then the government wants to talk to you. So Bill McDermott did point out, Dylan, that US federal contracts grew this year 30% year over year. The public sector, US business in service. Now, this is one of the tent poles of success. And I found that just so interesting because the government is slashing costs everywhere. But this is a vendor apparently they like very much and it did the hard work of getting the clearances to work throughout so many government agencies over the years. That was a big payoff this quarter.
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Dylan Lewis
ServiceNow is kind of one of those sleeper big tech companies. I bet a lot of people don't know $200 billion market cap. They are also a little bit of a sleeper AI and agentic AI company. A lot of people think of Salesforce in this territory, but they have been focusing a lot there too. Any comments from management that has you excited in that zone.
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Malcolm Etheridge
Well, just continued focus on that. One of the things that ServiceNow did very quickly was to partner up with Nvidia a few years ago and they basically wove generative AI into the fabric of sort of this app based platform that they give folks. So they made it really easy to use agentic AI. They didn't have a lot of hoopla about it. It's called Now Assist. This was their first iteration and it's really good. It's simple to use. This is the way it should be. Right. So enterprises just gobbled it up and they are seeing a lot of traction out of their AI. But it's not something that they had to wrap up in this big shiny bow and call out as agentic AI. It's the real thing. It works. And so customers are buying.
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Dylan Lewis
All right, last up here on the earnings beat, Intuitive Surgical. Jason, this one's a full favorite. What'd you see? Diving into the results, it is a.
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Asit Sharma
Full favorite, but just going back real quick to oz it there is that just like a fail safe in case of emergency, break glass. And hey, guess what? We partnered with Nvidia. I mean that is like the move, right? Just if you're having some issues there, you know what, hey, we're partnering with Nvidia seems to put a positive spin on everything.
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Malcolm Etheridge
But Jason, for a lot of companies it is. But Bill McDermott too, he's a talker, as you know. So there's a lot of hyperbole here. But he did, he legit made those connections. But for so many companies, it's some kind of window dressing, isn't it?
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Asit Sharma
It is, but I don't think that's the case with ServiceNow in regard to Intuitive Surgical. Yeah, long time foolish wreck here. And outperformer, they reported a good first quarter revenue of $2.25 billion. Was up 19%. Non GAAP earnings per share of $1.81. That was up better than 20% from a year ago. And the metrics that we met, right. The key performance indicators we measure with this business all indicate they're doing a lot of good stuff worldwide. DaVinci procedures were up 17% installed. DaVinci systems grew 15% as well. And so to quantify that a little bit better, they placed 367 DaVinci systems for the quarter. That now puts them over 10,000 systems worldwide. They have 50,000 surgeons across 70 countries performing procedures with their equipment in the quarter, which I think is just really impressive. Their ion system continues to gain Traction. That's their platform for minimally invasive peripheral lung biopsies. They saw approximately 31,000 ion procedures for the first quarter. That was up 58% from a year ago. In the quarter, they placed 49 ion systems. That compared to 70 from a year ago. It's important to note that much of that, though is just due to getting clearance for international placements. So there is a lot more room to run there. They, of course, continue to talk about the tariff climate. They noted that in 2024, they manufactured 98% of robotic systems in the U.S. 70% of endoscopes in Europe, and 80% of their instruments accessories in Mexico. And so for 2025, leadership expects tariffs to be an additional cost of sales of approximately 1.7% of revenue, plus or minus 30 basis points. So dealing with some challenges, but with such a massive installed base and obvious buy in from the physician community, I think Intuitive's in a pretty good spot.
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Dylan Lewis
Jason, digging into the commentary, management was basically saying we're going to assume what has been announced will go into effect when it comes to tariffs. What do you think of that approach?
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Asit Sharma
I think that's the way you have to play. You just you expect the worst and you hope for the best. It's a great life philosophy. Dylan.
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Dylan Lewis
There you go. So it's not just financial wisdom, it's general life wisdom coming from Intuitive Surgical.
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Asit Sharma
That's exactly it.
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Dylan Lewis
All right, Jason, Assit guys, we're going to see you a little bit later in the show. Up next, friend of the fool Malcolm Etheridge takes a look at big tech heading into earnings and the recession resistant stocks that are on his watch list. Stay right here. Bill stinks. Motley Fool Money do.
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Jason Moser
And I just can't wait till the.
- [19:36]
Malcolm Etheridge
Day when you knock on my door.
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Dylan Lewis
Welcome back to Motley fool money. I'm Dylan Lewis. Big Tech was investors favorite place for the last few years, but 2025 hasn't been quite so kind to the biggest companies in the world. Joining me to talk about the state of the giants, Malcolm Etheridge. He's a financial planner, author and market commentator. Malcolm, thanks for joining me. Back on Motley Fool Money.
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Jason Moser
Yeah man, glad to be here. Thanks for having me.
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Dylan Lewis
So I think most investors know, but Big Tech basically drove the market 2023, 2024, a lot of the big names were a very large part of what we saw in terms of overall market returns. You look at that Mag7 list for 2025 though, and not only are they not looking great, but they're underperforming the market. What are you seeing here? What's going on?
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Jason Moser
Well, firstly, I'd be remiss if I didn't get my congratulations in there too. I understand that's in order. So congrats on the nuptials.
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Dylan Lewis
Oh, thank you.
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Jason Moser
To the old married dudes club. Doesn't really matter what age you are when you get married. You are officially an old dude when you get married.
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Dylan Lewis
Proud to be there.
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Jason Moser
Yeah man, it's nice over here. But yeah, so I think it's interesting that tech led the way that it did for so long and then all of a sudden kind of ground to a halt. And obviously there's some man made reasons why that happened as well as momentum and everything else. I don't think that the trade within Big Tech is completely over. I think that it's important to be specific about which companies we look at and which sectors and maybe even products those companies sell when we talk about big tech. But I definitely think there's some more room to run within the overall tech ecosystem.
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Dylan Lewis
Yeah, it's a good point. I mean we're looking at companies here that have big cloud businesses, big advertising businesses, chip businesses. It's easy to lump them all into one spot. When you think about some of the different markets that Big Tech serves, where do you think there is room to run?
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Jason Moser
Still, one of them that you just outlined I really love and it's the cloud computing space. Right. If we think about the fact that many of the hyperscalers have taken it on the chin to the tune of somewhere north of 20% from their February highs. Right. I won't get into each individual company specifically because we'll be here forever. But if we think about a Microsoft, if we think about an Amazon, just those two specifically, let's say all of the investment that those companies have made, 100 billion, 80 billion, 60 billion from Meta, that they've committed to spend at least before this fiscal year is over, you're getting all of the growth that comes along with those investments with a 20% discount. Now if you think about buying today as an investor or adding additional shares to your portfolio, if you already believed in those companies and now artificially you've been given an opportunity to get into those names or add to those names. So that's the way I would think about it. I'm not necessarily buying the company worried about what happened in the past. I'm focused on the idea that I can get that future growth now with a pretty decent discount on it.
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Dylan Lewis
I think one of the concerns Folks have had is a lot of investment going into the cloud to support AI workloads, a lot of exploratory AI work being done. And okay, is that spend going to continue if we hit some roadblocks in the economy, is that going to be an area where a lot of businesses ratchet things back a little bit? How are you thinking about that?
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Jason Moser
Yeah, I think it's absolutely necessary that companies reassess now that they know what they know now that we're here. Right. We're two, three years into the development phase and they know what they know. But I also think that they shouldn't be dinged for that spend simply because not spending those dollars would have been more tragic long term than had they gotten there and then realized, oh, we should have spent to compete with, you know, insert name here. And so I think that we should at least consider the fact that these were necessary investments, one just to protect their moat, but two to find out if there's some there there and how they can monetize it. So I think that we will get the second order effect. So you had the Microsoft, Google, Amazon and the like who actually invested the dollars to build their own large language models, which took several billions of dollars to do that. And most companies didn't have the free cash to be able to commit those dollars to doing that. Right. But then the next secondary effect that I see coming is you're going to have to hire somebody as mid tier, large tier enterprise to come in and teach you how to apply AI. Right. We've been using this buzzword for three years almost now. You see all the commercials on tv, AI is everywhere. But I don't think anybody really, not nobody, but not enough people really know what they're referring to when they say AI. And then in the context of their own direct business, what does that mean for them? Right. I'm a person who runs a financial planning firm. AI means something different to me than it does for a guy who runs a podcast or, you know, for a investing service. Right. So all of those different use cases will require someone with some expertise to come in and actually teach you what that means for you. And I think that's where there's an opportunity to invest now in the additional piece of like an Accenture, for example, or IBM is another one that comes to mind. Those kinds of companies that will add billions of dollars to their revenue mix simply by now coming in and teaching you what the heck AI means for you.
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Dylan Lewis
Yeah, Accenture has been very quick in their conference calls to highlight The AI consulting business and what they see there because they know that's an exciting area and it's a spot where they have a lot of billable hours coming.
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Jason Moser
Yeah, yeah. And again, if the client doesn't necessarily know what they need, a lot of the upfront cost is just helping them even get to what does this mean for us? And then you bill again for the implementation of whatever that strategy ultimately becomes. It's a business consultant's dream. This is why people go get their MBA is for moments just like this.
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Dylan Lewis
I want to stick with big tech, but talk about a different market here, move us away from cloud computing. Over on the advertising side, in addition to a little bit of the market uncertainty baking in here, both Meta and Alphabet under a lot more scrutiny from regulators. FTC. Looking at Meta's ownership of Instagram and WhatsApp, Google in the news because of their digital ad business and search looking like that will have some remedies in antitrust with the doj. Does any of that factor into your outlook for those businesses and the thesis for those businesses?
- [26:08]
Jason Moser
Yeah, I know I'll get some hate mail for saying this, but both of those businesses scare me as a would be investor. So I don't own shares in either of those companies personally for two separate reasons. I think that the only way that Google gets anywhere from here is to cannibalize their own business for the sake of going to phase two. Right. How can we, how can we move people away from two pages full of blue links to get them to that single search answer that ChatGPT has now taught us we should be looking for without cannibalizing the thing that gets us paid because like 90 plus percent of our revenue comes from search ads. Right. So that scares me about them. But I definitely think that it's a dangerous time to be investing in anything that's ad based in that way. If you have any semblance of concern that we might be headed for a recession. Right. Because the first thing that goes, the first line item that gets cut is the advertising budget. So why would I want to own shares of a company like that that's on the chopping block the moment it looks like the road isn't going to be all that smooth. So Meta similarly. But my bigger concern there is the antitrust piece because I don't know that breaking up Facebook, Instagram and WhatsApp will be as accretive for shareholders as maybe YouTube as a separate standalone property would be for owners of those shares.
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Dylan Lewis
It's an interesting time for Google And Alphabet because, you know, on Meta's side with antitrust there they have TikTok as a competitor, but there, you know, is there's a lot there in terms of TikTok's access to American users. In Google's case, yeah, they have this large existential threat coming for their cash cow business at the time that they are being explored for antitrust. The timing is probably something that will be made into a movie at some point. I'm guessing it has that kind of dramatic flair to it. But that has been a big question for us looking at this company for a while is can they change with consumer behavior fast enough and can they figure out how do you layer ads into that model? Because it's a totally different user experience.
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Jason Moser
Yeah, I don't know that there is an obvious answer and I don't know that there's not more pain to be had by holders of those shares longer term while they figure it out. And dare I say, it may even take a different CEO at the helm who's more focused on product development and not so much on operations. And I don't say that because I want to see anybody lose their multibillion dollar paying job, but I just feel like it's going to take a shakeup of thinking within the organization to get to a place where we can reinvent ourselves, we can ideate out of this rut that we're in to get on the other side of where AI has taken the search business.
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Dylan Lewis
All right, so those are some markets where you have some concerns. Looking out at the macro picture, there's, I think, a lot of reasons for investors to be a little cautious right now. Where are some corners in the market that you're excited to put dollars to work?
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Jason Moser
Yes. Two things that I really love that I'm looking at right now are cybersecurity, which would be no surprise to anybody who's listened to my voice for the last few years.
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Dylan Lewis
We've heard you pitch cybersecurity before.
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Jason Moser
I was a little bit early, apparently, but now all of a sudden I hear that more often than I used to. Where I think the rest of the street is waking up to the fact that just mentioned advertising. The first thing to go from the budget of any enterprise is figuring out how do we weather this storm. The one thing on there that is a do not touch is the security budget. Right. If anything, it needs to be increasing. You can't afford to be decreasing. And it's kind of like car insurance, right? Like you cannot operate a vehicle in the United States without car insurance. You cannot run a small, medium or large scale enterprise without some sort of cybersecurity protection. And so I think that that is a really great place to be looking at recession resistant, defensive type places to deploy capital, whether it's crowdstrike in Palo Alto or at the very top end or coming downstream and looking at an etf, even maybe Bug or cibr, however you decide to play that space and then separately from that, as counterintuitive as it feels to say it out loud, I think that Netflix is a very defensive play right here as well as Spot, simply because if we are indeed headed for recession, that means that people are pulling back on spending on things like travel, on leisure. You know, brunch doesn't have to happen every Sunday on schedule the way it used to. But what am I not going to reduce my spend on? Or what, what may I maybe even be inclined to sign up for in that time period? Netflix, because it's going to help me occupy more of those hours that I would have spent finding some other way to entertain myself. And so I think that obviously, based on the Street's reaction to their reporting, a number of investors out there agree with me. But if you think that Netflix looks too expensive, Spotify is another way to play that same theme that's probably a couple of years behind where Netflix has already built out their user base, their paid user base.
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Dylan Lewis
Yeah, we have this concept internally. We talk about a lot Snap test for a business and just, you know, if that company goes away, do people riot? Do people care? And I think for Netflix and Spotify, absolutely. And for the amount of money that it goes each month, you don't think about it too, too much. I would feel it though, if my subscription went away. And I say it as a shareholder and also as a user, I need the tunes. It's a lot easier to get through some bad times if the music.
- [31:37]
Jason Moser
You know, the real, the real test for Spotify was back in, I think it was 2021 with the Joe Rogan experience, literally and figuratively. The time for people to revolt and go away was when that whole hubbub came to be. And that's what showed me just how inelastic the demand for Spotify really was. Because at a moment when the rest of the country is in crisis and there's social movements against everything else, the one thing that people weren't really willing to do any work to leave was Spotify. Because they've already built their playlist, the algorithm knows them personally, they feel like this is my service. And I want to have to start over from scratch in a place like Apple Music or Amazon Music or whatever else might exist that I can't even think of. So this is my service. And when I saw that and the fact that they barely lost a single subscriber from that, I said that is a defensive service and they have a moat that they're building. So now looking at their paid user base, I think that they're following the Netflix subscription model and they're probably just a couple years behind on, you know, Netflix is now talking about doubling their revenue mix, doubling their subscriber, the paid subscriber base. And I know that that has a lot of global reach to it and that's how they're planning on doing it. I think both of those are trend going in the same direction. There's probably a lot of overlap in their users right between paid users on Spotify and paid users on Netflix.
- [33:05]
Dylan Lewis
What I hear in both of your looks at companies is you're looking at the way that the spend fits into the consumer's mind or the business's mind. And that's one of the main filters in how you're looking at companies and how they're going to succeed in this market, in this environment. Any other things that you're keeping in mind as you're looking at businesses right now?
- [33:24]
Jason Moser
Yeah. So one thing that I am interested in, and I don't have a good answer on just yet, because there's so many other dynamics out there in the market today. We're one tweet away from the market tanking or surging 10% in a day. One space that I'm keeping an eye on though is the real estate market in the sense that I think that the moment there's a catalyst that gets US a roughly 50 basis point cut in the 10 year treasury that obviously sends mortgage rates down with it sustainably for more than a week, let's say, so that the mortgage markets have a chance to adjust. I think that that's going to be a great time to be buying and owning the larger wholesale mortgage service companies like United Wholesale Rocket and whoever else they compete against that are in the third and fourth seat. That's an industry that's been asleep for a very long time and is waiting on its catalyst moment. And I think because we look at the cycle, it usually is about a two year lull and then a two year surge and then a two year lull. We've had our two year lull already because interest rates have been so restrictive in the mortgage market. Now is time for us to be ramping up for that surge on that side. And so that's a place I'm keeping, keeping my eye out.
- [34:40]
Dylan Lewis
Malcolm, as always, awesome to talk to you. Thanks for joining me.
- [34:43]
Jason Moser
Glad to be here.
- [34:44]
Dylan Lewis
Listeners. You can catch more of Malcolm on X. He's got his Malcolm on Money weekly newsletter. You can get the info for that on his site, Malcolmethridge.com We've got more stock ideas ahead. Jason Moser and Asa Sharma will be back with me after the break to talk about stocks on their radar this week. Stay right here. You're listening to Motleyful Money. As always, people on the program may have interest in the stocks they talk about in the Motley fool may have formal recommendations for or again, so don't buy or sell anything based solely on what you hear. All personal finance content follows Motley fool editorial standards. It's not approved by advertisers. Motley fool only picks products I personally recommend to friends like you. I'm Dylan Lewis, joined again by Asit Sharma and Jason Moser. And gents, we are jumping right into our radar stocks this week as he does every week. Our man behind the glass, Dan Boyd, is going to hit you with a question or perhaps a comment. Asit, you're up first. What are you looking at this week?
- [35:52]
Malcolm Etheridge
So, Dylan, I'm looking at NASDAQ symbol ndaq. This is the company that owns and operates the NASDAQ exchange. In volatile times, they tend to make money as trading volumes increase, folks look to use derivatives to manage risk. Also, it's been a great company in terms of stealing listings away from the NYSE. It gobbles up most of the tech IPOs. The thing that I like about this business, why I'm looking at it again after many years, is that CEO Adina Friedman has really taken the company away from just relying on trading volumes. It's a much more diversified business now with the financial services unit. They make a lot of money licensing brands within their portfolio. They even have a financial crimes unit. So I think this is a very interesting company to watch in terms of something that can keep up with the market. This is a company that's growing now organically by 10 to 11% a year. It used to grow only by acquisitions, and this was her strategy when Friedman came in. But she's made it into a company that can stand on its own even if the market goes down and those trading volumes decrease just a little bit. So ndaq, NASDAQ is a Company that I've put back on my radar screen after a few years away.
- [37:01]
Dylan Lewis
Dan, Asset's getting kind of meta with it. Putting an exchange here as his radar stock. A question or a comment about Nasdaq. Okay, so at the end of another financial podcast that's really big, that might rhyme with Marketplace, they always talk about the Nasdaq being up and down. Is this is the stock that what they're talking about or are they talking about something else?
- [37:26]
Malcolm Etheridge
Yeah, they're talking about the exchange, the NASDAQ exchange. This is the company that operates that exchange and brings new listings in. If you have an IPO and you're a tech company, you want to be on that exchange. The Nasdaq, they run that exchange, but as I was just saying, they do a lot else as well.
- [37:41]
Dylan Lewis
But it's not the stock they're talking about. They're talking about the exchange itself.
- [37:45]
Malcolm Etheridge
They're talking about the exchange, but it's very meta here. As Dylan says, the stock, the business is the holding company for that exchange.
- [37:54]
Dylan Lewis
Jason, you are fighting not only a stock, but an exchange with your radar stock this week. What do you got?
- [37:59]
Asit Sharma
Tough stuff. But hey, listen, I felt like the timing here was appropriate given that it's draft week. Adobe has been named an official partner of the National Football League, the NFL. In expanding an already established relationship, the league and all 32 teams are going to use Adobe applications to continue generating fan content. The NFL is big business. This is a noteworthy partnership as Adobe continues to invest in AI at a rapid clip in order to keep up with all of those other heavy hitters we were talking about earlier in the show. Dylan. So I think it's going to be really fun to see what they can build together.
- [38:31]
Dylan Lewis
Dan, this is one that needs no introduction for you. You use it. A question about Adobe. Yeah, I use Adobe products every day. And Dylan, when I think Adobe, I think football.
- [38:42]
Malcolm Etheridge
Hey, now that's the first thing I think too.
- [38:46]
Dylan Lewis
They have to look to see what they can do to expand. They're looking for partnerships, they're looking for other ways into other market. Dan, as a regular user of their products, Dan, how do you feel about them? I mean, Adobe is kind of a necessary evil, but yeah, it could be worse. I'm a fan. Is it going on your watch list this week? Yeah, I don't know what to do.
- [39:03]
Malcolm Etheridge
With the Nasdaq acid.
- [39:05]
Asit Sharma
I'm sorry.
- [39:06]
Malcolm Etheridge
No worries. I don't either. Quite.
- [39:08]
Dylan Lewis
Jason, asset. Thank you guys for being here and bringing your radar stocks. Dan, as always, thank you for weighing in. That's going to do it for this week's about the full Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.