Matt Argersinger (3:11)

I think it's key. And like you said, it's key for a lot of these software companies. I mean, that's where a company like Okta can really scale its offerings and earn higher margins. And you mentioned the number, the $1 million spend growing 20% or more. And that's why I think CEO Tom McKinnon said on the call that I think the single biggest opportunity for the company is that large enterprise customer base. And he thinks Okta has wide market opportunity within the sort of fortune, I guess, 2,000 or the top 5,000 companies that would potentially be Okta customers. And he thinks they're far from reaching that potential within that customer segment. So if they keep putting up 20% numbers with customers that are spending a million dollars or more in annual recurring revenue, that is going to look very good for Okta going forward.

Jason Moser (3:57)

Yeah, it seems it would be the case. Now, we talk a lot about competition in this space. Obviously very competitive in cybersecurity. Some of the obvious names that we continue to talk about here, the fool companies like CrowdStrike, Zscaler, even Palo Alto Networks. But one that I think probably most investors don't initially connect the dots to is Microsoft. And I think part of that is because Microsoft does so many different things and does a lot of it well. But Microsoft in this case is a formidable competitor and they can do it all and they can bundle these identity solutions at competitive prices. We've seen them pull that off with teams to an extent. I mean, that certainly threatened Zoom to a degree and I think Slack as well. How effectively are they competing in this space? I mean, particularly in regard to larger enterprise customers. How big of a threat really is Microsoft?

Matt Argersinger (4:49)

Microsoft in this case, I think Microsoft is always a big threat. But weirdly, it's not going to be a threat to the larger customers that Okta is going after. I mean, if you think about companies like Amazon, Alphabet, Salesforce, Okta customers, they don't want to go anywhere near Microsoft, which is a major competitor in a lot of their markets. Right. So if they're going to avoid it, they can. So I like that. Okta doesn't compete even directly with most of its large customers. It's kind of singularly focused on identity and security solutions versus you know, Microsoft which of course does everything. And I think that's compelling. When you're a software company that is a leader in a specific vertical and you don't have these tentacles going out in so many different places that could potentially encroach on your customers markets, you're going to have a lot easier time selling and growing your solutions. So I do think as long as Okta does a great job within its own market and verticals, it should have no problem competing against Microsoft, which is kind of saying a lot because just how big Microsoft is. But I do think Okta can continue to succeed.

Jason Moser (5:48)

Yeah, And I think that makes a lot of sense. What you're saying too is a lot of these companies, they don't want to put all of their eggs in one basket and management spoke to that last quarter. Right. I mean they acknowledge that Microsoft is this big competitor out there. But by the same token they also acknowledge that most of their customers, they don't want to just wrap everything up with Microsoft because then you kind of give, you get in that single point of failure risk and that could be a big problem especially for these bigger customers. To me, I also look at Okta, I mean it's businesses I follow somewhat closely. I've recommended it in our next gen super cycle service several years back. It's a founder led business. Feels like we need to talk about leadership here a little bit. Todd McKinnon, co founder and CEO of the business, you know he has, he's been the CEO of the company since they, since they went public in 2017. I have to say, I mean it seems to me he's done a very good job. I mean there was the auth0 acquisition a little while back that brought some questions up. I mean they paid a heavy price for that one, but it sounds like auth0 is working, working out well. You have any take on leadership there? How much do you value that founder led dynamic?

Matt Argersinger (6:52)

Well, yeah, I think it's always, it's always important and it's always positive if you have the founder and visionary at the helm. And I just. You mentioned the IPO in 2017. Well, Octa's up 400%.

Jason Moser (7:04)

Yeah.

Matt Argersinger (7:04)

Since that IPO. And so I think investors are pretty pleased. Now I know the stock is down quite a bit from its 2021 high. It still hasn't gotten back to that.

Jason Moser (7:13)

A lot of them are matty.

Matt Argersinger (7:14)

Right, no, of course. And we just know the bloodbath that 202022 was for tech technology companies. And so, yeah, many of them haven't reclaimed those previous highs. But still, Even with that 400% up since 2017 crushing the market, I think that's a pretty good testament to how McKinnon's running the business for sure.

Jason Moser (7:31)

Absolutely. Well, Dick's Sporting Goods reported earnings this morning as well and diving in here. It's a fairly muted reaction from the market. Stocks up a little bit today, but you look at this report, it seemed like a pretty good report in the face of a very tricky retail environment these days. And I think that we look at Dick's Sporting Goods, the numbers they've lobbed up here. I mean revenue up 5.2% from a year ago, comps up 4.5%. I think even more encouraging leadership maintained guidance for the full year, which in the current tariff environment could be considered a big win. Now, we've seen a variety of responses from the market when it comes to retail these days, specifically how exposed they are of course to the current tariff environment. Do you think Dick's Sporting Goods is at greater risk than others here?

Matt Argersinger (8:16)

I would think they are, Jason, only because, well, management hasn't really disclosed, at least as far as I could find, exactly how much inventory they source from places like China that have been subjected to the higher tariffs. But we do know that a competitor like Academy Sports and outdoors gets about 50% of its inventory from China. So I would expect it's in that ballpark for Dicks as well. The good news is that I think management has done a good job of diversifying its Dick's sourcing in recent years. Like you said, the fact that management is reaffirming full year guidance is even factoring in the higher 30% tariff on Chinese goods right now that we, we know is still in place. I think that shows how far they've come. And on top of that, they're actually calling for a 75 basis point increase in gross margins this year.

Jason Moser (8:59)

Yeah.

Matt Argersinger (9:00)

Now price increases will almost certainly play a role in that, but it doesn't sound like it's going to be high enough to really impact customer spending. At least they don't think it will. And so, but you know, just something to Keep in mind for investors, you know management's guidance is based on, on the existing tariff policy. So we're still.

Jason Moser (9:16)

I was going to bring that up.

Matt Argersinger (9:18)

Yeah, right. I mean, we're still in this 90 day pause. I think people forget we're in this 90 day pause period as these reciprocal trade agreements, especially vis a vis China, are kind of being negotiated. So who knows what will come in July once that all comes to a head. So I think the picture could still change significantly over the next couple of months. But it is nice to see that management is reaffirming guidance.

Jason Moser (9:36)

Yeah, and to bring a little snippet in from the call there because I'm glad you referred to that because that's exactly what I was thinking. They said on the call with all of this in mind, we are reaffirming the guidance we provided for 2025, which includes the expected impact from all tariffs currently in effect.

Matt Argersinger (9:52)

That's the key phrase, currently.

Jason Moser (9:54)

Change on a dime. We know this is just a very headline driven market and tomorrow we will probably see another headline that changes the calculus completely. But I guess for now at least it seems like the company is going in the right direction. Now I think the big news with Dick's Sporting Goods here recently, the company made a big announcement a few weeks back. It's going to acquire Footlocker. Did you notice anything on the call? What did management have to say about that on the call? Because you know, one of the things I found interesting in this deal is that shareholders, foot locker shareholders can either take an all cash offer or they can take shares in Dick's Sporting Goods. You don't often see shareholders getting those types of options. It's usually one or the other, isn't it?

Matt Argersinger (10:34)

Right. And I do like that shareholders are getting the option there because clearly there are some investors who are going to be less favorable to the acquisition and rather just take the cash and move on. Others probably see opportunity to own shares in Dick's going forward, which has obviously been a real superior operator in the sporting goods space. So I kind of like that Dick's is giving that option. I hope other companies do that as well. Turning to the acquisition itself, Dick's management is obviously pretty high on it. They think it gives them access to new markets, a different customer base. They think they can drive scale and efficiency across the Footlocker business. Capturing somewhere, they think on the order of 100 million and 125 million in cost synergies. There's that word I don't like. But they think they can get it and they think the deal will be accretive to earnings per share in the first full fiscal year after the acquisition is closed. I don't know, Jason. My problem is I just can't get over the disparity here in the real estate footprint. For one. I mean, Dick's has specialized and succeeded with this big box standalone store concept. Heck, it's even expanded on that in recent years with its massive house of sports concept. I don't know if you've ever been to any of these, but these are massive stores. They've got climbing gyms, batting cages, some I think even have ice rinks in them. But now you're taking on this massive new network of smaller stores, in some cases less than a tenth of the size of your average store. They're largely located in malls. And of course, Footlock Locker is much more focused on shoes. So yes, it's still sports, it's still within that, that overall category, but it just feels like a very different concept and business model. I'm not sure how excited I would be about the deal if I was a Dick shareholder. I just feels like a reach.

Jason Moser (12:10)

They are two very different concepts, right, Playing in the same sandbox, but very different concepts. And I think you're right in that it's going to be something to pay close attention to how they manage that smaller store footprint because it gives them a lot of additional stores. But these are much, much smaller stores and like you said, they focus on shoes. I think in regard to pricing, like you mentioned earlier, you know, we saw news recently that Nike is going to be passing through some price increases, mostly on higher end items. They're going to, they're going to forego price increases on things like kids payroll and goods and whatnot. But it'll be interesting to see how companies like Dick's Sporting Goods and in Foot Locker sort of handle those price increases and how sensitive consumers really are in regard to those. Matti, let's wrap it up with one your. Well, I don't want to call it your favorites, but it's a company you followed for a long time and I've spoken with you a lot about it before. Vail Resorts having a great day today, and it seems like that's at least partly due to a change in leadership. But on a semi related note, Matti, I've noticed it's still a wee bit chilly here in Northern Virginia as we prepare to enter June. So it kind of begs the question, is Vail benefiting from a longer season this year?

Matt Argersinger (13:21)

Well, it was a little bit of a better ski season than they've had in recent years. So that is a positive takeaway. But, yeah, let's get to the leadership change. That's the real reason the stock is moving. And let me first give a shout out to Anthony Chavon. He's my partner in crime on our dividend investor service. He's been on this story for the better part of a year. In fact, we put Vail Resorts on hold in our service a while ago, feeling the company had just expanded too fast, taken on a lot of debt, bought back billions of dollars worth of stock of prices in some cases that are 100% higher to where Vail was trading at earlier this week. So we just didn't like the direction the company was going. And we did eventually bring the stock back to a buy on the idea that Vail was probably going to make a change at CEO. And sure enough, that is exactly what happened. And I think the reason the stock is getting such a positive reaction is because of who they're bringing back. So it's Rob Katz. He's the executive chairman of the board. He was the CEO from 2006 to 2021, 15 years where Vail's business boomed. Its stock delivered a total return of more than 1,100%, almost triple the S&P 500. And I think what the market sees in Katz is someone who obviously had a very successful tenure as CEO. He's probably going to pull back the reins on Vail's expansion, really focus on making the business more efficient and profitable and someone who could just solve some of those vexing problems that Vail's had at some of its resorts, including overcrowding, a lot of its lifts, the labor challenges that ran to this past season where they had strikes, which was not a great experience for obviously, visitors of the resort. It's a tall order, but I think he knows the company in and out. He's been with Vail since 1991, yet he's only 58 years old.

Jason Moser (14:59)

Wow.

Matt Argersinger (14:59)

So I think investors are right to be enthusiastic. It was also encouraging to see that Vail did reaffirm its guidance that it gave back in April. That guidance was lower than what Vail gave coming into the year. But the fact that results weren't lowered is a good sign, I think. And we'll kind of get the full picture when Vail reports fiscal third quarter results next week. One thing to watch, however, Anthony and I do think there's a reasonable chance that Vail cuts the dividend or Even suspends it. So prior to the announcement and the jump in the stock price, Vail was yielding more than 6.5%. And the current dividend payout that it's promising this year exceeds what Vail is expecting to earn this year, which of course is usually a red flag. So as dividend investors, we hate when companies cut their dividend. I hate it. But I think it almost is inevitable now. And I could see Katz wanting to preserve cash flow, strengthen the balance sheet, have capital to reinvest back in some of its resorts. So there might be a short term negative reaction when that happens, but it probably is the bright long term call for the business.

Jason Moser (15:55)

Well, it's a nice tip of the cat there to Ant. We love Ant here. Nice job. Okay, Matty, before we go, last thing, talking about this leadership change with Vail Resorts, it got me thinking. And given the success that Rob Katz has had to this point, given the response we're seeing from the market today, is it possible, do you feel like Vail could have a cats problem like Disney or Starbucks with Iger and Schultz?

Matt Argersinger (16:19)

I think it's a great question, Jason. And I will say this. I think he. The fact that he's only 58 years old, I feel like the succession questions can be put off a little bit. I mean, I don't know how long he's intending to come back, but he's still relatively young. He was the CEO for a long time. He's been the executive chairman since he stepped down in 2021. So he's intimately familiar with the business. It's not like he's coming back in from being somewhere else. I just, I don't think those questions will come up as, as frequently as they have for, you know, for Bob Iger or Schultz over at Starbucks. So we'll see how this turns out. But I think Katz is here to stay for a while.

Jason Moser (16:56)

We'll leave it there. Matt Argersinger, thanks so much for being here.

Matt Argersinger (16:59)

Thanks, Jason.

Jason Moser (17:06)

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 or sell stocks based solely on what you hear. All personal finance content follows motley full editorial standards and are not approved by advertisers, advertisements or sponsors. Content are provided for informational purposes only. To see our full advertising disclosure, please check out our Show Notes. I'm Jason Moser. Thanks for listening. We'll see you tomorrow.