In this podcast, Motley Fool senior analyst Jason Moser discusses:
- Roblox and its monthly metrics.
- Why the company still has a "glass-half-full valuation."
- Thoughts for a relatively new investor with decades of investing ahead.
Plus, Motley Fool senior analyst Asit Sharma talks with Bill Burns, CEO of Zebra Technologies, about the business of barcodes and robots in fulfillment centers.
Got a question about stocks? Want to tell us about a stock you bought recently? Email [email protected].
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 April 17, 2023.
Chris Hill: We've got an investing advice for our younger selves and a look inside the sexy world of barcodes. Motley Fool Money starts now. I'm Chris Hill joining me today, Motley Fool senior analyst Jason Moser. Happy Monday.
Jason Moser: Hey, happy Monday.
Chris Hill: Happy Marathon Monday. Shout out to the marathon runners in Boston and the people cheering them on.
Jason Moser: Yes, sir.
Chris Hill: I'm in the latter group. I was streaming a little ESPN watching it down the stretch pretty close finish on the men's side. We're going to dip into the Fool mailbag. But I want to start with Roblox because for the last time ever, Roblox shared monthly metrics. On the surface, they look good, daily active users, hours engaged, estimated revenue all up double digits year over year for the month of March for Roblox and yet shares down 12%. What is going on here? This is something that Roblox announced in January that, hey, we're going to stop reporting monthly metrics, March will be the last month. I'm not sure what the surprise is here.
Jason Moser: Well, I don't think the surprise has anything to do with not announcing the metrics. I think that's something I mean, we've seen many companies do that. I think we've seen what Zillow a time ago did that, Netflix even did it. I don't make that in and of itself really dictates how a company is going to perform. Honestly, I don't mind saying that because if you think about publishing these monthly metrics, I mean, it can be enlightening for us as investors, but I mean, at the end of the day, we're not looking at these businesses through a monthly lens. We want to see them create value over longer periods of time. Now getting this data can help paint a picture, but it is very short-term focused in nature. I don't think that's really the concern. I think the concern really is two things. No. 1, Roblox, one of the biggest risks for a company like this today at its stage is going to be valuation because it's still unprofitable business. It's still getting its sea legs, so to speak.
It's working toward meaningful, sustainable profitability, which is going to make valuation a bit more of a risk with a business like this. Then secondly, I think the one metric that probably has most investors' attention from this release, it's the future. It's looking at the average bookings per daily active user, and we saw that come in at a range of minus 1% to plus 3%. Historically, that number has just been much higher. But also, I think it's to be expected. I mean, this is a company that really benefited, I think, over the last few years, from this stay-at-home economy, from this digital economy. You even see it in their 10-K that they filed at the end of February. They noted in the 10-K, they've experienced rapid growth in prior periods due in part to the COVID-19 pandemic. These activity levels have not been sustained, growth rates have moderated, for example, they call out bookings increased 171% from the year ended December 31, 2019 to the year ended December 31, 2020.
Chris Hill: You're saying that's not sustainable, they can't just keep doing that year over year?
Jason Moser: One hundred and seventy-one percent is awfully nice, and if it could sustain that, I guarantee you the share price would be in a different place today. But I think it just goes to show you that this is a company that really pulled a lot of growth forward like many businesses have. What we're seeing here today is that future is looking a little bit more tepid. That's understandable. Certainly, it would make sense as to why investors might be taking a breather on the stock today. It's one-two punch. Looking at the future, growth isn't going to be nearly as robust as it has been in the past, at least in the near term. Then you add that to the valuation risks that comes with a business like this and you get these types of knee-jerk reactions.
Chris Hill: Yet Roblox is still a $25 billion company, which makes me wonder if they're in some way stuck. I hear everything you're saying about the unprofitability and all of that. If this company were even smaller, if it was a $7 billion company, there would be probably a bunch of companies looking at it as a potential acquisition target. But it's $25 billion, and that limits the universe of businesses that can do that. Somewhere else in the multiverse, Microsoft is a company with deep pockets looking at this, but they're still dealing with trying to complete their acquisition of Activision Blizzard, so that's not going to fly. Do you think that's part of what has the stock where it is? It's one more reason for some investors to just say, I don't see what the catalyst is here because for smaller businesses, a potential catalyst is an acquisition, and I just don't see that in the cards right now for Roblox.
Jason Moser: Well, yeah, I do agree. I mean, let's remember it used to be a much larger company, even just a couple of years ago. Even today, even at $24 [billion], $25 billion market cap, it's still a very large business with a very glass-half-full valuation even today. But I mean, this is one of those quintessential metaverse ideas, I mean, this is gaming. It's immersive, it's a whole 'nother world, so to speak. In these digital worlds that they help build on behalf of all of the users that utilize a network of more than 8 million active developers. They made money a number of different ways, but ultimately it's by working with these creators to help them monetize experiences. You've got a subscription service there in Roblox Premium, you've got megabrands that are actually building unique marketing experiences on the platform. They have their own virtual economy that they serve with their own currency called Robux. I think that yes, on the one hand, I'm sure there are a lot of larger companies out there that would love to have this capability within their own universe. I don't think they would like to do it at the valuation. It's a lot to bite off.
But by the same token, I don't think that Roblox is necessarily a business that wants to go that route, either. I mean, they do a very good job of reinvesting back in the business and building out this capability. Let's remember that while that one bad piece of news right in the bookings. Yeah, that's a little bit of a downer, but I mean, when you look, you said at the open there, so many of these metrics look so good. I mean, daily active users up 26%, hours engaged up 26%. You exclude currency impacts revenue up in a range of 16%-22%, bookings up 25%-29%. I mean, it's not like this isn't a business that's performing. It just is a business that is still dealing with the hangover over the past couple of years.
Given where it is today, it's still going to need to invest a lot into the business to continue building out capabilities and offerings. I mean, if you look at the cost of goods for a business like this, they have this exchange. There's this creator exchange that ultimately feeds in to this metaverse, so to speak. This universe that, that is Roblox, that makes up about 28% of total revenue. That's going to be something they'll have to continue to pay because they really depend on the creators to build this business out. But then when you look at things like SG&A, research and development, where those today are a very high percentage of overall revenue. The thesis, at least in part, is that over time, they'll be able to start pulling back on those levers and really start to demonstrate a little bit more leverage in the model. Because it does feel like they had the creators and they have the users. We know how big of an opportunity gaming really is. If the tailwinds here, not only really in the metaverse, but just gaming in general. If those tailwinds continue then it feels like Roblox is going to be a business that benefits from that. But again, a very early stage, valuation is going to be a risk to this business until they can get to sustainable and meaningful profitability. It may be a little while.
Chris Hill: Our email address is [email protected]. Got an email from Sam in Amsterdam who writes, "I'm 29 years old and about to celebrate the two-year anniversary of the start of my investing journey, although it's been hard to celebrate investing over the past year, it has been incredibly helpful to have The Motley Fool on my side. As someone with decades ahead of him to invest, it'd be great to get your perspective on what investments could be right for me. As the market has currently turned away from growth at all costs and turned to companies with profits efficiency and positive free cash flow, I'm wondering what to do in this environment. If you could go back to being a 29-year-old investor, how would you balance investing in more Rule Breaker-type companies that may not be profitable yet or are losing money and investing in more Stock Advisor businesses that are a bit larger and proven and have profits." Sam, thank you for listening. Thank you for the question. Great question.
I love the focus on the time frame. Here's someone who realizes there are decades ahead to invest and the focus on balance, which I think if I were to go back to advise my 29-year-old self, that would be one of the messages is look for some amount of balance. The balance can shift over time and maybe as you get older, you move to more stable dividend payers, that sort of thing. But going all in on one style of investing, I don't know. I think it's because we've been doing this podcast so long, Jason. I think personally I've heard from too many people who just burned out. They were in their 20s. They went all in on one type of investing, they got burned, and then they just walked away.
Jason Moser: Yeah, I fully agree. We do talk a lot about investing when you start out younger. That gives you so much time to take advantage so typically we say you can take on more risk as a younger investor because you have more time to make it up. That's true to an extent. I agree with it to an extent. But that also doesn't mean that you should just max out your risk and just invest in those high-growth ideas that may or may not pan out. I think the word balance, so it's just a really great word when it comes to investing, and I think at that age, whether you're 29 or 59, I think it's always good to look at your portfolio and try to look for balance between growth and stability. I think ultimately is very important to have a little bit of both, even when you're younger. I think building up some of that income and stability exposure in your portfolio at a young age can really pay off down the line. Imagine you get to 50 or 60 years old. Now you're bringing in $10,000 or even more in dividends each year. Depending on what what account you have this setup and that could be 10,000 or more dollars in dividends that you don't have to worry about taxes. It can be extremely powerful that can give you money to reinvest, or it can just provide you a nice little stable income stream there as look toward retirement.
One thing I always like to look at, and I go back to it all the time because it's such a valuable resource here we have a service here called Rule Your Retirement, run by our own Robert Brokamp. He has model portfolios in the service which really I think help break down how you might consider looking at your your balance depending on what stage of life you're in and it breaks down essentially into three different stages. You're more than 10 years out of retirement, less than 10 years out of retirement, and then fully in retirement. If you have more than 10 years until you're even considering retirement, the portfolio breaks down where you would be looking for -- and this is model, this is not set in stone, but just something to work with here you might look at having 30% of your portfolio at allocated to large caps, 17 to mid caps, and 17 to small caps with the remainder of mix in international stocks, real estate, and bonds. Now, if you're within 10 years to your retirement, maybe you're looking at 30% large caps, 13% mid-caps, 12% small caps, you're taking a little bit more of that risk off the table. Then in retirement, maybe you're looking at 30% large caps, 10% mid caps, 10% small caps. Again, pulling back on some of that risk and depending a little bit more on stability. That can give you some idea as where to start. But, but again, I do love the idea that even at 29, I would try to counter every growth stock you buy with some type of income stock, some type of dividend stock. If you buy a growth stock, try next time to buy something like an income stock. If you can alternate, that could be a way to achieve that balance through time. It certainly makes going through stretches like this a lot easier when you have some of that stability in your portfolio, and you know that even though stocks are going sideways, that you're still bringing in some steady income.
Then one final thing I'll add is just, as you know, Chris, my daughters I got them into investing years ago, I guess really it's a decade or more now that they've been invested and one rule that I forced them to adhere to as I help them build their portfolios, is that once they buy a stock, that's it. They can't buy that stock anymore. The next stock they buy has to be a different stock. Once they buy Starbucks, they can't buy Starbucks again, even if it's a screaming value, they have to buy something else. That really is meant to help them get that portfolio up to 30 different holdings before they start adding to existing positions. Because I think once you get to that 25-30 different holdings, that really gives you, I think, a lot of diversification as long as you're working on that balance along the way. They don't own just growth or just income. They have a nice mix of it all. I think that's one way to look at it too, is in order to get to that 25 or 30 different holdings in your portfolio, you can't be adding to existing positions along the way really until you get to that 25-30 holdings in your portfolios. Maybe consider doing that. But again, I think a great question, a great way to look at it, that I know that if I were to go back to when I was 29 thing, I would change and I'm not regretting this, but I think one thing I would change, I would focus a little bit more on building out that dividend presence in my portfolio earlier on than I did because it can be extremely powerful. If you think about it, too, every quarter you rake in those dividends, that effectively brings down the cost basis of the stock that you purchased. The longer you own them, the cheaper that stock gets. As long as you maintain a nice diversified approach to those dividend holders, don't just invest all on banks, because that's a sector that we've seen very clearly, can go through some hard times. But if you had that dividend exposure nicely diversified, it can just be a steady, reliable stream that can really pay off when you get in your older years.
Chris Hill: Jason Moser, thanks for being here.
Jason Moser: Thank you.
Chris Hill: Zebra Technologies is a company that sells logistics hardware and software. I know that sounds a bit dull, but you know what's not boring? The fact that over the past five years, shares of Zebra Technologies have doubled the S&P 500's return. Asit Sharma caught up with CEO Bill Burns to talk about robots in fulfillment centers, as well as potential growth areas for the company.
Asit Sharma: I wanted to begin by discussing what the company does today. Many of our Motley Fool members may be familiar with Zebra's core technologies like barcode scanning and RFID smart labeling. But in recent years, Zebra's expanded into a lot of other business lines, from rugged tablets to smart scanners for retail environments, and even autonomous mobile robots. Now, I've heard you mention in interviews and earnings conference calls that this whole thing comes together in something Zebra calls Enterprise Asset Intelligence vision. Can you explain this vision for us?
Bill Burns: We think of Zebra as really empowering organizations in -- to really thrive in an on-demand economy. Enterprise Asset Intelligence we define as every frontline worker and asset within a business, really at the edge of productivity within enterprise, to be visible, connected, and optimally utilized ultimately so businesses can be as effective and efficient as possible. Today, 86% of the Fortune 500 companies are Zebra's customers. Today, our market span across retail and e-commerce, transportation, logistics, manufacturing, healthcare. We talk about seeing Zebra in everyday life, scanners at the front of supermarket checkouts, mobile computers, when e-commerce orders are being picked or delivered to customers' homes, printers inside healthcare improving patient outcomes. Most recently, we've invested in new areas as you mentioned. Warehouse automation through robotics and software for retail associates to leverage them with technology inside the retail store and machine vision are three new investments areas we've made across Zebra. But we think of our business as really making supply chains more efficient and effective. We think of it as improving customer engagement and outcomes within healthcare, and we think of improving the technology usage of frontline workers each and every day within their work environments.
Asit Sharma: Would it be fair to say that some of the strengths the company built, let's say, way back when in the '70s and '80s, the idea of tracking assets. Some of those skill sets and strategies have been parlayed into thinking about how people interact throughout an organization, how they interact with customers and vendors, how assets interact. Is there something of the old DNA still present in this modern version of Zebra that we see?
Bill Burns: Yeah. When we think of our core technologies, it's really our mobile devices that enhance a frontline worker. We think of scanners, as I said, in the inside. Picking e-commerce orders or in front-of-store retail. We think of printers used in printing labels for e-commerce boxes and parcels to hospital wristbands. That's our core technology. It still continues to grow today. We think expansion markets that you mentioned, things that are closely adjacent to what we do in those areas. Rugged tablets, we think of smart supplies, we think of RFID technology. All is adjacent to what we do in our core, and those areas grow a bit faster in our home markets. Then three new expansion areas we've invested in, as I mentioned earlier, think of robots working with workers inside an e-commerce warehouse to more effectively pick orders, think of machine vision used to do inspection on an assembly line, and think of software on those mobile devices used by retail associates today in their environments so that a manager in a retail store can collaborate with their workers so they can send tasks to retail workers. We think of the portfolio as really the breadth and depth of the entire portfolio, leveraging our core strengths from the past and things like track and trace as you said or improving patient outcomes. But leveraging that into new products, software, and services that ultimately expand the use cases of our solutions within our customers' environments.
Asit Sharma: Well, briefly, we've talked about Fetch, which was the third company that I had mentioned to you before we started taping those interested in. Maybe just describe and then we can move on. What exactly it does? These are autonomous mobile robots in, I imagine, factory settings.
Bill Burns: Yeah. Actually, two different types of settings is the primary use case. Think of a factory setting or manufacturing setting for things like goods transport. Fulfillment of goods back to an assembly line. Think of lug dots on the station within automotive manufacturing ultimately that was putting tires on the car. It is to take goods to the actual assembly lines. A goods transport is one application. The other application is e-commerce picking. Typically within a warehouse and e-commerce, a worker in the past that walked 10 miles a day, literally pushing your cart, picking orders across the entire warehouse. Today, what you do is you position warehouse workers in the individual aisles. They have a mobile device that they have been using in the past, today as well, typically a wearable or ring scanner, and the actual robot comes to the aisle which the worker's in, taking steps out of the picking process, and then the worker actually picks the item, the robot stops next to where the pick needs to happen. The worker picks the items, scans the item, and ultimately puts it in a bin on the robot. Ultimately it moves to the next worker a couple of aisles over who picks the next item for that order. Eventually, it takes the order back to the packing area to be actually packed out and shipped to the end customers. Taking steps out of the process and ultimately being more efficient, allowing workers to focus on more specific tasks. We think of directing robots and humans both leveraging those mobile devices that the humans are using today. Workers inside the environment and robots together makes the pick most efficient within that environment. Think of goods transport and think of e-commerce picking is our two primary use cases there.
Asit Sharma: Everything that we've talked about so far keeps skirting around the edge of one topic, which is artificial intelligence, whether in robotic setting or working in a retail environment. It become such a hot topic lately, where interest in AI has really exploded this year with the emergence of ChatGPT. But I see Zebra's use of machine learning and artificial intelligence is more grounded and practical applications like the machine vision you were mentioning earlier. Can you discuss some of these technologies in how they play into your major product lines? Or if I'm mistaken and there are some exciting generative AI product that you guys are also working on, please tell us about that as well.
Bill Burns: We think of leveraging AI across the portfolio, and as you said, machine learning is a great example of that. Leveraging vision systems, and then training and learning around that, and then using AI algorithms ultimately to make decision-making. As you said, we use it across the entire portfolio. We use it inside things like Optical Character Recognition within our machine vision portfolio. We use it to learn and train a model inside inspection within manufacturing. We use it to train autonomous mobile robots within an environment and be able to map out that environment, ultimately learn the environment, and be able to be autonomous within that environment. There's multiple into it AI software we talked about leveraging it inside planning within retail. There's many different use cases across our business that we use AI and machine learning and ultimately AI techniques to be able to allow our customers to make better decisions. We talk in our business really about the idea of this visibility and automating and digitizing our customers' environments. If you can sense what's happening at the productivity by giving everything a digital voice and then ultimately analyzing that data in real time and then being able to take action associated with that, then you can truly have an outcome.
Our customers tell us it's not good enough to tell me the retail shelf is empty, you need to be able to tell me that they send a worker to that shelf, tell the worker either the goods are at the top of the shelf, they just didn't bring them down where the consumer can purchase them, or they have to go to the back of the store and bring those out and fill the shelf, or an order needs to be placed back on the distribution center to replenish the products back into the store before they could put on the shelf. Think of it as sense, analyze, and act, and the idea that machine learning and AI is a way to actually ultimately analyze the data we're sensing in real time by digitizing the environment, and then AI is a technique to do these analytics ultimately and then drive to the best outcome within customers' business so they're more effective and more efficient in what they do in each and every day.
Chris Hill: As always, people on the program 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. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
