Cybersecurity Soars; Cyclical Stocks Cycle
In this podcast, Motley Fool host Dylan Lewis and analysts Bill Mann and Jason Moser discuss:
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The strength of CrowdStrike‘s recent earnings and cybersecurity spend, a cyclical company that looks interesting, and why even at valuation lows, Lululemon Athletica has some work to do.
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Why some investors are interested in starting a new stock exchange in Texas and Spotify Technologies‘ latest price hikes.
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Two stocks worth watching: Docusign and Casey’s General Stores.
The regulatory environment continues to heat up. Late last month the DOJ filed its latest antitrust suit against ticketing giant Live Nation Entertainment. Motley Fool Canada analyst Nick Sciple unpacks the case and what it might mean for Live Nation and investors.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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This video was recorded on June 7, 2024.
Dylan Lewis: Just when you thought price hikes were over, they bring them back in. This week’s Motley Fool Money Radio show starts now.
It’s the Motley Fool Money Radio show. I’m Dylan Lewis. Joining me over the airwaves, Motley Fool senior analysts Bill Mann and Jason Moser. Fool is great to have you both here.
Jason Moser: Hey.
Bill Mann: Hey, fellows, how you doing?
Dylan Lewis: We’ve got to look at the latest DOJ antitrust case, the story of why some investors are trying to start their own stock exchange and of course, stocks on our radar. But we’re picking up today with the earnings beat. We have some fresh numbers out from Fool stocks, including CrowdStrike. We’ll start there. Shares up 10% this week following earnings. The company came in ahead of expectations, bringing the stock right near all time highs. Jason, you dove into the report. What did you see?
Jason Moser: Tell me if you’ve heard this before: CrowdStrike just reported another very strong quarter. Listen, if there’s spending fatigue in this industry, it surely doesn’t seem to be showing up in CrowdStrike’s results. The stock is feeling the love. It’s up 120% just over the last year alone as they continue to pick up share. When you look at these numbers, makes a lot of sense as to why. Total revenue is up 33% from a year ago to $921 million. Non-GAAP earnings per share up 63% from a year ago. Then the annual recurring revenue, what they refer to as ARR in the release, $212 million that was the net new ARR. That was up 22% from a year ago and ended the year with ARR of $3.65 billion. That’s up 33% from a year ago. Really the encouraging thing is management, they believe they’re firmly on their path, as they say, to $10 billion in ending ARR. You can see there’s still a lot of potential runway there. The interesting thing about CrowdStrike, they talk about these modules that make up this Falcon platform, and subscription customers with five, six and seven or more modules grew to 65%, 44% and 28% of subscription customers respectively. A lot of growth there and even more encouraging deals with eight plus modules grew 95% from a year ago. All things considered, it really does feel like this is a business that’s just firmly on track to dominating the cybersecurity space here.
Bill Mann: There’s a term for what Jason has described, a financial term and it’s called Bazankers [laughs]. Those are crazy numbers. One of the really interesting things about CrowdStrike is it has gone from being a free cash flow negative company in 2022 having a free cash flow margin of 35% this last quarter. From what Jason described, you can see exactly where it comes from. It is much more expensive to bring on a new customer than to serve an existing customer more and more, and they are getting deeper and deeper in their relationships with their existing customers. That’s why money is flowing like a river into CrowdStrike and to it’s shareholders.
Jason Moser: Another thing I thought was very interesting here and I think it speaks to something that CrowdStrike is clearly doing very well from just a culture, a company perspective. I found this number to be quite astounding, honestly. Over the past five quarters, they say they received more than 687,000 applications from individuals who want to work for CrowdStrike. That’s as Bill said Bazankers. That really does speak a lot to how that business is growing and the culture they’re developing there and given the nature of cybersecurity. I think investors have to be very encouraged.
Dylan Lewis: Jason, as we’ve looked at results from as a service companies throughout this earning season. I’m thinking specifically about recent reports from Salesforce and from Okta. The general narrative has been new customer acquisition, tough in this environment. Expanded customer spend, tough in this environment. Remaining performance obligations for CrowdStrike up over 40% year over year in this quarterly report, is this just a sign that there is so much resilience with cybersecurity spend?
Jason Moser: I think that’s part of it. It’s a 1,2 punch there. It speaks, I think to the strength of CrowdStrike’s business in what they’re doing, what they’re bringing to market with that Falcon platform. It also speaks to the nature of cybersecurity in general. That’s one of the reasons why it’s such an attractive market is because it truly is mission critical. It’s just a difficult market to really fully parse and understand. We’ve seen over the last several quarters, big competitors like Palo Alto, talking about that spending fatigue. We’re just not seeing that same language from a company like CrowdStrike and given the mission-critical nature of cybersecurity in general, it surely seems like they’re on the right path.
Dylan Lewis: For our second earnings look, I think we’re all about to learn a little bit. Bill, every once in a while, you bring a company into the conversation I’ve never looked at, never dug into the results on. We have one this week with Thor Industries. They’re a manufacturer of RVs. Why do you want to bring this one into this week’s earnings rundown?
Bill Mann: By calling them a manufacturer of RVs, you’re selling them just a little bit short. They are the world’s largest manufacturer of RV. If you were looking for an RV bellwether, it would be Thor Industries. The theme for the RV industry is this. After COVID, everybody who wanted an RV currently owns one. In the industry, you have seen the market of new RVs drop by 50%. Thor Industries had an incredible run their earnings this past quarter, their sales, I should say, we’re down 40%. It has been a really tough time for Thor. Oddly enough, though, if they’re down 40 and the market is down 50, they are actually capturing share. This is a company that goes through cycles. They are a fantastically profitable company on the run. It’s an industry and a company that I would be interested in from here, because let’s face it, who, when they’re looking at a company to invest in, starts with, find me something that’s had their sales decrease by 40%.
Dylan Lewis: I’ve got a compelling declining revenue story for you, Bill?
Bill Mann: It all starts.
Jason Moser: Just to be clear, we’re not looking at this one because there’s an interesting consumer spend story here. This is one that you would maybe even put on a watch list and are considering keeping an eye on.
Bill Mann: I guess you would call 50% down an interesting consumer spend story, but my point is that companies that are cycle that’s exactly what it means. These are big ticket items and they have just gone through the best days that they could possibly imagine. But that doesn’t mean that a company that has shown this decline is on its way out.
Dylan Lewis: Our final earning story for the segment needs no introduction. We all know Lululemon. Shares up this week following earnings, where the top and bottom line came in above expectations. Jason, this is one you’ve followed for a while. What did you see inside the results?
Jason Moser: This was a good quarter. It wasn’t a great quarter. It was a good quarter and let’s not take away from what this company has done over the last several years. Shares are up 630% over the last decade, but they could be hitting some growing pains here and I think that’s something to keep in mind given that investing is all about the future. But again, going to the quarterly numbers there, revenue is up 11%. Which was well within the guidance management had had laid out a quarter ago. Gross margin, encouragingly, was up 20 basis points, and operating margin down just slightly as well, but both numbers better than guided. When you look at Lulu, it’s a tale of two regions. Americans we’re seeing a little bit of a slow down there. Whereas international, we’re seeing a little bit more of an encouraging performance. America’s net revenue was up just 4%, whereas international up a whopping 40%. Very encouraging from that perspective and inventories at the end of the quarter were down 15%. That’s good because that just is a sign that this is a company that’s not having to resort too terribly much to deals and they can maintain some of their pricing. The board approved a $1 billion increase to the repurchase program and share count is down incrementally over the last five years. But this is a retail business. We’ve seen it before with companies like Nike and Under Armour, etc. They can only grow so much. That does start to slow down and you have to start asking yourself how much growth is left with Lulu? I’d imagine there is some left. It seems maybe a little bit more international than anywhere else. But again, a good quarter.
Dylan Lewis: It’s an interesting time to check in on the business because we saw some positive reactions here to the earnings result, Jason, but shares down 35% for the year. The company’s currently trading at 26 times earnings. It’s the cheapest it’s been in five years. Given the growth outlook, does this feel like an opportunity or is this a wait and see quarter for them?
Jason Moser: I feel like it’s a wait and see right now. They did raise earnings guidance slightly. If we’re looking on a forward basis, shares are around 23 times full year estimates. That’s not terribly expensive for a business like this. But again, it really does boil down to can they reignite that America’s growth because that is, of course, a very important part of the business.
Dylan Lewis: Coming up after the break. We’ve got another round of price hikes in streaming. Stay right here. You’re listening to Motley Fool Money.
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Dylan Lewis: Welcome back to Motley Fool Money. I’m Dylan Lewis, joined over the air by Bill Mann and Jason Moser. I was particularly excited to talk to both you guys this week because we have two interesting market stories that I think deserve some diving into. The first one up, Bill, I think, is right up your alley, there may be a new stock exchange on the street in the next few years. There’s a company backed by BlackRock and Citadel Securities looking to start the Texas Stock Exchange, TXE for short. The entity is not currently registered with the SEC, but has raised over $100 million in backing. Bill, this begs the question for me, why would anyone want to go out there and start a new stock exchange?
Bill Mann: In the US, we tend to think of the New York Stock Exchange and the NASDAQ, but there are actually about a dozen stock exchanges around the country. The Texas Exchange is meant to compete directly with NASDAQ and with the New York Stock Exchange. It’s funded by Citadel Securities and by Black Rock. One of the things that they’re pointing to is the fact that compliance for the listing rules for the New York Stock Exchange and the NASDAQ have started to include a bunch of things that have nothing to do with corporate governance. There things like ESG, they’re board composition questions, and so they’re basically saying, hey, let’s have an exchange where we don’t have those kinds of things on our plate, and we don’t require them. You’re not going to believe this, but Elon Musk, who has recently moved Tesla to Texas because of regulatory issues is very fond of this. The question really comes is, what is a market? Everyone gathers under the buttonwood tree, and you’d better have buyers and sellers. If you’re going to start a new market, you really need to figure out how to bring both, and that is the huge question.
Dylan Lewis: Bill, as you alluded to, there are other exchanges out there. It’s also very hard to start a stock exchange and very often, some of the other ones that have been started up have been absorbed by NASDAQ or by some of the other exchanges. For the average person at home, who’s just sitting there, occasionally buying stocks. What does something like this mean?
Bill Mann: It doesn’t mean much. It may mean if they get a little bit of traction, a lot of people don’t really think about this, but companies are listed on stock exchanges not for our convenience, but for their convenience. The companies are listed ultimately so that they can raise money and do things with their capital. If there is another exchange that allows them to list more cheaply, they might get some momentum, but it’s not going to happen unless buyers and sellers congregate there. The weird thing about it to me is that we have definitely come to a period of time in which physical location means exactly nothing when it comes to exchanges. It’s not great analysis to say we’ll see, but this is truly a we’ll see moment.
Dylan Lewis: Over to our second interesting market story this week. Jason, last year the SEC passed a rule requiring private funds, which is largely hedge funds, private equity, and some VC firms to disclose their fees, expenses, and also have more equal treatment of customers. This week, a federal appellate court struck that rule down. Why are you paying attention to one? It’s going to be interesting to see how this shakes out. It was a three to zero ruling, so it’s not like there was much debate on that matter. It was actually three to two when the SEC decided to adopt this rule, so it wasn’t exactly unanimous then. Industry officials praise the decision, they say that the SEC rule was burdensome, and costly, and threatened to change how they do business. On the one hand, I totally get the SEC’s point. Transparency is generally regarded as a good thing, having a better understanding of fees and how deal structures work seems pretty darn reasonable to most of us. Certainly the SEC had some support from institutional investors there. But there is something, also to the nature of these deals in their argument that their investors are more sophisticated than your average investor. This makes me go back to Warren Buffett, that old saw that there are no called strikes in investing. They’re not required to pursue or participate in these deals. Now, with that said, it’s also interesting to note based on SEC data, that assets under management at private funds increase from $9.8 trillion to $26.6 trillion over the decade ending in 2022. It’s quite obvious just from those numbers alone that we’re seeing a bit of a shift. This is going to be something obviously that plays out in the courts. The SEC is going to decide how far they really want to pursue this.
Bill Mann: One of the things that has become part of this ruling is that they are going to make it harder or to ban what are called side letters, which are sweet, hard deals for big investors. On the one hand, you could say, everyone should pay the same. I think that there’s going to be a reaction in which it’s going to be much harder for new or smaller funds to get off the ground because a lot of times those side letters come with a large investor taking a risk with a new investor. I think it’s going to add to the conservativism of the industry, and I don’t necessarily think that that’s going to be a good thing long term.
Jason Moser: The SEC is going to have to be careful here, too. There are legal intricacies here that you have to keep in mind because while this ruling is what it is. If the SEC believes in their case, they can push this all the way to the Supreme Court if they want but if they do that, and it gets shot down, there’s a level of finality there that they may not want. It will be fun to follow this Jason, you mentioned that the industry was not necessarily looking forward to this new ruling, not surprising, they were pushing back because of higher costs. If I see a through line with both of these stories, the Texas Stock Exchange story, and this one here related to private funds, I say, given the opportunity, people are going to avoid compliance costs whenever they possibly can [laughs] That, and it’s to my understanding that everything is bigger in Texas.
Dylan Lewis: That’s right. Rounding us out with our news rundown this week, Spotify users are set for another round of price hikes, the music streamer announced this week that US subscribers on the ad free premium plan will be paying $1 more, bringing the cost to 11.99. We’ll also see increases to the cost of the company’s duo plan and family plan. Bill, this is the second time that we have seen an increase from Spotify in less than a year. Are you surprised by that at all?
Bill Mann: I have to call Jason out here because the last time we talked about it, he said, “Well, I don’t even notice how much I pay [laughs] so just has to be. Whatever. Jason, how could you do this to us?
Jason Moser: I’m so glad you led with that bill because I had this note. I think it was just in April we were talking. I was carelessly talking about how to get charge whatever they want and Bill, you called me out, so mel culpa. I need to learn to keep my big fat mouth shut.
Bill Mann: I am so angry about this price hike.
Jason Moser: You heard it here first. My bad.
Dylan Lewis: I do think in addition to Jason being able to look into the crystal ball. I think there’s an interesting angle here, Bill, I just price sensitivity in general. Daniel, CEO of Spotify, has called this the year of monetization, seems like price hikes are part of that monetization plan.
Bill Mann: They are the market leader here, and their cancel rates are something close to 0%. Basically, the people who cancel Spotify do so because they die. They have room to raise rates and see if their cancellation rates go up a little bit and they’ll still make more money.
Dylan Lewis: Jason, anything you want to throw out there just for the universe to here before we wrap up the segment.
Jason Moser: Yeah, I think you just want to keep an eye on gross margin with a business like this. This most recent quarter, 27.6% versus 25.2% a year ago, that signed those price hikes are having a positive impact for the business.
Dylan Lewis: Not inviting any more chaos, I see. Bill Mann, Jason Moser. We’ll see you guys a little bit later in the show. Up next, we’re diving into the latest antitrust case. Stay right here. You’re listening to Motley Fool Money.
Dylan Lewis: Welcome back to Motley Fool Money. I’m Dylan Lewis. The regulatory environment continues to heat up. Late last month, the DOJ filed its latest antitrust suit against ticketing Giant Live Nation. Here to unpack the case and what it might mean for Live Nation and investors, Motley Fool Canada analyst, Nick Sciple. Nick, let’s start out with the basics of the DOJ’s case here. We had suit details emerged in late May. What exactly is the DOJ alleging?
Nick Sciple: Sure Dylan, great to be here with you. On May 23, the DOJ, together with the Attorneys General of 29 states in the District of Columbia sued Live Nation and its wholly owned subsidiary Ticketmaster, alleging unlawful monopolization, exclusive dealing, tying in violation of the antitrust acts. According to the complaint, company has systemically and intentionally corrupted the competitive process, causing in a host of harms to fans, artists and venues. This really continues a trend we’ve seen from the DOJ throughout this current administration, there’s more active monopolization cases currently pending right now than we’ve seen in total over the last 20 years. Getting into the specific allegations against Ticketmaster alleges that Live Nation Ticketmaster serves as the gatekeeper for delivery of nearly all live music in America today, using its power and influence to put itself at the center of virtually every aspect of the live music ecosystem. Plantiff says Live Nation Ticketmaster control 60% of concert promotions at major US concert venues and over 80% of major concert venues primary ticketing. Alleges that Ticketmaster has prohibited venues from having multiple ticketers, offering at their facilities, have forced venues to sign long term exclusive ticketing contracts, have acquired a number of large venues and festivals, entered into long term booking agreements with other venues that they don’t own in order to control the market and have required artists to use its large amphitheaters in order to use its promotion services. Notably, this complaint is going after structural relief. This is to break this company up. This is an extraordinary remedy, as far as I’m aware, this is the last big one of these that we had be awarded, was the AT&T breakup back in the ’80s, also background to this case.
This is a merger that was approved back in 2010, under the Obama administration, operated under a consent decree prohibiting the company from doing some of the things that are alleged here, threatening concert venues, from using competing ticketing firms. However, that decree was extended in 2019, there’s been a monitor looking over the company’s actions for four years, and in this complaint, there’s really only one allegation against that consent decree. I really think that’s Live Nation’s best argument here is that, listen, first off, have approved this merger 14 years ago. You’ve been, closely monitoring our business practices for the past four years, haven’t been able to come up with some real great examples of us violating that. A lot of these other allegations really are things that are out of the company’s control. The artists really control the price of tickets, not Ticketmaster, higher ticket prices are the result of higher production costs. Taylor Swift is spending a lot of money to put these shows on. Live Nation gets blamed for high fees but it’s fees really aren’t higher than anybody else in the ecosystem, and a lot of that money doesn’t go to Live Nation. Another good argument, I think is pretty good as well as for monopoly, there’s really not a lot of monopoly profit here, they only have a 1.4% net profit margin. Ticketmaster’s market share has declined since 2010. For me, I think Live Nation Ticketmaster really has the stronger case here, a lot of the allegations seem to be features of the industry, features that have been improved in the past by federal courts. I don’t think it’s a case that’s strong enough to merit breaking up the companies. Even if it did, I don’t know that it really reduces fees and ticket prices, but I do think this gets great PR for the administration. This is a company that is very unpopular. I think, maybe we get a settlement, maybe you get some restrictions on exclusive ticketing agreements. I don’t think this is going to radically, shift the environment for tickets. I don’t think you’ve got a lot of opportunity for prices to come down significantly again because of that profit margin I mentioned earlier.
Dylan Lewis: Nick, sometimes these antitrust cases get into things that are a little bit more obscure or a little bit lesser known. I feel like with this one, it is right there in your face. If you attend any live events, you are overwhelmingly likely to be interacting with Ticketmaster. You did a little bit of market definition there, thank you throughout 60 and 80%. I know typically, that’s how a lot of these cases work. We look for things like overall control of the market. We also look for things like consumer harm. You started talking through some of those pieces, and it seems like those are the real angles that the DOJ is going to be focusing on this case.
Nick Sciple: Well, that’s right. It’s not illegal to have high market share, and I think what Ticketmaster Live Nation would argue is that we are the best at offering these services. We get selected for these ticketing agreements. I mean, I know folks were upset by what happened with the Taylor Swift ticketing mass a couple of years ago, maybe that’s part of what led us down this road, finally, but there’s not a lot of other companies that could have even attempted that in the way that the Ticketmaster was able to. Again, I think it’s not illegal to have high market share, it’s illegal to engage in anti competitive conduct. That’s really what the government has to prove here. While I know a Stub Hub, lots of other competitors out there would love for Live Nation to be restricted and its ability to compete with these companies. The line that we have to draw is where the line crosses from normal competitive behavior in an industry into anti competitive conduct, and that’s really what the government is going to have to prove here and what Live Nation is going to try to combat.
Dylan Lewis: It seems like your view is the case is actually one that Live Nation may have some success fighting. I’m curious what some of your answers would be to the government’s claims here.
Nick Sciple: Some of the government’s claims are that Ticketmaster will only offer its promotion services to venues that it owns and operates in. That’s normal ticket at normal operation in business. There’s allegations that they require venues to sign long-term exclusive ticketing arrangements, I think the number is 3-14 years, they were cited in the complaint. What Live Nation’s response to that is that this is something that venues like and would want. This is something the Clinton administration investigated 30 years ago. In the case of venues, it’s complex to integrate with these ticketing operators, and would be costly to offer to multiple ticketing businesses, so that the reason we’re offering exclusive contracts here are because our customer wants it, not because of anti-competitive behavior. Again, back to what I said earlier about the higher fees are largely going to other participants in the ecosystem. The high ticket costs are something that artists control, the Ticketmaster doesn’t control. It really boils down to Ticketmaster exists in this industry to be the bad guy. Artists would like to profit maximize, venues would like to get as much profit as they would like. Part of Live Nation’s job here is to be the one that everybody dislikes, that everybody throws the blame on for high costs in the industry. I think that’s a lot of what the government is going to argue that fees, but for Live Nation’s behavior would be significantly lower. I just don’t know if that’s going to hold water.
Dylan Lewis: You hinted at this a little bit earlier, but typically, when you see a monopolist, you would be expecting a company that would be extracting a lot of rent from that power, and in Live Nation’s case, that would be revenue, net income, and ideally shareholder returns for the people that own the stock. Comping the company to 2019 pre-pandemic, revenue has doubled over the last five years. Net income has more than 4 x’ed over the last five years. In that time, shareholders are up 50%. S&P 500 is up 90%. It is a curious case to me of a business that has gotten bigger, stronger, but not necessarily one that shareholders have enjoyed a wild ride with, even though the company is being viewed as this incredibly monopolistic business.
Nick Sciple: This business it is a cash machine. It took a pandemic to throw it into a cash burn. I think it did about $900,000,000 in free cash flow last year, dominates its industry. However, there’s really not that many more areas to conquer, given their market share in the business, they’re going to be hamstrung in their ability to continue to roll up other operators in the industry because of this lawsuit and oversight that they face for the past several years. I think going forward, this is going to remain a significantly cash-generative business, but I think it might need to transform into more of a capital return deleveraging story, less so than the roll up story they’d been in the past. Relative to the market, is it going to be a market beater going forward? I think if you buy it right, this is a company that can perform well for you, but I do think too, that over the next several years, there’s going to be heightened costs from the lawsuit and then lots of uncertainty about what the in state is of the industry, which I think is going to affect valuation. If a settlement takes place, that’s probably going to limit the ability for the company to expand margins and grow going forward. Even if they win the case, the lawsuits going to hang over the business for a while. I think this is going to remain a cash machine, but maybe not the same growth profile it had in the 2010.
Dylan Lewis: There is the possibility with this case that there is some breakup or some corporate action that is being forced if the DOJ winds up winning. I know at one point you owned this business, you’re not currently a shareholder, but how would you be looking at this as an investor in Live Nation and the possibility that as it currently exists, it may not be the form of this company in a couple of years if the DOJ gets its way.
Nick Sciple: I think it’s unlikely that a breakup happens, again, because of what I said earlier about the background allegations of the case. But if that were to take place, it really blows up the flywheel, where you use the money that you make from the ticketing side of the business, to subsidize the promotion side of the business, to push back into the other parts of the business. If the business gets broken up, I think you’d see really a restructuring and how these different parts of the business operate parts of the business that were offered maybe at a lower margin to get artists into that flywheel. They’re going to have to change their structure to be priced higher, and I think other parts of the business that maybe are generating higher profits today because of that structure, we’ll see their margins get squeezed. I do think that all the individual pieces still would retain significant value. I could argue that might be worth more broken up, I don’t know if that’s necessarily likely, but you could argue that on the multiple side. I think you’d see a restructuring of the industry. Do I think that would change the overall cost that folks are paying for tickets long term? I don’t think so. Would it change the overall value of the business? I’m not sure, it depends with the structure of the settlement. Lot of uncertainty here.
Dylan Lewis: For investors, maybe regulatory environment doesn’t factor too closely into the thesis because it is so hard to predict?
Nick Sciple: I’d say this is a business that no matter what is going to be highly regulated, throughout its entire history has been subject to investigation. I mentioned investigation back in the Clinton administration. I think this is a business that you could argue trends toward monopoly or is a natural monopoly because of the structure of the industry. I think it’s a business that is highly public. Everybody sees these fees and it creates demand from the voter base to do something about that. I don’t think that’s likely to change any time soon. It was controversial in 2010 when the Obama administration approved the merger of Ticketmaster and Live Nation. The company remains controversial. I think if you’re going to own this business, you have to acknowledge that. You have to say, listen, I own a royalty on the live events business in the United States. This is a business that is growing year over year over year. I know every year, we’re not going to have the Eras Tour, we’re not going to have Beyonce, but this is an industry that is a growth business, and I want to own the market leader here. If you can look through some of the overhang, the regulatory overhang that’s really always going to be there and get comfortable with owning a business that nobody likes. I think this is a company that’s going to continue to generate significant cash flow, and likely, I think going to return more of that to shareholders over time given the structure that the business is in and the regulatory oversight. You just have to be comfortable with that to own the business.
Dylan Lewis: Thanks for walking me through that, Nick. Listeners, don’t go anywhere. Coming up next, Jason Moser and Bill Mann return with a couple of stocks on their radar. Stay right here. You’re listening to Motley Fool Money.
As always, people in the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. Don’t buy or sell anything based solely on what you hear. I’m Dylan Lewis joined again by Bill Mann and Jason Moser. Gents, as we tape here on Friday morning, it’s National Donut Day here in the United States, and all of the doughnut chains are getting in on the fun. You know you got those giveaways. They got to lean into a fun holiday. Jason, if you’re driving on the highway, getting a hankering for a doughnut, which chain are you most excited to see a sign for?
Jason Moser: Well, as someone who grew up in the low country of South Carolina back in the 1970s, I’m old school villain. I mean, I’m a Krispy Kreme guy through and through. I like Dunkin’, that’s fine, but I’m getting amped when I see those two Ks in the sky.
Bill Mann: North Carolina represent.
Dylan Lewis: Billy, you taking Krispy Kreme as well?
Bill Mann: I would, but I think I need to add some diversity. If you are on the road and you are near Lewiston, Maine, the place you want to stop is called the Italian Bakery and get you a Blueberry Crumb doughnut. They are life-affirming and for those who celebrate National Donut Day in that part, worth a journey.
Dylan Lewis: Life-affirming is some high praise for a doughnut.
Jason Moser: It is.
Bill Mann: I had to hold onto the wall. It was so good. [laughs]
Dylan Lewis: You mentioned Krispy Kreme, and this is not a business that has done particularly well as a publicly traded company. Actually, doughnuts themselves have not been a great investment. Dunkin’ was taken private. Are you surprised, Bill, that Fried Dough is not a more lucrative business?
Bill Mann: They are the Minnesota Vikings of doughnut companies. I mean, they can’t win for losing. [laughs] Now, yes, it should be a much better business, but actually, the Krispy Kreme issue wasn’t so much the fact that they were bad at selling doughnuts. They were bad at selling franchises.
Dylan Lewis: They were bad at counting too, right? Wasn’t there an accounting problem back in the day? [laughs]
Bill Mann: To the extent that counting was part of their deal. Yes, they were bad at it. Yes, it should be a much better business. Ultimately, the problem with doughnuts just moving nationwide is that the ticket costs or amount that each customer buys is pretty small.
Dylan Lewis: Let’s get over to stocks on our radar. Our man behind the glass, Dan Boyd is going hit you with a question. Jason, you’re up first. What are you looking at this week?
Jason Moser: Docusign earnings came out Thursday after the market closed, ticker D-O-C-U, and a meh quarter. I mean, they’re just doing what they do. They’re making progress as things have normalized compared to the growth that was all pulled forward the last few years. Revenue was up 7% from a year ago. They saw billings up 5%. Billings that’s always funny, it can be lumpy and a little bit difficult to pin down. Gross margin hanging in there down just 60 basis points, but earnings per share encouragingly up 14%. Remember, this is a company, they’ve been in the headlines recently. They’ve got new leadership. There was talk of perhaps they may be acquired or maybe they were shopping themselves around. Then it turned out that maybe they were asking too much or there were no really interested buyers, and they’ve decided they want to try to go on their own as a publicly traded company. It seems like we’re going to have Docusign as a publicly traded company for the foreseeable future. They added one billion dollars to the repurchase authorization there as well. I think it’s interesting to note their total customers increased by 11% year over year. That’s always a good sign for a business like this continuing to grow that customer base. At the end of the quarter, the balance sheet is an asset, it’s really in good shape there, $1.2 billion in cash and equivalence with no debt. They’re forecasting growth for this coming year around the same, guiding for around 7% at the midpoint there. I think we’re just getting back to normal with this business. It went out there over the last few years because of everything that went on with COVID and whatnot. It’s a good business, is it a great business? I don’t know. They do provide a good service, but it’s one that’s going to require a little patience. I’m not entirely convinced that they’re going to make it too much longer as a publicly traded company. It seems like they’d be an attractive acquisition target, but we’ll see.
Dylan Lewis: Dan, a question about Docusign.
Dan Boyd: When Dylan told me that Docusign was on the bill for today, my question to him was, does Docusign still stink? [laughs] I don’t know, man. It sounds like your dogs might think so in the background there, Jason.
Bill Mann: Jason’s dogs obviously hate Docusign.
Jason Moser: They always have to chime in. It could be one of those doughnuts. Great service, maybe not such a great investment, but the jury’s still out.
Dylan Lewis: Love that thread. Way to pull that one forward, Jason. Bill, what’s on your radar this week?
Bill Mann: Mine is Casey’s General Stores, which is in the Midwest primarily. They have 2,500 gas stations, basically. It is one of the more profitable gas operations in the country. Their margin per gallon of gas is about 35 cents per gallon, which is really high. Gas prices have been all over the map. It’ll be interesting to see whether they are able to keep those margins up. The majority of their stores are in towns of fewer than 5,000 people. It’s a really interesting company that has minimal competition in its core markets.
Dylan Lewis: Dan, a question about Casey’s General Stores.
Dan Boyd: I’ve never been to a Casey’s General Store. Is there anything, Bill, that sets it apart other than gas?
Bill Mann: The fact that they are in very small towns that’s what they’ve focused on. I mean, when you go into a Buc-ee’s, you’re in a Buc-ee’s, I wouldn’t describe Casey’s in the same way, but they’re not opening another gas store station right next to a Casey’s besides the accounts that they’ve focused on.
Dylan Lewis: Dan, which one’s going in your watch list this week?
Dan Boyd: Well, I’m going to have to agree with Jason’s dogs and not pick Docusign. I will go to Casey’s General Stores.
Dylan Lewis: Got to love it. Got to vote with the dogs. That’s going to do it for this week, Spotlight Fool Money Radio Show. This show is mixed by Dan Boyd. Appreciate Bill and Jason bring in their radar stocks. Appreciate you for listening. We’ll see you next time.
Bill Mann has no position in any of the stocks mentioned. Dan Boyd has no position in any of the stocks mentioned. Dylan Lewis has positions in Docusign and Spotify Technology. Jason Moser has positions in Docusign, Nike, and Under Armour. Nick Sciple has no position in any of the stocks mentioned. Ricky Mulvey has positions in Lululemon Athletica and Spotify Technology. The Motley Fool has positions in and recommends CrowdStrike, Docusign, Lululemon Athletica, Nike, Okta, Palo Alto Networks, Spotify Technology, Tesla, and Under Armour. The Motley Fool recommends Casey’s General Stores and Live Nation Entertainment and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Cybersecurity Soars; Cyclical Stocks Cycle was originally published by The Motley Fool
