← Motley Fool Hidden Gems Investing
Motley Fool Hidden Gems Investing
Google’s Quantum Chip
00:32:04
The new Willow chip performed a computation in under five minutes that would take a supercomputer 10 septillion years. That’s longer than the universe has been around.
Loading summary
Transcript47 lines
- [00:05]
Ricky Mulvey
We're going to the quantum verse. You're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Nick Siple. Nick, good to see you.
- [00:18]
Nick Siple
Great to be here with you, Ricky.
- [00:20]
Ricky Mulvey
Let's get into this Google announcement, which is a little tough to parse through anytime you're talking about quantum processes. But Alphabet announced a new quantum computing chip called Willow. The stock has jumped about 12% over the past week as Wall street analysts pretend to understand quantum science. Now the stock is at an all time high. Google reporting that, quote, Willow performed a standard benchmark computation in under five minutes. That would take one of today's fastest supercomputers 10, septillion. That is 10 to the 25 years. We're getting into some logarithmic math there. Sounds like this thing can get all the bitcoin at once, Nick. But what does Google want from this research?
- [01:01]
Nick Siple
Sure, I think Google just wants to stay on the cutting edge of new computing technology. As you laid out here, these quantum computers have the promise, if they reach commercialization, to do calculations that today's existing computers couldn't do in the entire history of the universe. If you stretch out the time there. So. So just trying to push forward, you know, the state of the art of science as Google has done with their AI investments in the past and other places. This is one of the big focuses that Google has outside of their core business to just invest in innovation.
- [01:30]
Ricky Mulvey
And for those who are unfamiliar with this game, and none of us are going to pretend to be quantum experts here, I don't want to put words in your mouth, Nick, but what can a quantum computer do that's so much better than a regular computer? Why are the researchers so interested in this?
- [01:46]
Nick Siple
Yeah, I mean, without getting, you know, too deep down into the weeds, my understanding is you essentially use the fundamental particles of the universe to do the computing for you. So it usually uses qubits, which is, you know, electrons, that sort of thing which can exist in a superposition state. We're getting down into kind of complex physics. They can be both 0 and 1 at the same time, unlike classical computers that have to be either 0 or 1 at any given particular time. This unlocks significant potential to perform multiple calculations at once faster and simulate problems in large data sets you couldn't do today. However, there's lots of instability in these qubits and we haven't been able to get them to be stable enough to build these computers in a functional way. But this breakthrough that Google announced really is a sign that we're getting closer, and if we do reach commercialization, then this would be a breakthrough in computing and could change the world.
- [02:38]
Ricky Mulvey
This is a bleeding edge technology. And as you mentioned, getting these chips and computers stable is a monumental challenge in and of itself because you're not dealing with ones and zeros, you're dealing with particle uncertainty at an atomic level, which sounds a little above my pay grade, but there's a lot of promise in use cases to watch. What are you going to be watching as this technology plays out?
- [03:04]
Nick Siple
Yeah, I mean, you think about a breakthrough in computing technology could touch things. Healthcare, code breaking, that sort of thing. For me, the place where I think you'd see quantum computing used first is in defense. If you think about past cutting edge technologies, they all seem to find the first application in defense. Rockets, the Internet, drones, gps, nuclear technology. All these things started out as defense applications really make sense. The DoD isn't worried about profits or commercialization, really worried about national defense. And we've kind of agreed as a country that there is not a price we want to put on that. So I'd expect quantum computing to find its first applications in the defense field. You think about code breaking certainly has been one of the earliest applications of computers going back all the way to the beginning. So you could definitely tell a story about where that could be applied in the defense realm. So if we do reach, you know, something where this applies, I think defense is going to be the place where you see it used first.
- [03:55]
Ricky Mulvey
Yeah, one, one thing I'll be watching. You mentioned code breaking, and this could fundamentally change as this tech plays out. Cybersecurity companies, as cyber threats change. There's a book, Quantum Supremacy, and kind of lays out one example where there could be two Internets where if you're trying to send secure information, you might not be able to do that along the normal broadband infrastructure we have. If you're a company doing banking information, that kind of thing, you might need laser beams to send it because otherwise it could just be so easy for these quantum computers to break into. Let's talk about the stock side, because remember a few months ago, everyone was worried about Google and how it didn't understand artificial intelligence. Well, now investors are saying, boy, oh boy, do you understand quantum computing? And we're excited about that. Wall Street Journal columnist Dan Gallagher has a column out today saying, quote, google's quantum boost doesn't really compute and pointing out that basically the $250 billion that was added to the company's market cap is looking speculative at best. This is because the advertising business generates about that money in a single year. You know, pessimism always sounds smart, Nick, and this is something I'm excited about. Quantum computing is cool. So you tell me, is this smart analysis from Mr. Gallagher? Is he, you know, does this belong at the player haters ball?
- [05:14]
Nick Siple
I would say it's, you could say both in one way or the other. I mean, it's smart analysis in the sense that is this quantum computing technology commercially ready enough to be adding that type of market cap to Google Alphabet's stock today? No. This is only the second milestone that Google has laid out toward their quantum computing commercialization roadmap. I think there's seven of those milestones. There's really no guarantee that it ever gets there. I mentioned defense really being at the cutting edge, the DARPA program manager that's in charge of quantum computing and said their basic position here is skepticism. They're skeptical that we'll ever reach a quantum computer with enough of these qubits that are stable enough for this to be built. So it's really, really a question of whether we actually reach commercialization, although this is a huge breakthrough for Google. That said, I think some of the movement in the stock is less about, hey, we're about to have quantum computing tomorrow. It's renewed confidence in Google, their leadership and their technology position. You mentioned AI earlier this year, a lot of concerns that AI could disrupt that core Google advertising business. And we've seen some really exciting announcements from Google Gemini, their AI tool, in recent weeks that at least have given me some confidence in the AI business. And you know, while quantum computing is a long way off as far as these frontier technologies, I do want to mention one breakthrough technology that is actually finally gaining traction for Google and that's self driving cars. This is another technology that started off as a defense program 20 years ago. DARPA, the Defense Advanced Research Projects Agency, had their 2004 Grand Challenge, which is really kicking off the quest for self driving cars. Now we are 20 years on and Google is finally reaching commercialization of these. According to data from California's Public Utilities Commission, Waymo did 312,000 rides per month in California in August. That's double what they'd done three months before. And just in recent weeks, Google has announced plans to expand rapidly across the U.S. in Austin, Atlanta and Miami. In 2025, announced partnerships with Uber to expand that in some of those, those new cities. And this is an area that you really don't hear mentioned that often as a real value driver for Google. So you know, do I think quantum computing is alone is enough to move Google stock? No. But do I think there's a good argument that we should be more optimistic about Google and that you know, that the company has brighter days ahead of it and isn't isn't you know under deep threat by some of this disruption folks were worried about earlier this year. I think that's true and I think there's a good argument to be made that Google is fairly valued here.
- [07:33]
Ricky Mulvey
The one thing and Google at about 25 times earnings right now. One thing on on the self driving stuff that I am waiting for is someone out in Colorado. Nick, you mentioned the three cities. Austin, Atlanta, Miami, San Francisco. These cars are already cooking. None of those cities get snow or ice a lot and I'm very much looking forward to seeing these self driving cars artfully work in icy and winter conditions. That's when I think that's going to be sort of my, my transition point to saying this is really going to roll out across the country but I'm ready to get in the self driving car.
- [08:06]
Nick Siple
Yeah, you left out LA there Ricky. But yeah, that's another all there's no accident all those cities are have favorable weather to the technology. Let's say that. So you know, we're, we're not there. We're not there where this is going to be commercial in every city but we're getting there where this is. This isn't a science project anymore. This is a real commercial business.
- [08:22]
Ricky Mulvey
Let's go to Warner Brothers. So Warner Brothers Discovery maybe taken a note from Comcast last week announcing that it is separating its cable and streaming division. The is a week after Comcast announced that it was straight up spinning off most of its cable assets. Cynically you could say hey, it's telling private equity firms you can easily cut here if you want to hive off this part of the company for Warner Brothers Discovery, its global linear networks division will house its cable brands. Streaming and studios now will include Macs and other streaming assets. You're seeing Warner Brothers Discovery investors get excited about this. Stock is popping more than 10% as I was looking this morning. Why are they so excited about a little restructuring? Nick?
- [09:02]
Nick Siple
Yeah, it's been a tough run for Warner Brothers. Discovery down about 50% since the merger between Warner Brothers and discovery back in 2022. I think the market is excited about potentially a new strategy for the business. CEO David Zaslav has really been pounding the table on the need for more transactions, more consolidation in the media space. Perhaps with a Change of administration. Maybe those deals are a little bit more easy to do. You look at Warner Brothers Discovery today, just over $40 billion in debt. The past couple years the company has really had to focus on cutting costs, laying off workers to focus on cash flow. The main driver of the business continues to be cable networks. About half of the revenue, close to 90% of the EBITDA comes from the cable networks. But these are really no growth businesses. Ad dollars continuing to leave. Traditional media streaming still on the ascendancy. Just had to take a $9 billion write down on its cable assets in August. If you look at the streaming business, there is some growth there and that business has reached breakeven. Although you have to take those numbers with a grain of salt. But still HBO max, a little bit of a mess if you compare it to some of these other streaming companies. Combining HBO's content with Discovery's reality TV and that sort of thing has led them to be a little bit behind some of the folks in the market. I think this, I don't know if transaction, I guess this reorganization sets the company up to separate perhaps some of these bad linear assets from the studio and streaming assets that although they have problems, have a long term future. Zaslav on the press release said we continue to prioritize ensuring our global linear networks business is well positioned to drive free cash flow while our streaming and studios businesses focus on driving growth by telling the world's most compelling stories. Our new corporate structure better aligns our organizations and this is the big part enhances our flexibility with potential future strategic opportunities across an evolving media landscape. We've just reached, I think in April we reached two years since that merger between Warner Brothers and Discovery. Now that we're two years on from that, those transactions can take place. And I think having off these two businesses sets that up. I think what you're likely to see is either spinning off these cable assets and attaching a lot of this debt to those assets. You can have a good bad co spinoff or perhaps you see some consolidation with some of these other struggling cable businesses out there. Whether that's the spinoff from Comcast or Paramount is out there and under new leadership perhaps is going to be looking to sell off some pieces.
- [11:35]
Ricky Mulvey
Yeah, and a lot of these companies with, with these cable assets seem to be making moves in 2024 that maybe they know they should have been making in the mid, you know, 2020 tens. I think Paramount is one example. We were talking, we were chatting before the show where you wanted to talk about the BET Network, where the valuation falling from about 2 to $3 billion, having bids for that to 1.6. Now, I'm talking about a different company, but bringing this theme together, do you think these companies, Paramount, Warner Brothers, Discovery, have they really just missed the boat to sell these assets? Good price. Are these distressed sellers right now?
- [12:11]
Nick Siple
I think they are distressed sellers. These companies are in a tough spot where you're heavily indebted and you need to be able to support that debt burden. However, your assets that are generating the cash flow to do that are in a difficult position, a shrinking business. And as you mentioned, the valuation of these cable assets is moving down into the right. If you just look at BET, best case scenario, we're looking at 20% decline in valuation over just the course of a year. We could expect these assets to continue going down. They're no longer prestige properties that folks would be excited to buy and own. Notwithstanding the Ellison family getting involved with Paramount earlier this year, now we're looking at vultures trying to bid up these assets and run them for cash flow. I think there's still quite a bit of cash to be squeezed out of these businesses. The market has certainly come to the conclusion that the growth days are over. And as you see, you know, things like sports, abandoning cable for some of these streaming platforms, that the things that were really holding the cable bundle together are finally leaving.
- [13:12]
Ricky Mulvey
Yeah. And if you're waiting for Netflix to come in, you had co CEO Ted Sarandos at a UBS media conference on Tuesday saying, quote, we're better builders than buyers, implying we're not going to come in and take a lot of these distressed cable assets off, off your hands. And in some cases, you're seeing these companies pick and choose how they do it. Uh, we were talking about Comcast, where they spun off pretty much every cable channel they had, with the exception of the Bravo network, which has a lot of their reality programming that does. That does quite well on, on Peacock. So you wonder who. What are they doing this for? And who. Who do they expect the buyers to be? Let's get into the valuation a little bit because Warner Brothers Discovery right now trades at about six times free cash flow. The earnings are a little funky depending on how you add in the depreciation. And we heard from Yasser Al Shimmy on the show a couple weeks back that he likes this as a value play. You have a lot of properties in there that are, that are valuable. You have the HBO brand, which for at least me and my household, that's a must have along with Netflix, you have a cyclical theater business that's a little bit down this year because they don't have a Barbie type movie on their hands. But maybe it can make a profit again. But when you look at this through your stock analyst lens, are you looking at a value play here or a falling knife?
- [14:33]
Nick Siple
For me, I wouldn't call Warner Brothers Discovery a value play. I'd have to put it in the falling knife category. Just in the sense that the cable networks, as I mentioned earlier, heading to zero over time. There is cash flow to squeeze out of this business, but the long term trajectory of this business is going to be down. If you look at streaming, they've got a great library of assets. HBO Max is, is great, but they're far from the leader in the space. Netflix really forced everyone to follow them towards profitability a couple years ago, really set the terms of engagement in streaming. If you look at Amazon, they really seized the lead in advertising in streaming by pushing all their prime members to an ad supported platform. So you're behind the leading subscription video on demand company. You're behind the leading advertising video on demand company. You're also heavily indebted and kind of backed into a corner with some of these better resourced, more diversified. So for me, is there a future for the Warner Brothers movie division? Of course. I think they're going to have a long term future. Does it need to be an independent company? No, I think long term, I think these assets end up being held by a number of different larger companies as opposed to remaining an independent media business.
- [15:43]
Ricky Mulvey
So who wins from these content arms, dealing games?
- [15:49]
Nick Siple
Yeah, so we're talking about companies in the streaming race. If I had to pick a place to invest, I mentioned the diversified players in a much better position than the pure plays on cable assets. So you think about the odd companies out here, Warner Bros. And Paramount really are, I would say, distressed assets. Better companies on that layout. Comcast and Disney in a better position given that they're more diversified. They have the parks business to fall back on. Comcast in their case has the cable business. Those companies are really better positioned. But if I'm going to invest in the media and the content space, as I've said before, I think the company that my favorite is TKO Group Holdings Ticker is tko. It's the parent company of WWE and the ufc. And the reason I think they're in a good spot here is they are the arms dealer to these kind of competing streaming platforms. They've had the ability to see the amount of Folks are paying for their content. Move up and to the right. For a long time WWE Raw has been the highest rated program, episodic cable program on tv. They've made that jump from cable to Netflix in January of this year. Be the lead live element of Netflix's ad supported business. You've got next year. Their rights deal for the UFC is set to expire. Likely to see that be re upped with ESPN. They're looking at a 10 year deal. I think that's going to be significantly higher. This is a company that all these potential players in streaming are looking for access to the audience that TKO brings. You look at what's happening in sports where basically everybody wants, it wants a piece of this and they have the ability to kind of sell into this market. So I think, you know, if you invest in a company like TKO or some of these other other folks that are kind of selling scarce content into these, you know, competing streaming businesses, I think those are the folks who are, you know, most, most best positioned to benefit from what's going on in streaming while all these other, you know, streaming competitors fight it out.
- [18:01]
Ricky Mulvey
Also you got two top dogs in the WWE in professional wrestling, in the ufc, in mixed martial arts. The folks in those organizations certainly people I don't want to bet against or be be against in any type of fight. Nick Stiple, appreciate you joining me here on Motley Fool Money. Thanks for breaking it down.
- [18:18]
Nick Siple
Thanks Ricky. Happy to do it again anytime.
- [18:26]
Ricky Mulvey
All right, holiday shipping season is upon us and my colleague Mary Long is taking a look at a few of the key players. She's starting off with FedEx with Motley fool contributor Lou Whiteman. Today's show is brought to you by the Range Rover Sport. What makes a leader? It's a tough question, but one thing's for sure, A true leader leads by example and a true leader takes risks. They plunge into life with determination and face obstacles with resilience. For those who lead by example and approach life with a palpable passion, there's the Range Rover Sport. Visceral, dramatic, uncompromising, the Range Rover Sport offers focused on road performance and world renowned off road capability. Its adaptive dynamics reduce unwanted body movements to deliver smooth and composed handling. Plus its adaptive off road cruise control monitors ground conditions and acclimates to the present terrain. Its agility, control and composure are achieved with dynamic air suspension. The Range Rover Sport is a comfortable and intuitive drive. Sophisticated refinement meets visceral power in the Range Rover Sport. A new dimension of sporting luxury rise to every Occasion and visit land roverusa.com to configure your Range Rover Sport.
- [19:52]
Lou Whiteman
Lou Whiteman it is shipping season. People are ordering gifts, most likely over the interwebs. And those gifts have got to get from point A to point B, potentially with a few stops along the way. So today we're going to shine the spotlight on a company that kind of plays a big role in moving stuff around the world. We're talking FedEx. On the one hand, this company kind of needs no introduction, but on the other, I, I do think that Amazon and like how speedy prime delivery is has kind of warped our understanding of how packages move. So let's, let's kind of focus on that and set the table here. If the majority of packages arriving on your doorstep are from Amazon, it can be kind of easy to forget that there are actually other movers and shakers that are playing a really massive part in this logistics puzzle. Break it down for us. FedEx splits its business into the express segment and the freight segment. What's each of those do exactly?
- [20:40]
Ricky Mulvey
Yeah.
- [20:40]
Mary Long
Okay. So for years they actually had broken down further between the kind of a network for express and a network for non express. As you said. This year they combined that into one operation which should make it more efficient. But basically there's the parcel service, which is packages and everything coming from retailers. And then their old, to use their old slogan, the absolutely positively has to be there overnight stuff. So yeah, they used to kind of break that separate from the can wait a few days, but now they're trying to bring that together. Freight, on the other hand, that's just an LTL trucking business lesson. Truckload, those are the big stuff. Those are the stuff you need a forklift instead of just dropped off at your door.
- [21:20]
Lou Whiteman
So out of those two newly split segments, which is more interesting to you as an investor, where's the big story with this company? As consumers are probably more familiar with packages shipping back and forth to each other. But where's the money being made?
- [21:33]
Mary Long
So the parcel business is 85% of total revenue. Whether it's express or can get there whenever. That's also where there is the higher potential, potential for higher margins. Definitely that is where your focus should be. Express actually still makes up more than half of parcel revenue. It isn't mostly just gifts from grandma. There is still a big business shipping overnight business. That's the business where they really can and we can break down a little more just inside that business. But if they're going to generate plus margins going forward, it's probably going to be from that business and not the trucking business. Yeah.
- [22:07]
Lou Whiteman
So let's break that down a little bit more levers can FedEx pull to grow here. If you look at average daily package volumes, the number of packages being sent that's been pretty flat over the past year. Is increasing that number a big priority here or is it more about pricing power?
- [22:25]
Mary Long
So part of that is out of their control. Part of it is just the economy. You know, you can't force your customers to ship things. It is sort of a demand based business. And all across the board, the transports, we've seen volumes fall. It's just been a weak market. They can't really control that. What they can control and, and what they are increasingly trying to do is get to those premium services and focus on that. Refrigeration is a big one, whether it's produce or medical. Refrigerated shipping is a highly specialized thing. Amazon trucks don't have refrigerators in them, so you can't really compete there. There is specialized competitors, but the big guys, they're focused on things like this where they can drive higher margin. It's a lot better business for them than just kind of getting the toys on time for the holidays or something like that.
- [23:12]
Lou Whiteman
Between 2020 and 2022, FedEx saw some decent growth. And maybe this goes back to this kind of like okay, stuff that's out of their control. More macro factors that you just mentioned. They had $69 billion in revenue in 2020, 83 and a half billion dollars in 2021, 93 and a half billion in 2022. So decent movement. But since then revenue has been on a downward trajectory. Is it just the macro picture that caused that or are there other things that kind of are within FedEx's toolbox that they can use to address that?
- [23:41]
Mary Long
It's very much a macro story and specifically a pandemic story. We all started buying everything at home and getting it shipped. Right. So demand for shipping services went up and that echoed through the system for a few years. But we've seen, just like I said, this broader transport slump. For one thing, E Commerce hasn't disappeared post pandemic, but it has normalized. So you have seen sort of just regression to the mean. But as importantly, this macro idea, we've been talking for years now about hard landings, about recessions, about what's to come come, that causes large corporate customers to scale back on inventory and scale back on just what they have in their warehouses, which means less demand for shipping. There has been some Move around the edges. FedEx has new management and they're sort of trying to get rid of some of the more marginal business. So a little bit of it might be by choice, but mostly, like all across the board, you will see the stocks reflected. This. This has just been a bad year, 18 months for these companies, FedEx included.
- [24:42]
Lou Whiteman
So FedEx got a new CEO a couple years ago. He'd been with the company for a long time, but more recently in this new role, he's implemented some cost cutting measures. That initiative was called drive Deliver Results through Innovation, Value and Efficiency. What kind of innovation value and efficiency are we seeing? What's. I think Most recently, this drive program led to $1.8 billion in cost savings over the 2024 fiscal year. So what are we seeing cut and what are we seeing kind of come out on the other side as a result of those cuts?
- [25:12]
Mary Long
So the overall goal is about 4 billion a year. So at 1.8 billion, you're right, they're about halfway there, which is on track. We talked at the top about consolidating business units. Some of it is as simple as that. But part of it, too, is just as you consolidate these things, you can use your warehouses more efficiently. And some places these networks had separate facilities. You can better use your jets and other big asset things like that. So a lot of this is just the kind of the slow and steady of making the network more efficient. It is a new management team. Raj Subramanian, you really have to give him some credit. He has been there forever, but he took over for Fred Smith. Fred Smith is the guy who founded the business. Smith has a reputation for being, shall we say, opinionated. He believes in himself. He is still the executive chairman of the board. It isn't easy for someone to come in following the founder and say, you know what, we need to change a lot of things here and we need to cut a lot of things. Basically, tell your former boss, I know better. It's working. And it's to his great credit that they have come in and sort of done this. I think it'll benefit him over time.
- [26:19]
Lou Whiteman
What is Fred Smith's unwritten role within the company? Now, you mentioned he's still executive chairman, he's still involved. But is this like a Howard Schultz type of situation where he's still got the air of management? What's the unwritten situation there?
- [26:33]
Mary Long
I can only guess. I mean, Fred has a lot of different interests, which probably helps Raj do his job. But I can only guess that Fred knew about a lot, was Coming before, I mean, you know, good corporate governance, as you should tell the board chairman. But I would think that they're not going to want to be surprising Fred at any meetings right now.
- [26:51]
Lou Whiteman
We kicked off this segment by talking about Amazon. Kind of tough to talk logistics, package delivery without mentioning Amazon. Once upon a time FedEx was partnered up with Amazon. That relationship ended in 2019. FedEx initiated that breakup saying, hey, Amazon's developing its own delivery capabilities and now they're a threat rather than somebody that we want to partner with. In January of this year, FedEx announced it was launching a data driven commerce platform called FDX. Is that supposed to help FedEx better compete with Amazon in kind of a different category? What's the state of play of that particular competition right now?
- [27:25]
Mary Long
So the platform, if we're honest, is kind of table stakes in 2024. Okay. You'd be shocked at how this business works and how much of logistics is still done by the office phone with a whiteboard with just kind of getting things done that way. But increasingly consumers and especially these corporate customers demanding a digital platform. So this is FedEx trying to join the century and kind of get on board with the rest of us. As for Amazon and FedEx, in one sense, yes, it hurt FedEx because it was a huge shipping customer and at the end of the day you want full trucks. You make money when you have volume, but it tended to be the lower margin volumes. I don't know many people who have partnered with Amazon who are like, oh, this is the high margin side of our business. And most of Amazon's retail competitors aren't real keen to hand Amazon the customer data that comes with having them do their shipping for them. So there's plenty of business here. Yes, you lost a major customer, but they are coexisting. They went from being frenemies to just rivals. But really, FedEx, there's plenty of business for FedEx and UPS and everyone else just to serve everyone, not name Amazon. And it's really hard for Amazon to get that business from the retailers that they are competing with.
- [28:39]
Lou Whiteman
Amazon also is not FedEx's only competitor. There's also UPS, which I'll be talking with Aunt Siobhan about later next week. There's DHL within this whole logistics landscape. What grade does FedEx get? Where does it stand and stack up against its competitors?
- [28:55]
Mary Long
I'd say a solid B. The comparison with UPS is a great one and Ant will have great thoughts on that. UPS has a much better dividend, which I'm sure Anthony would love to talk about. It's a powerful competitor. Over time, there's plenty of room that both win. I note UPS is much more unionized, which gives less flexibility. They would argue it gives more predictability on cost. But costs are high. FedEx can hold its own as an investment, as a more nimble company, even though it's a mature industry. They've been around for decades, but they still, over the years have done a good job getting out ahead of trends. I think they still have that entrepreneurial mindset. I grade them pretty well on that.
- [29:37]
Lou Whiteman
Okay, so before we wrap up, an increasingly important part of this business is reverse logistics. So apart from mere direction, how is that so different from just old regular, everyday forward logistics?
- [29:53]
Mary Long
Yeah, it's very literally, it's returns, which, you know, returns is a. Reverse logistics is a fancy way of saying returns. It's a huge pain for retailers and you know, you're dealing with the customer, the customer. You don't want to make them angry. In this process, you have to deal with restocking. You have to deal deal with just the uncontrolled from your warehouse, shipping something, putting the label on it, very controlled environment. There's a lot more chaos when the consumer brings it back and how it's packaged and all that. The estimates I've seen indicate it can be three to four more times more profitable for these reverse logistics specialists than just sending out the original shipment. So it's a business you want to be good at. We talked a second ago about FedEx being more entrepreneurial. FedEx bought a company called Genco Distribution, a huge player in reverse logistics, all the way back in 2015. It was a great deal then and it has made them a huge player in the space. If you as a consumer notice a lot of shipments that you get from ups, if you have to return it, the label that they email you will say FedEx. They are a huge player in the space. It's one of these areas where the business is less commoditized and you can make margin. And it's certainly the kind of thing that they're looking to expand versus say just getting the package there in four.
- [31:06]
Lou Whiteman
Or five days with that Genco acquisition. Has that made FedEx the key player in reverse logistics or are there others that are maybe beating them at this game?
- [31:16]
Mary Long
There's a lot of them. I mean, some people do it. A company I love to talk about, GXO logistics, they do a lot of reverse for customers. But of these big shipping companies, I think FedEx, I'd probably get some nasty phone calls about this, but FedEx is the one that you're going to see getting a lot of that business among these kind of third party, working with lots of people.
- [31:37]
Lou Whiteman
Lou Wightman, always a pleasure. Thanks so much for joining us today on Motley Fool Money.
- [31:41]
Mary Long
Thanks for having me.
- [31:47]
Ricky Mulvey
As always. People on the program may have interests in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and are not approved by app advertisers. The Motley fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.