In this episode of Market Foolery, Mac Greer and Motley Fool contributor Dan Kline take a look at some business headlines from Wall Street.
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This video was recorded on April 7, 2020.
Mac Greer: It's Tuesday, April 7th. Welcome to MarketFoolery. I'm Mac Greer, and joining me from Florida is Motley Fool contributor Dan Kline. Dan, how we doing today?
Dan Kline: Happy to be joining you. Rumor is that you are recording from a closet. [laughs] Is that accurate?
Greer: You know it is accurate, Dan. I am recording in our closet. There are clothes all around me. I'd like to say that I keep my closet pretty clean, pretty straight, but that would not be a fair characterization. I need to do some folding. I need to do some reorg. But, yeah, inside the closet. So, there you go. If it sounds a bit different or if I just screw something up, let's just blame it on the closet.
Kline: My closet may or may not be filled with liquor and toilet papers. [laughs]
Greer: [laughs] I like that, I like it a lot. Well, Dan, let's get to it. The Dow up a bit at the time of our taping here. We are going to talk some Carnival, I know you follow the cruise lines. Carnival (CUK 1.14%) (CCL 1.33%) having a really good day today and having a great day yesterday, we'll talk more about that. We'll talk some SeaWorld (SEAS 4.09%), and we will talk about a new video service, Quibi. And we'll get your thoughts on whether you think it could be a threat to YouTube or what's going to come of Quibi.
But let's begin with Kraft Heinz (KHC 1.31%). Shares of Kraft Heinz up today after the food giant said it expects a rise in first quarter sales. Now, Dan, this is a bit of a tale of two cities, on one hand Kraft has taken a hit with its food service businesses, and so it's reducing production of restaurant products. But on the other hand, and this sounds like it's a much bigger hand, it's adding shifts at plants that make packaged foods, like, mac and cheese, soup and beans. So, what do you make of Kraft Heinz?
Kline: So, this makes a lot of sense. People are stuck at home, it's really easy to make macaroni and cheese. It's also a comfort food, it makes you feel better and it's really cheap. So, that is a good combination of things. So, yeah, you're going to see. It also maybe never goes bad; I'm not entirely sure if the cosmic goo you put that counts as cheese or the powder maybe at some point, like, 40 years from now [laughs] that will no longer be good, but I think you don't really have to worry. If you have kids, especially, if you buy a 40-pack of mac and cheese and you don't use it all. Yeah, it'll still be good in a few months or a few years. So, it's interesting to see the numbers because you never know exactly if an increase in one area is going to cover a major decrease in another area, but this is actually one of those, like, ports in a storm, Kraft Heinz should do well throughout this crisis and maybe we'll see itself through the other side as one of the stronger companies.
Greer: Okay. So, let's talk more about that. When this storm ends, when we come out of this, what do you think about the stock?
Kline: You know, it's a really boring stock. There's not a lot of growth there. So, it's somewhat of a safe harbor, you know, but I don't expect this to be a stock that moves a ton in either direction, unless you see, you know, maybe there's a quarter after this where people have a closet full of macaroni and cheese and they're conserving cash a little bit, so they don't go out.
You do worry if there's going to be a bit of a bounce back against, you know, whether it's Kraft Heinz or Costco, if you bought a palette of toilet paper and you don't use it all, you're probably not going to need toilet paper for a while when things return to normal. So, there might be some slight bad quarter ahead for the company, but you're talking, like, sales are off a few percent, you're not talking, like, all of a sudden nobody eats anymore. It's not a stock I'm all that interested in, but sort of good to see any business that's stable, keeping people working and meeting a need.
Greer: Okay. So, final question here. Are we at peak mac and cheese or is there more room to run here; what do you think?
Kline: So, yeah, I do think we're at peak mac and cheese. I haven't been to a grocery store in a while, but the last time I was in a grocery store, you could get mac and cheese but you couldn't necessarily get the one you want.
In terms of ordering pasta, another staple, if you put pasta in your Instacart order, you'll get a shape of pasta, you won't necessarily -- like, my son was mad, he wanted the half-size spaghetti. And I had to sit down with him and be like, look, you got pasta, like, be happy you got the brand you wanted, let alone the exact shapes. So, I think we're going to see that with mac and cheese. You might not be able to get, you know, the one shaped like dinosaurs or I don't know whatever they come in shapes now, princesses, whatever it might be. But you're probably going to be able to get it. And that's going to improve, because the more people have, they start placing maintenance orders or just picking up a little, they stop grabbing five or six at a time.
Greer: And as long as it comes with the cosmic goo then I'm good to go.
Kline: [laughs] Well, that's not a colored yellow or orange, I'm not even sure what color you'd call it, but that's not the color of --
Greer: It does not exist in nature.
Kline: That's not the color of cheese, first of all.
Greer: It isn't. I think that's a fair statement. Okay, let's talk Carnival. Shares of Carnival up around 22% at the time of our taping. Now, Dan, this comes on the heels of yesterday, Carnival up 21%. Now, that was after Saudi Arabia's Sovereign Wealth Fund disclosed that it had taken an 8.2% stake in Carnival.
So, let's put that in the context of this year, because Carnival still down more than 70%. The cruise line companies have just got whacked, but what do you think of this latest move with Carnival?
Kline: So, Carnival has made all sorts of moves to shore up its finances. It costs about $1 billion for the company to keep its ships in operational status while not operating. So, it borrowed money at 11.5%, which is dreadful, about $4 billion. Previously, the last time it had tapped those markets, it was at 1%. It sold stock -- I forget the exact number -- at $8 a share, which was $40-something below its 52-week high. But the company now has the money to be out of business for an extended period of time. And they're saying May 11th is when they'll resume some cruises, I find that not super-likely. I'd love it to be true, I have cruises booked, though not on Carnival, in the Summer. But it still seems pretty optimistic.
But what happens with this Saudi Arabia Wealth Fund? This is essentially the government of the company, the Royal Family's, kind of, personal investing fund. And it's good, in a lot of ways, to have a really rich partner be invested in your survival. So, while the money may come at a price, if Carnival is in a situation where it's going to miss debt obligations or it needs cash. All of a sudden, there is a really rich entity that holds a meaningful stake in the company. The problem is, at what price will that money come? At, say, what, you know, compromising your values? That's hard to know. But if you're taking money at 11.5%, hard to imagine you couldn't make a better deal with Saudi Arabia.
Greer: Okay, Dan, let's move on to a new video service, a new platform making its debut. On Monday Quibi launched on iPhone and Android. Now, Dan, I want to spell out some of the vitals here, and then I just want to let you rip. I know you have a strong opinion here.
Quibi founded by Jeffrey Katzenberg, who's the DreamWorks Co-Founder and CEO, before that he was the Chairman of Walt Disney Studios. The CEO, Meg Whitman. Meg, of course, was the former CEO of eBay and HP. Quibi is a private company.
Now, they're all about short-form videos. 10 minutes or less, new episodes every day. And the service was built for mobile phones. That's a key point of distinction. And you can only watch on your phone. Price-wise $4.99, with ads, a month, or $7.99 for the ad-free version. And they're offering a free 90-day trial.
Now, Dan, they've got some big names they've recruited. They've got LeBron James, Chance the Rapper, Reese Witherspoon, Chrissy Teigen, just to name a few. And they've also got shows from major news networks, like, NBC and BBC. So, what do you think of Quibi?
Kline: Oh, this is a terrible idea. [laughs]
Greer: Really, though?
Kline: Yes. So, this is a product aimed at a younger generation. A generation that consumes short content on YouTube. Mac, how much does YouTube cost?
Greer: Okay, I hear you. YouTube is free, or at least the most, kind of, widely used version of YouTube is free.
Kline: Yeah, absolutely. And so, my son is 16, consumes a lot of content like this. He plays card games and he watches tutorials. And of that list, I'm pretty sure he knows who LeBron James is, there's no chance he knows what the BBC is, he's certainly not consuming a lot of news. I don't see who the audience is for this.
And do you remember when Verizon launched go90, a very similar product that was, I think, bundled with some Verizon subscriptions and also sold? A lot of big names, a lot of short forms. And some of the things they're doing are just bizarre. They're taking movies and releasing them in ten-minute chunks. I don't know anyone who wants to watch a movie in ten-minute chunks. I get the idea of maybe the court show with Chrissy Teigen, you can do a case in under ten minutes, that might make sense, she's sort of a name to a certain audience. But I just have a hard time believing anyone is going to pay for this.
They might have some success with, you know, right now T-Mobile is giving it away. There's a 90-day free trial. There might be some adoption during this period of, you know, people betting on marble races, and horse tracks from places we don't know, and UFC moving to private islands to stage fights.
But the long-term traction of this -- first of all, two old people trying to reach the next generation of kids is never a great idea. Not that Jeffrey Katzenberg hasn't done some wonderful things in entertainment, but this is a 15-year-old idea that I don't see a place for it. Like, when Disney+ came out, there was a clamoring in my household, "Oh, we gotta get this." Everybody wanted to watch different things. My son has not said one word about it. And he knows right now that basically anything he asks for, we're going to get him, so he'll shut up, because we're stuck in the house. [laughs]
And if he's not talking to me about it, that means his friends aren't talking about it. So, the only people who know this exists are people in our space. Obviously, there's going to be some advertising and there are some free promotions, but I forget sometimes that I have Hulu. I don't think I've ever used Amazon Prime Video unless it was, like, right when a show came out that I wanted to give a try. So, we have too many of these services. I'm not sure that there is demand for one.
And if you're looking for content on your phone, there's even more content on YouTube right now. And Facebook Live is another example, Facebook Live is free, and a lot of your favorite artists, small-time people that I love and big-time people my son loves, are doing stuff for free. So, what is the market for this? You know, a generation that doesn't watch news is now going to watch ten-minute news shows? It seems very misguided.
Greer: Okay. I'm going to push back a bit, because, obviously, as you mentioned, the competitive landscape is brutal, you've got Netflix, you've got Amazon Prime, Disney+, Apple TV, you've got YouTube, coming soon, you're going to have HBO Max and NBC's Peacock. So, as you mentioned, plenty of competition.
But I mentioned this to my son this morning, my oldest, and he had heard about it and he had heard about a show that was supposed to be good. And so that's my point. Right now, with so many people at home, you've got a captive audience and people have plenty of time. And you've got this 90-day free trial. If you get people invested in one show, you get them hooked on one show -- and remember, a lot of these shows, you're getting a new episode every day -- then it just takes one show, it just takes a Stranger Things, for someone to get invested in this service and decide it's worth paying for.
Kline: Yeah, the problem is, if Netflix only had one hit, it would have 6 million subscribers. [laughs] And I don't know the breakeven for Quibi, they're a private company, but they're throwing money around, which, yeah, I would suggest, we pitch them on an eight-minute edition of MarketFoolery, because they seem very liberal with their finances right now.
But what usually happens with these, and we saw it with go90, there's initial enthusiasm. go90 licensed Saturday Night Live, so they could run all those classic skits. And there'll be people that get this. There will absolutely be -- you know, you'll see a number, "Oh, 7 million people have signed up for the free trial." What's the retention going to be? If it's 50%, that's still kind of a bad number.
And I know I'm just making up numbers, but to make money you need to get to big number really, really quickly and doing that from scratch -- Disney+ worked because they have the Disney catalog. Even something like CBS All Access, which has a few interesting shows, has struggled simply because Netflix has such a volume. It is very difficult to come into a space when people aren't lacking things to watch.
Now, might there be a period where the production slowdown or shutdown on a lot of shows creates some opportunity? It's possible, but we're seeing, like, the late night comedians go back to work. And where does their content air now? It airs on YouTube and it's all out there. So, I'm very, very skeptical about the need for this as a paid service. If this was another free platform, maybe, but even then, I'm skeptical.
Greer: Okay. So, exit question here. Five years from now, if we look back on this conversation and we say, you were fabulously wrong, Quibi is a smash hit; maybe even a public company at some point. What happened? If Quibi ends up being a huge hit, what do you think happened?
Kline: Yeah, a quick volume of hit shows. During this 90-day trial period, if all of a sudden, I tune in and I watch, you know, Chrissy Teigen's court and, I don't know, Hulk Hogan's morning show, like, [laughs] I don't know who's on this platform. But whatever they're doing, and I get hooked by it. Or they're doing something in comedy that's so unique that I just have to watch it every day. And that happens to tens of millions of people.
That said, I'm not buying it, because your ability to launch a scripted drama, even really good ones on really big platforms, how many great shows have you loved that don't make it two seasons? So, the idea that they're going to have ten hits out of the box, appealing to a bunch of different demographics; but before Tiger King, what was the last Netflix hit you remember? It's really hard to create a hit. And for a new platform to create a bunch of them at once, but if it works that's what would have happened.
Greer: Okay. So, I'm going to count you as not cautiously optimistic, but very, very pessimistic; is that fair?
Kline: Yeah, and I'm going to put MarketFoolery in five years on my calendar right now. [laughs]
Greer: [laughs] Okay. Dan Kline, I will look forward to continuing that conversation in five years. And producer, Dan Boyd, points out that before Tiger King, The Witcher was a big hit on Netflix.
Kline: Yeah, absolutely, they've had hits, but their pace of hits has slowed down, partially because it doesn't have to be Fast and Furious. In the early days, to get established, a service needs to be talked about, they need to have multiple shows that appeal to multiple demographics that force people onboard. Once you've given them a credit card, all they need is some stuff you watch. I keep HBO because we watch Last Week Tonight. That is the only thing [laughs] I watch on HBO regularly, but I'm not going to cancel because that's an important show in my week.
Greer: So, let's wrap up by talking some SeaWorld. SeaWorld Entertainment CEO, Sergio Rivera, resigned after just five months on the job, citing disagreements with the Board. Now, Dan, it has been a revolving-door for SeaWorld CEOs. They've had three CEOs leave in the last two years. Now, SeaWorld's 12 theme parks have been closed since mid-March. The company said more than a week ago that it was furloughing 90% of its workers. So, a rough go.
Shares of SeaWorld up at the time of our taping, so that's maybe a bit curious, but down more than 50% for the year. What do you think?
Kline: Yeah. [laughs] So, they've had eight CEOs in six years; that's not a great sign. And they had very tentatively begun a barely comeback from the 2013 Blackfish scandal. They moved away from this model of killer whales being their signature to giant roller coasters being their signature. They've added one attraction a year, pretty much, at all their big parks and they've kind of transformed what they are and they were slightly profitable and the arrow was pointing up.
That said, I am a SeaWorld annual passholder. Operations at SeaWorld are barebones and it's noticeable if you've gone to Disney or Universal. The service is bad, some of the technology is outdated, things you pay extra for don't always work. It is a company that badly needs investment. And, obviously, having to be closed for an extended period of time means they're going to be even more cash strapped.
That comes at a time where Disney has added major attractions at parks on both coasts; Universal has announced a fifth park is coming, it's still a few years away, while they've also added a new roller coaster in the Harry Potter land, some other lesser, but still important attractions. So, this went from being a very. uphill battle for SeaWorld to, "Geesh! we might need to find some homes for some killer whales." This is not good.
Greer: Okay. So, on that note, time for the desert island question. You are on a desert island, over the next five years you can only buy and own one of these stocks. What are you going with Kraft Heinz, Carnival or SeaWorld?
Kline: So, there's no question, it's Carnival. Carnival is going to have an ugly few years in terms of debt servicing, pushing off new ships where they can. That's not an easy thing to stop motion on, but they can slow it down maybe. They're going to be in a precarious position for a while but they have raised the cash, in my opinion, they need to get through. And I don't believe, two years from now, that the demand for their product won't be back. The scary thing about this is, is they've always been a company that's vulnerable to weather, to bad publicity due to a singular incident on a ship. So, there are some risks there.
But Kraft Heinz is just dull, and SeaWorld, SeaWorld might go out of business. It is a really difficult position, and their biggest value might be their land. That might be really interesting to purchase for Comcast or Disney, not to run SeaWorld parks but maybe to do something with those sites that are not particularly far from Universal, certainly, a little bit farther from Disney. So, if I had to pick one, Carnival.
Greer: Dan Kline, Motley Fool contributor, joining us from Florida. Thanks so much for joining us.
Kline: Thanks for having me.
Greer: [email protected] is our email, for your questions and for your comments. And speaking of comments we got a few regarding yesterday's Zoom (ZM 0.70%) conversation. I hosted yesterday's show with Motley Fool analyst, Tim Beyers. Now, Tim said that he was bullish on Zoom's prospects going forward despite some of Zoom's recent security issues. And Tim and I both commended Zoom's CEO for accepting responsibility, but not everyone agreed.
And so, I want to read a portion of John M's email; a really, really thoughtful email. John M. writes, "I was surprised by the response to Zoom's privacy issues and the rosy optimism of the CEO's response to those concerns during April 6th podcast. Yuan..." that's the CEO, "... was portrayed as having stepped to the plate and accepted personal responsibility. To be clear, his exact words included, 'I really messed up,' and 'We had some missteps.' The response from Yuan wasn't ahead of issues, it was in response to those issues. The statement was seemingly a reply to a letter from the New York Attorney General, a meaningful titbit that was glossed over." And John M. goes on to write, "There's a lot of competitors and some very close to their customer, like Microsoft Teams, Google Hangouts Meet, Slack, GoToMeeting, Skype, Webex and many others. Some integrated into devices like Facetime and WhatsApp for one-to-one video." And then John concludes with, "Thanks for the shows, I really enjoy them and thanks for listening to my whining."
John, if that's whining, that is the most thoughtful, considerate whining ever. Thank you, thank you, thank you for that email. This is a conversation in MarketFoolery and we always welcome great additions to the conversation, because obviously, we will be talking about Zoom again going forward.
And Chandra M. also took exception with our failure to mention a big-name competitor to Zoom, and that's Webex from Cisco. Chandra writes, "During the show, you talk so much and also very highly of Zoom. You also mentioned Microsoft Teams as a competitor. You talked a lot about Slack. If you watch CNN, they're using Cisco Webex when they're talking to guests. Most Fortune 500 companies are using Webex. Since you're so bullish on Zoom and recommending it as a strong buy, I believe at a minimum, you owe it to your listeners to let them know that there is a strong competitor Zoom has in the form of Cisco Webex."
So, thanks for those emails. Keep them coming, love, love, love continuing that conversation.
As always, people on the show 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.
That's it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Mac Greer, thanks for listening, and see you tomorrow.
