As shares get close to a new all-time high after third-quarter results, Booking Holdings (BKNG 0.34%) demonstrates its toughness in the face of adversity. And Roku (ROKU 1.56%) shares fall despite encouraging third-quarter numbers heading into the holidays. Motley Fool analyst Tim Beyers analyzes those stories and shares a hopeful (and skeptical) view of Fastly's (FSLY +0.91%) plans for the future.
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.
This video was recorded on Nov. 4, 2021.
Chris Hill: It's Thursday, November 4th. Welcome to Market Foolery. I'm Chris Hill. With me today, our man in Colorado, Tim Beyers. Thanks for being here.
Tim Beyers: Thanks for having me fully caffeinated ready-to-go.
Chris Hill: Likewise, we have a trio of third-quarter earnings reports. In streaming video, edge computing, we're going to start in global travel. Profits and revenue for Booking Holdings came in higher-than-expected. Shares of Priceline's parent company got close to a new all-time high this morning. They've dropped a little bit down from there. But still in positive territory. Maybe this is a gross understatement, but this seemed like a good quarter.
Tim Beyers: [laughs] That is a gross understatement. You are correct, sir. That is a gross understatement. Yeah. This is a study in resilience. Chris, we're back traveling again, so just a couple of numbers here. So gross, the gross bookings. So this is gross travel bookings, $23.7 billion. That's a lot of money. That increased 75 percent in constant currency and $4.7 billion in net revenues. So that's after everything has been paid out, that's what booking actually gets. That was also a 77 percent increase. Net income profits tripled. Chris, this is a business that we always knew was good. Maybe we didn't know it was this good. Because remember that during the height of the pandemic last year, at this time, nobody was going anywhere. For us at The Motley Fool, gosh, we haven't even gotten back into offices yet. So there are still people who are reticent. We're also getting some painful reminders that the pandemic isn't over. For football fans, boy, this is a particularly painful one. Aaron Rogers has been diagnosed COVID positive and apparently hid the fact that he was unvaccinated. So it's not like this is over. Yet things are getting better. Booking has found a way to just steadily find a way to not only keep the lights on, but keep the business coming along. I will give you one more stat here Chris. Cash from operations for Booking Holdings up over the nine months has more than tripled. This is a company that's generating $2.5 billion. Billion with a b, doctor evil be turned up pinkie. This is a massive showing for a company that by all rights last year should've been on the rocks but resilient, very resilient.
Chris Hill: Very resilient and Fogs, the CEO was on CNBC this morning and similar to Mark Tritton from Bed Bath & Beyond. The other day, wasn't really beating his chest too much about the quarter they just put together was very unmeasured in terms of the continued threat of COVID and what that means for their business. I am curious though, Tim, when you look at, look, this is now a $100 billion company. Booking Holdings, throughout its history. One of the ways this business has grown is through acquisition. They've been, not a rampant acquirer of other businesses, but I would say a steady one. They haven't made any acquisitions in a couple of years. I'm wondering, if you think come 2022 or maybe the year after that, they are going to start getting back into acquisitive mode. I want to be clear. I'm not saying they need to, I'm just saying that spend their pattern as a business. I'm wondering if you think they're going to go shopping anytime soon.
Tim Beyers: I do. There's a financial statistic that bears at this out, Chris. So I'll try to make this very simple. When you look at the financials of the business and you look at the balance sheet where the excess value of an acquired company shows up on that balance sheet is in a line item called goodwill. It's essentially there is the value of the business, like the actual asset value of the business. Then there's the premium paid. Where we mark that premium paid, we call that goodwill and we put it on the balance sheet. So Booking Holdings as a percentage of its assets, goodwill. All of those acquisitions is get this 88 percent of assets. That's it. So is there room for Booking to make some moves? Yeah. There's a lot of room for booking to make some moves and not crush its financials, crushed its balance sheet. Company has $11 billion in cash available. It is generating a meaningful amount of cash flow. So yes, do I expect there to be some acquisitions? I absolutely do. But what I trust about management because they've shown this before, is that they'll be a little judicious. I think that patience that we saw in that interview, Chris, is just a reflection of how they think about, yeah, you know, what things are better. We have capital, we can put it to work. But that does not mean we are going to rush in and do something crazy. You can expect us to be thoughtful about the next move that we make. So yes, 2022, would an acquisition happen? Yes. I'm expecting it. I do not expect it to be huge. Actually expect it to be measured and fitting with what Booking is trying to do.
Chris Hill: Shares of Fastly are up a bit this morning, third-quarter profits and revenue came in higher-than-expected for the Edge Cloud platform company. I want to get to the conference call in a minute, but in terms of the results, I know it wasn't like these were the highest expectations going in for Fastly, but they did beat them.
Tim Beyers: They did beat them and there we can talk about this. There is value to them, guess what folks? This one didn't stink. There's value to that. It turns out. But because the growth was better, they did beat expectations. The guidance was not terrible, it was in line, and 23 percent revenue growth. The cash burn is still there. The company is still investing. The customer growth was meaningful. But here's the thing, Chris, with Fastly, when you look at the call and you look at what the CEO said, you have to make a determination here. It is either, wow, this is bananas, this company is going to be amazing. Or oh boy, this is delusional. There's not much room in between. So let me hit why this is, here's what they said. This is CEO, Joshua Bixby saying three goals from now till 2025. Actually four goals. Number 1, it's going to be a billion dollar company. The rough run rate today is about 360 million. So let's just call it a AAA. Now, from now to 2025, we're going to triple the business. To do that, we're going to increase the usage of our latest platform, the big one compute at Edge, which is the edge computing platform by 50x by next year, this time next year, we're going to have 100,000 enterprise developers by 2023 and then by 2025, the security business where they acquired with Signal Sciences, that's going to grow by 10x from now till 25. For some context around that, Chris, today, my math says Signal Sciences, which they acquired a couple of years ago now. Not a couple of years, let's call it 18 months ago, that now is roughly a $40 million business. They're saying about $400 million business by 2025 percent or 40 percent of the overall company. That is substantial. They did not, to be clear about this and why we don't know whether or not this is like we're getting bamboozled here and this is a banana in the tailpipe and we don't know it. They didn't tell us where they're starting from. That is the issue. So if you believe Joshua Bixby, this is an amazing story. If you don't, then you might be saying, yes, this is delusional. We don't know what the starting line is and it's really hard to know which it is Chris.
Chris Hill: Do you think part of the goal setting here is a mindset that says, look, we're going to set some audacious goals. Even if we fall short, we've improved dramatically. Because tripling your revenue in four years time. That doesn't seem like an insane goal to me. 50x anything? [laughs] That seems a bit more dodgy.
Tim Beyers: Yeah, exactly right. We don't know where they're starting from. I do like it, but I think what this is more about Chris, and this is the skeptical view of it. Let's be clear about this, and I could be wrong. The skeptical view is Joshua Bixby, the CEO, is really tired of being questioned, and he wants to give a narrative to the street that improves investor sentiment. We sometimes hear this, investor sentiment is really, really low, and as long as it's really, really low, this stock is not going to go anywhere. It's like a ploy to improve investor sentiment. That's the skeptical view of it. The hopeful view of it is we really believe in what we're doing and we're shooting for the moon. I'm not buying anymore, but I feel like the next thing to do is show me next quarter, what was your starting line and how are you doing? Now I want to see you prove it.
Chris Hill: For Roku, platform revenue was up, streaming hours were up, but shares are down this morning after revenue came in late, and guidance for the holiday quarter was lower than what Wall Street was hoping for. There are a couple of places I want to go with Roku, but what did you think of the quarter?
Tim Beyers: I thought it was good. I really did. I think this is a business, honestly, Chris, that is showing itself to be much better than we give it credit for. Because this is a company that's generating cash, continues to generate cash, is growing substantially and it's growing its footprint. Another 1.5 million active accounts in the quarter, now they are up to 56.4 million active accounts, margins improving. Chris, unless we believe streaming outside of Netflix, (NFLX +0.50%) streaming other services, Roku is maybe the most interesting alternative to a cable bundle that exists. Because inside Roku, you can have the box, you can have your Internet connection, and you can own all your pay-per-view services that you want. You can create your own bundle, and it's an amazing way to do it, that is more affordable, it delivers lots of original content, and the customer growth does speak to that. Did they miss on the expectations? Yes, they did. But I'm very impressed by the growth. Just a couple of other quick things here; the active accounts were up 23 percent, the average revenue per user, in other words, the spend per subscriber here, up 49 percent. The overall platform revenue, which is basically the platform itself, the subscription revenue, that's up at 82 percent. Gross profit in this part of the business up 94 percent. Chris, I don't know how to say this, those are great numbers. There's nothing fundamentally wrong with the business. Maybe the expectations are misaligned, but the business is great.
Chris Hill: Let me go to the expectations for a second. Anthony Wood has been running this company for a long time. My first thought when I saw the guidance was, I think he's being cautious.
Tim Beyers: Probably.
Chris Hill: There's virtually no downside and only upside in being cautious, going into the holiday quarter.
Tim Beyers: Absolutely. If we're going to be honest about it, we think this is going to be an amazing holiday quarter because we've got pent-up demand, and we've got some cash that people are ready and willing to deploy, and yet inflation is on the rise. I don't want to make a macro argument here, this is not the big macro segment we're talking about here, but inflation is on the rise. Will consumers be a little more cautious, is caution merited here? For a consumer-facing business, sure. You're right, we almost never go wrong with the management that is more conservative. We can frequently go wrong with managements that are hopelessly optimistic and overly aggressive. I'm going to give Roku the benefit of the doubt here.
Chris Hill: One more question about expectations and this has to do with the stock. Right now, it's just under $300 a share. Over the past year, this stock has been as low as 200 and as high as almost 500.
Tim Beyers: Right.
Chris Hill: Is Roku a business that for people who don't own it, do they need to have a stronger stomach? I don't think of Roku as being a risky business and I don't think of the stock as being an all or nothing, you've got to be prepared for this thing to go to zero. But when I look at a chart like that, I think, "Boy, I don't own shares," and I bet for people who do own shares, they've had a couple of rough moments just looking at this, depending on what direction it's going in.
Tim Beyers: No doubt. Do they need to have a stronger stomach? I don't know about that, but do you need to own a lot of stocks, like at least 25, if Roku is one of them? I would say yeah, please do. Or in lieu of that, own a significant portion of your assets in an index fund, so that the Roku roller-coaster, for lack of a better term, does it force you into an emotional decision you shouldn't make. Because this volatility can start to play with your emotions and play with your nervous system, and you don't want that. You want to have enough other assets that this one just looks like, "Wow, that looks terrible right now, but at least I've got some other things going on over here."
Chris Hill: Always good to have one more reason to be diversified.
Tim Beyers: Exactly. The diversification is great, we preach it a lot. But also just for the benefit, if you have a lot of other stuff then the odds are good. Give it today, and you own Roku, but you also own Fastly, you're like, "That one sucks, but hey, look, Fastly didn't stink it up this quarter and the stock is up. [MUSIC] Amazing, I love it." You can have that, and that's great.
Chris Hill: Tim Beyers, great talking to you. Thanks for being here.
Tim Beyers: Thanks Chris, appreciate it.
Chris Hill: As always, people on the program may have interest in the stocks they talked about and The Motley Fool may have formal recommendations for or against, so don't buy yourselves stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening, see you on Monday.
