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Jason Moser
Foreign Starbucks pivots in China and meta make some big investments. You're listening to Motley Fool Money. Welcome to Motley Fool Money. I'm Jason Moser. Joining me today, it's Motley fool analyst Lou Whiteman. Lou, thanks for being here.
Lou Whiteman
Great to be seen on today's show.
Jason Moser
Hershey has a new CEO met is making some big investments in AI and earnings season is, believe it or not, right around the corner. But today we begin with the King of Coffee. Reports are that Starbucks has garnered quite a bit of interest in its China business as it looks possibly selling a majority stake in that business. And the company said, we remain committed to China and want to retain a meaningful stake in the business. Any deal must make sense for Starbucks business and partners, end quote. Lou, China has been a bit of a challenge for Starbucks as of late. Do you think this is the right move to try to sell the majority stake in this business?
Lou Whiteman
I do. I like this a lot. New CEO Brian Nicol, he's got a lot on his plate. Right. He's articulated a plan, the back to Starbucks. He's going to revitalize the domestic business. But look, it's going to take time. It's going to take resources, finding a partner to work with China. It would allow Starbucks to retain some of the upside. But yeah, it is a massive market. I get it. But it would provide some cash infusion and take one thing off of, off of that plate, off of that daily agenda. It feels like a win. Win.
Jason Moser
Yeah. And it seems like there was a lot of interest. I mean, something close to 30 equity firms and whatnot actually submitted.
Lou Whiteman
Big money.
Jason Moser
Yeah, big money. Valuing it anywhere from like 5 to 10 billion dollars. I saw you talk about sort of the growth opportunity in China and that's been part of the story, I think, with Starbucks for, for many of us for many years. It's not to say they haven't grown there. They have almost 8,000 stores in China to date. But I mean, they're talking about really going so far beyond that. I mean, it's 10% of overall revenue right now. So I mean, it's meaningful, but it seems like it could be more meaningful. How big do you think they can grow this part of the business?
Lou Whiteman
So they talk about 20,000 locations. Right. Which is more than double and that. Honestly, I don't know about that. And that's part of why I think I'm okay with them at least finding a partner or kind of keeping some upside, but not all of it. I think the Chinese consumer like The American consumer and most other consumers, I think they're going to lean into domestic brands over international ones as that market matures. And I think to some extent it's happening. And so maybe refocusing the operations, finding a partner, kind of growing that way and kind of doing it, not just rubber stamping what Starbucks is here. I think there's probably room for growth, but I don't think maybe it's what we were talking about a few years ago. And I don't think it's priority one right now for them either.
Jason Moser
Yeah, yeah. This seems like a little bit like history repeating itself. You remember in the early days when they were growing internationally and they kind of had, in most places they were taking that company owned approach to the stores. And then it turns out not every country is the same, Lou. And the cultural clashes, the differences, I mean, it was all very different in so many different ways in so many different locations. And so they kind of pivoted to partnering up with local partners in those respective markets. So I'm with you. I think this is, I think this is a good move. I actually like it. I think it gives them the opportunity to participate in the upside without having to devote so many resources to it. So I like the decision. I feel like this is something that Nickel has been mulling around for a while. I'd be curious to know he's closing in on a year in September with the company. What grade? What kind of grade would you give Brian Nickel today?
Lou Whiteman
So forget what I think. Howard Schultz seems bought in. And I think we can all agree, I mean, Howard's very smart and also can be a meddler. So I think Howard Schultz giving him an A is very important. But I don't think Howard's wrong. I think Nickel's plan to refocus Starbucks kind of give us back the experience we fell in love with and also adjust the menu so we're not waiting in line for 40 minutes in the drive through. It all makes sense. It's a strong grade. It's an incomplete grade because it's one thing to say it, we have to execute and do it. But I like where they're going with it.
Jason Moser
So the stock is basically flat since Nickel took over. I didn't think it's just up a couple of percentage points, but it still boasts a premium multiple at 34 times earnings. Do you think this stock from today, do you think this is an outperformer in the coming five years?
Lou Whiteman
I think so. I'll be honest. You know, the valuation gives me pause. And I don't think it's going to be. I think maybe the hyper growth days are over. But look, the brand resonates. I think you'll see operational improvements under nickel which will boost results. You have what, a 2.5% dividend yield to kind of boost your total return. So yeah, maybe it isn't what the growth was before, but yeah, it's still, I think has the bones of a market beater of just a top operator.
Jason Moser
Yep, I'm with you. I'm hanging on to my shares too. Well, next up, Hershey has a new CEO.
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Jason Moser
The Hershey Company has a new CEO. Wendy's CEO Kirk Tanner will replace Michelle Buck, who's retiring after almost eight years as CEO of the company. Tanner will take over on August 18th and previously served over 30 years at Pepsi. Lou I was talking with our colleague Ant Siobhan who follows Hershey closely. He said that while Tanner definitely has the resume to be CEO with those three decades at PepsiCo, he you know he had a short stint at Wendy's Wendy's. It started in February 2024. It was a bit shaky. Shares down around 40% during his tenure. They had to cut the dividend earlier this year though, and noted that was likely to happen regardless who was CEO. What do you think his biggest challenge right off the bat is going to be taking over for such a. I mean this is just a legendary, iconic American brand. I mean this is they're going through some tough times. What do you think the biggest challenge he's facing is?
Lou Whiteman
And a brand that has always or mostly promoted from within too, which I think is interesting too. Yeah, right. Yeah, I think you said it. Well, it's hard to judge the time at Wendy's both because it was so short and he did step in at a difficult time. But it feels like Hershey's is more similar to what he did at Pepsi and he was successful there. Wendy's is more retail focused. Right. So I think that that's a positive. I suspect his biggest challeng is kind of to continue the pivot away from chocolate, from cocoa prices. Hershey's has quietly built up this roster. What pirate booty ass pretzels, skinny pop. It feels like there's further opportunities to go in that direction. And bringing someone in from Pepsi suggests to me at least that that's where the board is focused. And so that's his challenge is to execute there and make that happen.
Jason Moser
Yeah, I think you're right. You got to broaden that portfolio up because we've seen this over the last several quarters. I mean years, the cocoa prices have really been hammering Hershey and it's always fun to kind of pay attention during Halloween to see what kind of candy selling. And last year we definitely saw a trend towards like the fruity sugary candies, chocolate a little bit less so because it was, it was getting more expensive and then, and then the dreaded shrinkflation came into play. They're making the candy bar smaller. Loot not cool, but I guess I get it.
Lou Whiteman
Hey, my doctor likes it even if I don't.
Jason Moser
Exactly. We talked about Brian Nichol, you know, now we're talking about Hershey here with Kurt Tanner. When you see new leadership in play here, how long do you typically give new leadership to start delivering?
Lou Whiteman
It's so hard because obviously every situation is different. You have to factor in macro, you know, what situation does a new leader drop into? But look, generally I think at least a year. We talk about this a lot. We're long term, focused investors. We understand that quarter to quarter fluctuations happen and they're part of the business and we don't panic, we don't freak out with one quarter. We don't get too excited. I think we have to give leadership the same understanding, the same philosophy in a case like this. The challenges, the consumer, the cocoa prices, perhaps maybe you need more time. But I'll tell you what I do want jmo and what I'd like to see is within a year what Nicole gave us. I want to hear our leadership articulate a plan.
Jason Moser
Yes.
Lou Whiteman
And I want Something I can evaluate from here. You may not be able to solve the problem in a year, but I want to hear how you're planning on doing it within a year.
Jason Moser
Yeah, I like that. One of Tanner's go to moves at Wendy's was offbeat collaborations. They did a Girl Scout Thin Mint. Frosty. Tried that one. It was good. Spicy. Taki chip chicken sandwiches. Hey, man, I love Takis and I love chicken sandwiches. Spongebob. Spongebob branded burgers. Let's play armchair CEO for a second here. What brand collaboration would you recommend for.
Lou Whiteman
Hershey's, the company that brought us peanut butter and chocolate? They have to get collaborations, right? This is a no brainer, but I love Dot's pretzels. Looking at the website, they have cinnamon season, they have barbecue, they have honey mustard. They don't have chocolate covered pretzels.
Jason Moser
You know, that crossed my mind. That crossed my mind. I'm a little bit.
Lou Whiteman
Seems so obvious.
Jason Moser
I have more of a. More of a salt tooth than a sweet tooth. I was thinking like, I love Dot spritzles. Have them here in the pantry at home. I also like Skinny Pop. That's pretty good stuff.
Lou Whiteman
Yeah.
Jason Moser
I was thinking, hey, you get Skinny Pop and you partner up with McCormick for some old Bay Skinny Pop. And I mean, you can cheat and put the stuff on at home, but I guarantee you the stuff in the bag is going to be way better. I mean, you're bringing two. Two worlds together right there. I'd be all in my.
Lou Whiteman
My Baltimore roots are speaking to me right now. Yeah, I'm. I'm in for that. Yeah.
Jason Moser
Mr. Tanner, get on that last question on Hershey. Do you think Tanner is still there in five years?
Lou Whiteman
I do. I do think fit matters, and I think the resume implies a better fit. Like we said to use the Willy Wonka. I think maybe this is a golden ticket, and I think it can work out well for Tanner and for Hershey shareholders.
Jason Moser
Well, Louv, Meta continues to make big, big investments in AI. Founder and CEO Mark Zuckerberg is spending big to recruit AI talent. I mean, we're talking tens, hundreds of millions of dollars from reports. And now we also saw that the company's taking a minority stake in Ray Ban maker Essilor Luxottica. And that really plays into these Ray Ban AI glasses that they're starting to get out there. I'd be interested to see how this holiday season, how those are received. Now, as we saw with the Metaverse, Zuckerberg's playbook is to go big or go home. Right. $3.5 billion investment in Ray Ban, reportedly hundreds of millions of dollars in recruiting bonuses. I mean, that's a lot. What should investors make of all this spending?
Lou Whiteman
So here's what I find interesting. Back in January, Meta committed to what? Spending $70 billion in capex, mostly to build out AI. And our focus was on chips at the time. And certainly chips is still getting, Nvidia's getting. But it feels like we're hitting that next step where what do we do with all that capacity? Making the magic happen. And look, if you think chips are hard to come by and they are, just how hard is it going to be to get the right talent and the right partners and all of that? So I think the be aggressive makes sense. Zuckerberg likes to be aggressive, but focus on the big picture. Try and be a first mover here. I get what they're doing, and I think it makes sense because at some point we got to use all these chips for something, something. And it better be neat, right?
Jason Moser
Yeah. I mean, this is an arms race like we haven't seen in some time. I mean, all these companies is just foot on the gas and they're spending a lot. But clearly that's telling us something. I mean, I think we're in the middle of something big here. Now, the Metaverse spending, right. That led to the year of efficiency, if you remember that, investors became worried about return on investment. Do you see this playing out the same way? Or like, how long of a leash does META have here to ultimately build out their AO chops and demonstrate real return?
Lou Whiteman
I'm curious what you think. I think here the difference is last time they were out on their own, right? I mean, they literally changed their name to Meta. They were the Metaverse island, for better or for worse. It ended up worse. They owned that space. And there's a lot more there there with AI, I think. And if there's not, we have a lot of people going along for the ride. I think as long as everyone else is spending, I think it's a much longer leash.
Jason Moser
Yeah, I think so too. I mean, I think you said perfectly there's a there there, right? AI. It just seems so much bigger. And when we're looking at augmented virtual reality in the Metaverse, it's. I mean, it's fascinating technology, but it certainly is more niche and it's really not quite developed. The obvious use cases that we're seeing play out with AI. The stock. Let's talk about the stock. It's had a good year to date. It's up almost 25%, outperforming the market nicely at around 28 times earnings today. Is this something you're interested in? Do you think this is an outperformer over the next five years at today's levels?
Lou Whiteman
So 28 times earnings, what? That's second more most affordable among the MAG7, which you know for what it is. But look, for all the talk about AI, we kind of. You bury the lead when you don't talk about that core advertising business and its ability to just generate. I'm excited about AI, but I just. That core business, I don't see a disruption on the horizon here. And with that business, I think the stock beats the market. I mean, that, that is the engine.
Jason Moser
Yeah. And I think AI is really ultimately making that core business even better. And that really is kind of the point. I mean, they're going to do ancillary stuff with it, but it is, it is making that core business better. And man, they really own a big slice of that ad market. Like you said. Next up, earning season is right around the corner.
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Jason Moser
Lou believe it or not, earnings season is upon us again. JP Morgan unofficially kicks things off on Tuesday, July 15th. What's something that you'll be paying close attention to this earnings season? I mean, a trend, policy, specific company and industry. What you got?
Lou Whiteman
So we just talked about Meta's Year of Efficiency. We want to talk about so far this year and we're still kind of early into this year. It has been the year of uncertainty, right? For public companies and investors largely gave management teams a pass last quarter when they said, I don't know when it comes to guidance and I think that's understandable. I was one of those investors who, yeah, I don't know what's going on either. So that's fine. 2 Related Big picture questions I have as I'm watching now is a, is there more clarity now than there was three months ago? Is there more management teams that are willing to kind of stick their neck out? And since I'm guessing the answer is maybe not, will investors continue to be patient and will the I don't know answer, will that be acceptable now the way it was last quarter? I think probably, but I do, I'm curious to see how things play out. Just kind of, we're always forward looking and as investors it's kind of scary when it's hard, when there's clouds forward. So it's a weird time.
Jason Moser
Yeah, it is. Well, yeah, I think in just in regard to your points there too, we're seeing a lot of headlines coming out here again regarding tariffs. It's leading right into earnings season. So I mean it would be understandable if you, if you hear that sort of uncertainty language. But I don't know, do you feel like, maybe feel like folks are just kind of getting tariff exhaustion? Like, I mean it's, it's just day after day after day. So you kind of know that it's, that it's happening and at some point you just got to kind of just got to let it go and keep running your business, you know. Yeah.
Lou Whiteman
It feels like it's going to net out as a drag on earnings kind of indefinitely that we're just going to have to grin and bear it with and. Yeah. Which is kind of a terrible medium because it's just going to be a slog.
Jason Moser
Yeah. You asked what I was looking at and for me, in regard to enterprise spending trends over the last several quarters, there's a phrase that we've seen on a lot of these earnings calls, whether it's Twilio or Cloudflare or CrowdStrike Palo Alto, I mean, you name it. These big enterprise servers, the phrase elongated sales cycles, kind of to your point about uncertainty. Right. Their enterprise customers are just simply not quite certain what the future holds. So they're spending with some trepidation and maybe not fully committing. So we saw just elongated sales cycles on so many earnings calls over the last several quarters. I wonder if that's kind of starting to come to a close. I wonder if we're going to start seeing some more bold spending from a lot of these big enterprises and so I'm going to be following a lot of those companies, like I just mentioned, those earnings calls, and that will be one key term that I'll be searching through. All of those calls, elongated sales cycles. That's just telling you they're just not spending as much as quickly. And we want to see that. We want to see that turnaround.
Lou Whiteman
It's a great point because kind of putting it both together, it's like there is so much uncertainty. It's understandable not to want to make bold moves. But at some point, business has to go on. So where are we in balancing that? That's going to be fascinating to say.
Jason Moser
Well, we'll leave it there. Lou Whiteman, thanks again for being here. Always a pleasure, 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 fool editorial standards and are not approved by advertisers. Advertisements or sponsored 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.
Motley Fool Money: Episode Summary
Title: Starbucks' China Challenge and Decoding Meta's AI Push
Hosts: Dylan Lewis, Ricky Mulvey, Mary Long
Analyst Guest: Lou Whiteman
Release Date: July 9, 2025
The episode kicks off with an in-depth discussion on Starbucks' recent strategic moves in the Chinese market. Reports indicate that Starbucks is contemplating selling a majority stake in its China operations, a decision driven by the complexities and challenges the company has faced in the region.
Key Points:
Notable Quotes:
Analysis: Lou Whiteman supports Starbucks' decision to seek a local partner in China, highlighting the benefits of retaining some ownership while alleviating the managerial burden. He emphasizes the importance of adapting to local market dynamics and suggests that this move could provide Starbucks with the necessary cash infusion to bolster its U.S. operations.
The conversation shifts to The Hershey Company announcing a new CEO, Kirk Tanner, who is set to replace Michelle Buck. Tanner brings over three decades of experience from PepsiCo, though his recent tenure at Wendy's has been met with mixed results.
Key Points:
Notable Quotes:
Analysis: Lou acknowledges Tanner's impressive resume but remains cautiously optimistic, given Tanner's brief and tumultuous stint at Wendy's. He underscores the importance of Tanner's role in expanding Hershey's product lines and managing cost pressures from cocoa prices. Lou expresses confidence in Tanner's fit for Hershey, suggesting that if executed well, Tanner could be a long-term asset for the company.
The episode delves into Meta's (formerly Facebook) substantial investments in artificial intelligence, highlighting the company's commitment to staying at the forefront of technological advancement.
Key Points:
Notable Quotes:
Analysis: Lou interprets Meta's substantial investments as a strategic move to harness the full potential of AI, beyond the initial stages of infrastructure and talent acquisition. He draws parallels to Meta's past endeavors, suggesting that the company's broad financial commitment indicates a serious long-term bet on AI's transformative capabilities. Lou remains bullish on Meta's prospects, particularly emphasizing the strength of its core advertising business enhanced by AI advancements.
As earnings season approaches, the hosts and Lou discuss what investors should be focusing on, especially in the context of ongoing economic uncertainties.
Key Points:
Notable Quotes:
Analysis: Lou emphasizes the importance of discerning whether companies are gaining clarity in their strategies amid ongoing economic challenges. He is particularly interested in whether businesses are moving past mere uncertainty to implement concrete plans that can drive growth and stability. The discussion highlights a cautious optimism, with investors hoping to see signs of renewed confidence and strategic execution during the earnings reports.
Conclusion In this episode of Motley Fool Money, Lou Whiteman provides insightful analysis on Starbucks' strategic adjustments in China, the leadership transition at The Hershey Company, and Meta's substantial investments in artificial intelligence. Additionally, he offers thoughtful perspectives on what to watch for in the upcoming earnings season, especially in an environment marked by economic uncertainties and shifting enterprise spending behaviors. Lou's expertise helps listeners navigate these complex topics, offering clarity and guidance for informed investment decisions.