In this podcast, Motley Fool senior analyst Bill Mann discusses:
- Chipotle maintaining its stance on prices.
- Dutch payment processor Adyen dealing with higher costs.
- Uber posting a profit in the fourth quarter thanks to the company's investments.
Motley Fool analyst Dylan Lewis talks with Ad Age editor Jeanine Poggi about some of the major brands looking to get your attention before, during, and after Super Bowl 57.
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 February 08, 2023.
Chris Hill: The FOX network will take in $600 million in advertising for Super Bowl LVII, and we've got a look at some of the brands shelling out the money. Motley Fool Money starts now.
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I'm Chris Hill. Joining me today: Motley Fool Senior Analyst Bill Mann. Thanks for being here.
Bill Mann: Hey, Chris, how're you?
Chris Hill: I'm good. We got a trio of earnings reports. We're going to start with Chipotle. The headline in the fourth quarter: not great. Profits and revenue lower than expected, same-store sales. But continuing a pattern that we've seen for a while, not just from Chipotle, but from others where the overall transactions fell, but the pricing was up due to inflation. As we've talked about in the past, Chipotle continues to exercise their pricing power.
Bill Mann: They do. What they describe that as going to the board, and they did actually go to the board this quarter. They really pointed to some weakness in delivery transactions, said that that was down about 15% over the quarter.
Clicking out just a little bit on Chipotle, they are a true winner from during the pandemic. Their sales are up 50%. Profit is up 150%. Store counts up healthily. Shares are up a lot. It's a little bit of a blip, but I don't see anything in this report that suggests that Chipotle is anything but operating with full force.
Chris Hill: You listen to CEO Brian Niccol. He took maybe a quarter step back from what he has said in the past, and if you think back to a year ago, he was talking openly about their ability to raise prices. This time around, he's not really doing that because they're not actually doing that. But he did talk about them maintaining their pricing, and they're seeing the universe of people who are willing to continue to eat at Chipotle and in terms of their results, it's a good number.
Bill Mann: Steven Ells made this point -- and I think Brian Niccol believes the same thing -- Steven Ells was the founder of Chipotle, and that is, that going to the pricing board is not something that they want to do. That is not what they consider to be the most healthy form of growth for them, because there's only so many times that you could do it before you give customers a reason to go look at alternatives.
Yes, there's a very distinct reason why he didn't bring it up. There was a very distinct reason why this is not their actual first choice in terms of how they go about increasing earnings and results. In going to the pricing board and increasing pricing is something that they do more under duress than they do as a matter of strategy.
Chris Hill: We move from burritos to payment processing. Shares of Adyen down 15%. This is the Dutch company that does not report on a quarterly basis. This is their second-half-of-the-fiscal-year results, and broadly, Adyen is dealing with some higher costs.
Bill Mann: Should I tell you that it's pronounced Ad-yen?
Chris Hill: No, which is why I'm continuing to pronounce it "Ay-den." But yeah, let's go with Adyen rather than rerecord my mistake. And we all make mistakes.
Bill Mann: We all do make mistakes, and look, it makes you seem smarter because it means that you've just read it. That means you're a reader.
Adyen, huge Dutch company. It's a company that we have admired for a long time here at the Motley Fool. They have a multichannel strategy. Things that seem they might be easy but really aren't when you think about it. Like, for example, you order something online but you return it to a store. Adyen tracks all those sorts of things. Their results for the last half year were great and fine. Their margins were lower because their take rate was a little bit lower.
But Adyen's CEO, a guy named Pieter van der Does, who is a co-founder of the company, has said that they are now hiring aggressively a lot of the software engineers who were being laid off right now from their competitors and from other Silicon Valley firms.
This is a really interesting company in general. They're in a great space. They are the leading competitor, even though a lot of Americans may not have heard of Adyen. I think that you will be hearing of them as time goes forward, because they are competing with companies like PayPal and Block and even Visa and MasterCard on some certain levels. This is a really important, highly successful company.
Chris Hill: Part of their announcement was the chief financial officer is being promoted to the position of co-CEO. What's your feeling on that? Because there are a lot of times, as we've talked about in the past, there are a lot of times where the co-CEO thing just doesn't work.
Bill Mann: Yeah. This company was actually founded by two guys. Pieter van der Does is one. They actually have had a co-CEO for most of the history of the company. Personalities being what they are, it's a little bit dependent on how these two learn to work together.
Pieter van der Does took a step back in this last year for some health reasons. This is not a surprise to me at all. And yes, you're right to point to it as a risk. We have seen in company after company after company a failure when there are two chiefs. But as in all things, wait and see is probably the best way to go.
Chris Hill: Let's wrap up with Uber, which, surprisingly, posted a profit in the fourth quarter. Maybe unsurprisingly, record revenue to go along with that. And you throw in the strong guidance... You tell me, how good is Uber right now?
Bill Mann: Aaah... How's that? There's my response.
Chris Hill: Okay. I will take that because I've said for years now this is one of those businesses that if it disappeared, I think some people would set their hair on fire. But as a stock, it has not rewarded shareholders.
Bill Mann: It hasn't rewarded shareholders. Almost $600 million in profit for the quarter, which is great. But most of that has come from their investments in other companies. From a cash flow perspective, Uber is still burning money, and that, ultimately, is what you need to track.
My question is, if this is the highest number of transactions that they've had, it was over 2 billion trips, what more can they do so that they actually get to be operating profitability? Operating profitability and accounting profitability are two different things. Yes, it was a good quarter from them. Maybe it was a better quarter than I might have expected as someone who's remained an Uber skeptic.
But the bottom line on a revenue basis is a little bit deceiving simply because they have investments in other companies that have provided all of that profitability.
Chris Hill: I'm glad you hit the number of trips they had, because it's a staggering number. But to your point, if this barely gets them over the profitability line -- and as you pointed out, it's driven largely by their investing. This is not Costco, this is not a business where it's like, well, they don't really make money off the stuff they sell, they make their profit off of the subscription. It's like, well, is Uber rolling out a subscription model, and are they achieving the type of renewals that Costco has achieved? Because if they do that, now, as a shareholder, I'm really interested.
Bill Mann: Yeah, that's exactly right. It's always important to look at the quality of a company, I think, in this very important way: Is Uber unprofitable right now from an operating standpoint because they want to be? Because Costco was unprofitable for a long time, because they wanted to be. They said we have a 2% margin, and that is fine with us, and we're building, etc.
For Uber, what would they be building toward? I don't really have an answer for that. For me, looking at Uber, I've always joked that it should be renamed Uber.org. And I don't really see what, from this quarter, would change that assessment. You liked that, didn't you?
Chris Hill: I did like that. I've never heard you said it before. I do like that. Always great talking to you. Thanks for being here.
Bill Mann: All right, Chris.
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Chris Hill: Fox network has sold all of the ad inventory for Super Bowl LVII, with some 30-second ads going for more than $7 million. How are those brands getting your attention before, during, and after the game? Dylan Lewis has more.
Dylan Lewis: Jeanine Poggi is the editor at Ad Age and their lead for Super Bowl coverage. She joins us from New York.
Jeanine, I imagine this is a pretty busy week for you. Thank you so much for making the time to talk to us.
Jeanine Poggi: Thanks for having me. It's an exciting week for sure over here.
Dylan Lewis: Excitingly for everyone -- for fans, for in the ad business. Thirty-second spots for this year's Super Bowl started at $7 million. What exactly has to happen for that money to be well-spent for advertisers?
Jeanine Poggi: It's no joke when you're going and buying a Super Bowl ad ranging from anywhere from about $6.5 million to $7 million, depending upon if you're grandfathered into deals and other things. But $7 million for a 30-second spot, what you're looking for is really the reach and audience and buzz.
Which is why you'll see many brands already as we talk on February 8, having prereleased their spots, there are lot already out there. There were a lot of teasers, little clips of the Super Bowl ads in the last couple of weeks that came out. You'll see a ton of social media chatter and brands really trying to build buzz on Twitter and Instagram and TikTok, really looking to get as much of an audience and be a part of the conversation as possible to make those dollars worth it.
Dylan Lewis: It seems almost like there's the main stage of the Super Bowl itself, but really when you're thinking about impressions and the overall reach of an ad, we have to factor in all these other digital channels as well.
Jeanine Poggi: Absolutely. I think the days and even the week leading into the game, for a lot of these brands, is just as if not sometimes more important than even game day, because there are so many moments that they can build before the game to get that attention. On the day of the game, all of that real-time chatter, there is so much, it becomes increasingly more difficult to break through the noise of everyone in real time than they could in the moments leading up to the game.
Dylan Lewis: I know we're only about halfway through Super Bowl week, but have you seen any brands harness that second-screen approach well so far or have plans too that are interesting?
Jeanine Poggi: Well, I think one of the most interesting ones we've seen over the past couple of weeks is M&Ms. We saw them several weeks ago make an announcement that they were doing away with their spokescandies, leaning into some of the controversy that has arisen with some of the political talk show hosts making comments about the appearance of these spokescandies, and they leaned into that.
Then, very shortly after, there was a big uproar over that decision. They did come back and say, hold on, they'll still be around, but we have Maya Rudolph who is going to step in. And she, over the past week or so, has done a lot in terms of social of pretending to change the name of M&Ms to her name, to play off of her name.
We've seen even the spokescandies appear otherwhere on social media. Some of them taking over eBay's conversation. We've seen some on Spotify using the Snickers handle, which is part of M&Ms' parent company, Mars. They've really leaned into that social chatter and tried to do a lot also with other brands, to lean into other platforms. I think in the past week, probably most people have heard about M&Ms and the stuff that they're pulling.
Dylan Lewis: Looking back on the advertisers from last year's Super Bowl, I think in some ways, you can look at Super Bowl ads, and they're an expression of the Zeitgeist. You look back to last year, automakers and electric vehicles were a major theme. Crypto was a major theme. I think e-commerce was a major theme. What are you expecting to see as themes and really present categories in the advertisers this year?
Jeanine Poggi: Well, it's an interesting year. Very early in the fall, Anheuser-Busch InBev announced that they were giving up their category exclusivity, which means that other beer and alcohol brands can now buy into the game. Aside from the usual like Bud Light and Michelob Ultra ads that we're all used to seeing from Anheuser-Busch, we'll also see a whole lot of other companies, like Remy Martin, Crown Royal, Heineken, and Molson Coors, show up for the first time in decades for some of them. That will be an interesting category to watch and to see how those ads appear.
Like you mentioned, crypto is a fun one and an interesting category last year. That won't be the case this year, thanks to the crypto downturn and everything happening around FTX and then that marketplace. It was interesting, though, because we spoke with Fox, who's airing the game this week, and they were talking about how they went out to the marketplace and their ad sales strategy and how far along they were in selling Super Bowl commercials in September.
Then, after everything happened, apparently there was at least a brand or two that were crypto brands that did buy ads in the game. But then after everything happened with FTX, decided to sell those ads back. That's just interesting and just speaks to the climate and the environment and what can happen in the months leading up to the Super Bowl to change the trajectory of the brands that are advertising in the game.
I think this year, you'll see a lot of the tried and true. The traditional auto brands will be there. You'll see the e-Trades of the world and the Squarespaces; they've been in multiple years. I don't think there'll be any ton of surprise.
One that's interesting and new is a Web3 gaming company called Limit Break. If we're talking about that whole metaverse, Web3, NFT arena, that is one that will be interesting to watch and a newcomer in the game this year.
Dylan Lewis: You mentioned Fox before, and I think I saw something on Twitter just this morning that they are going to be grossing somewhere north of $600 million in ad revenue related to the game. But they were cutting it close to the deadline. I think I'm curious how much the general macro environment and the ad-budget environment that we see and people tending to pull back a little bit as things get a little bit less certain play into those Super Bowl budgets and just what that timeline looks like for the planning for all this.
Jeanine Poggi: Yeah. As I mentioned before, in September, they had told us they were about 95% sold out of the game. Which is a pretty good place to be in September. Historically, it is always hardest to offload those last like 10 ad units. That is not unusual, and that is something, no matter the climate, that tends to be the hardest to sell.
That being said, they did end up, because of the economy, because of the crypto situation, like I mentioned before, they backtracked a little bit, so they were up 95%. Some folks ended up settling some of the ads back. They went down a little bit and had to make those up as they got closer to this point.
The economy for sure, they told us, played a factor in negotiations, with a lot of brands taking a wait-and-see approach and saying come back to us, we're waiting for this to happen or this to happen, which definitely slowed down probably some of the deals they would've closed sooner.
But at the end of the day, as is the case every year, the Super Bowl ads did sell out. Commercial time is sold out, and it's pretty much on par in terms of timing with where NBC, which are the game last year, was at this point last year.
Dylan Lewis: Speaking of last year, Coinbase was one of the crypto advertisers that was very present last year; they turned their Super Bowl spot into a performance marketing piece. They had a floating QR code sending people to their site. They're not the only advertiser that has done this. We've seen PepsiCo and Rocket Mortgage take similar approaches. Is this approach effective for advertisers? Is there anyone that's harnessed that really well?
Jeanine Poggi: Yeah, it's really interesting. They, when that happened last year, it certainly crashed their site in the moment that it happened. It ended up winning several different ad awards for that effort, which really was just like a bouncing QR code on the screen. That's all it was, which is fascinating how much attention it got.
I think this year, we're seeing a lot of brands trying to replicate that momentum with QR codes of their own. We see Michelob Ultra and Netflix, they're working together on a golf-themed spot. They will have a QR code appear in their ad. We're seeing avocados from Mexico having a QR code that appears in their ad. There are definitely several others that are also utilizing it. Limit Break, the Web3 company I mentioned, they are using a QR code in the spot to then give away 10,000 NFTs. We'll definitely see that QR codes will have a bigger presence this year.
I think a lot of it, too, is a data play and being able to gather data on consumers, even the most basic information, name, email address, things like that. It's an entry point in for consumers potentially who are not using the brand. For the Michelob Ultra-Netflix spot, the QR code leads you to the first episode and early viewing of Full Swing, which is a new golf show on Netflix. So it gives people the opportunity to watch that early.
There are some interesting use cases. There are interesting ways to bring people into these brands in different ways. I think people find it fun to use and what's this? Let's scan it and see, and there you are, engaging with the brand, which is ultimately what these brands want at the end of the day when you are a Super Bowl commercial, you want engagement with consumers. Ultimately, you want people to buy your products, but engagement is what you're looking for.
Dylan Lewis: We see people go after that engagement in a couple different ways. We have the folks that are big game sponsors, and then there's this separate venue of people who cannot afford those big spots but are trying to harness or hitch their wagon to the momentum of the Super Bowl and maybe some of the social chatter that's happening. Do you see anyone doing anything interesting outside of TV efforts that maybe they're not a big game sponsor, but they're trying to play into the Super Bowl advertising?
Jeanine Poggi: Yeah, I think TikTok will play a big role in this for brands. You'll see State Farm is doing a TikTok campaign. They don't have a Super Bowl ad, but they are playing on TikTok around the Super Bowl. There are a lot of brands that tried to essentially break through the clutter of the Super Bowl, like you said, without buying a commercial, whether it's because they can't afford it or quite frankly, it just doesn't make sense for their marketing plans this year.
Social media is a great way to do that. I think you'll see many brands on game day just to be there, be on social to capitalize on the moment. You go back to Oreo and what they did when there was the blackout during the Super Bowl and the moment that they were able to say, "Dunk in the dark."
I think that that moment resonates still because now brands are always looking. What is my moment? What is going to happen that potentially could relate to my brand, that I could jump on and make it a moment for us? I think you'll see that across the board from brands who don't buy into the game looking to whether it's Twitter or TikTok.
Some local advertising, I think local, in recent years, has been interesting. Brands that don't necessarily buy national ads but will air and only a couple of marketplaces. There's a couple as an AI brand that will only run in two markets, I think -- San Francisco being one of them -- that are looking to just make a little noise and be there but maybe not spend that $7 million to air a national spot.
Dylan Lewis: I know you are busy this week, so I don't want to hold you too long, but Sunday is the big game, and it is also the big game for work for you. What exactly does the Super Bowl viewing party look like for you?
Jeanine Poggi: I man Ad Age's Twitter account, and I will be there all night. You could follow @AdAge, and I will be tweeting from our handle. It mostly, for me, involves sitting on my couch, making sure my two young children are quiet so that I could watch the ads and make sure that we are tweeting about the ads.
Internally, we'll all be on Slack. There's lots of both fun commentary, as you can imagine, from a bunch of people who work for Ad Age on the commercials and then a lot of business. We are there to cover both the news elements, things that might surprise viewers, and then just the fun of it.
This is a great moment because it is the time of year for us where everyone understands what we do and covering the commercials. Even my mom will actually understand what my job is on Super Bowl Sunday, which is always enjoyable. But it's a moment that everyone is in, speaking to the 100 million people tuning in to the game.
There's 100 million people who are interested in commercials at a time of year when that is rare. You don't see people outside of the Super Bowl really watching the commercials and going to platforms where there are oftentimes not even any commercials. So it's just a really fun night and a time where everyone is actually interested in these ads, which is exciting for us, of course.
Dylan Lewis: I think, rest assured, you are not the only one staring and watching the ads. There's at least one at every party. Often, most of the crowd is excited for the ads that are coming on screen.
Jeanine Poggi: For sure, we appreciate that.
Dylan Lewis: Well, that was our preview for a rundown of all Super Bowl spots. Follow Jeanine on Twitter. She mentioned the Ad Age handle, but you can also follow her, @JPoggi.
Jeanine, thank you so much for joining me.
Jeanine Poggi: Thanks for having me. Enjoy the game.
Chris Hill: As always, people on the program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
