Microsoft’s Big Deal and Coinbase’s Big Debut

Chris Hill: We’ve got the latest headlines from Wall Street. We will dig into the big business of beauty and cosmetics, and as always, we’ve got a couple of stocks on our radar. But we begin with a big deal in big tech. Microsoft announced it’s buying Nuance Communications, a voice recognition company, in a deal worth $16 billion. CEO Satya Nadella says they will use the technology in their healthcare Cloud products. This makes Nuance the second largest acquisition Microsoft has ever made, and Ron, they must love that tech because they sure didn’t buy Nuance for its amazing balance sheet.

Gross: No. It’s even closer to $20 billion when you count all the debt, which pales in comparison to, as you said, the $26 billion for LinkedIn, but it’s still a huge deal, and I actually like this deal. Nuance specializes in voice recognition, artificial intelligence, and they’re actually the company that originally built the backend for Siri back in the day. They are especially strong in healthcare, where they help doctors speed up documentation, they help to predict a patient’s needs, they improve digital record-keeping at hospitals. This is going to fit perfectly into Microsoft’s Cloud for Healthcare Initiative, I believe. In fact, Microsoft estimated that the combination of both companies should double the total addressable market in the healthcare provider space to nearly $500 billion, so they’ll be aggressively attacking that space, I’m sure. These companies have collaborated before. They’re no strangers to each other. They have integrated Nuance’s technology into Microsoft teams in the past. They’ve had a healthcare collaboration as well. I expect to see further collaboration and integration Teams, Office 365. Perhaps they’re even going to go after the automated assistant market to go after Apple and Amazon in that space.

It didn’t come cheap, these tech acquisitions, companies tend to pay up. Microsoft paid 13 times 2020 revenue of Nuance, which is not as high flying or some of these 30, 40, 50 times price to revenue that we talk about. But still, it’s pretty pricey. But overall, I continue to be a really happy shareholder of Microsoft. I’m a big fan. I think they’re executing well, and I think this acquisition makes good sense.

Hill: By my count, they still have over $100 billion on the balance sheet that they can put to use. Safe to assume we’re going to see more acquisitions, maybe not at this level, but they got the money, Ron.

Gross: They’ve got the money. It’s a competitive world out there. They are coming up against Amazon, Apple, and the healthcare space. Even Google [Alphabet] has a research effort in healthcare. So I think we’ll continue to see acquisitions there as well in other sectors. Not only do they have an unbelievable balance sheet, but they produce gobs and gobs of cash flow each quarter. Yes, we will continue to see future acquisitions.

Hill: Another week, another hot new public company. On Wednesday, Coinbase went public through direct listing. Coinbase is the most popular crypto exchange in the United States, and now, Emily, it’s worth more than $65 billion.

Gross: [laughs] Sure.

Flippen: Totally reasonable, right, Chris? Coinbase has had an incredibly volatile start to its life as a public company. But given the market conditions we’re living in today, I can’t say that anybody was really surprised. There are lots of good things about the Coinbase platform. They have over $90 billion in crypto assets, which is 11% of the crypto market cap. They have a huge following of institutional users. In fact, nearly 65% of the assets on their platform are owned by institutions. But there is a really natural level of skepticism that comes into this business, not just based on its crazy, really immediately high valuation in the public markets, but also, just controversies around cryptocurrency in general, how viable it is from a business perspective, as well as the potential for margins to be compressed as competition heats up.

Hill: I’m glad you mentioned the institutions because one of the things I’ve heard is that this is a way, for whether it’s institutions, hedge fund managers, mutual fund managers, this is a way for them to get exposure to the crypto market without having to essentially pick and choose among the world of Bitcoin. As much as anything, part of the bulk case for something like Coinbase that it’s, I don’t want to use the word easy, but I can’t think of another one. Is this just an easier entry point for a lot of fund managers?

Flippen: It’s an interesting argument because there are a lot of Bitcoin or other cryptocurrency ETFs available. It’s not that Coinbase is the only way to play the market without owning shares of Bitcoin directly.

Gross: I’ll just add. I’m fully aware that we get cynical about some of these things, these high fliers, these high valuation companies, and we’re often wrong in our cynicism. But I’m going to double-down on it anyway, because I fail to understand how this can be valued similarly, if not more than the owner of the New York Stock Exchange, Intercontinental Exchange, especially, understanding that there’s going to be lots of competition here. Lots of folks can add on an exchange for cryptocurrencies, and they will not be the only game in town. In fact, they’re not the only game in town. But if this market continues to be a reasonable opportunity, others are coming for them, and I don’t see how that valuation makes any sense.

Flippen: Let me play devil’s advocate and try to convince you, Ron.

Gross: Okay.

Flippen: Because there’s a good argument that their 0.5% transaction fee, which is their average across, is going to be pulled down as competition heats up. Where I think Coinbase could make up some of that margin increases is by providing analytics and data services. It is, admittedly, a lot of the things that we see ICE and other exchange providers providing to the people who list on their exchanges. But I do think they can expand more into data and analytics, which can be a higher margin revenue source for them.

Gross: Well, they better expand quite a bit to grow into [laughs] that valuation, time will tell. It will be interesting to watch.

Hill: This week, the Food and Drug Administration asked States to temporarily halt using Johnson & Johnson‘s COVID-19 vaccine after six people in the U.S. developed a rare blood clotting disorder. FDA says that this move was out of an abundance of caution. Ron, it’s Friday afternoon as we’re having this conversation. This is an evolving situation as Johnson & Johnson is in this regulatory limbo. But from a business perspective, at this point, it really doesn’t seem like the company has been hurt in any way.

Gross: I would tend to agree with that. We will have to watch how it plays out: six people, one death, which obviously is tragic. But out of 6.8 million doses that have gone into arms, I think the phrase abundance of caution is appropriate here because typically, I don’t think that level of complications would rise to the level of needing to halt something. But we’re in unprecedented times here, and kudos to the FDA for being extra cautious here. It’s interesting to note that the AstraZeneca vaccine over in Europe had similar issues and came under scrutiny with clotting as well. Both J&J and AstraZeneca use gene and viral base technologies, whereas Pfizer and Moderna, which have really had not many issues at all, use a different technology called messenger RNA, mRNA. Perhaps there is something there in the way these vaccines are made. J&J, in fact, asked Pfizer and Moderna to help study blood clot risks, interestingly, they declined. AstraZeneca, not surprisingly, was like, “Yeah, I’ll participate.” [laughs] But Pfizer and Moderna didn’t see any reason to go in and duplicate the efforts of regulators. We’ll have to wait to see what happens here.

My guess is that J&J will come back on the market. I just hope that this doesn’t increase the vaccine hesitancy that we’ve seen across the world, the US, not just for health reasons, but it’s a business show for economic reasons. We’re in the mid-stages of reopening up. Getting to herd immunity is an important part of that. Getting vaccines in the arms is an important part. J&J is very important because it’s only one shot, and it doesn’t require the cold storage of some of the other vaccines. So you can do it in different places of the country. More rural areas, for example, it’s easier on college campuses, things like that. I hope this turns out to be a non-event, and J&J comes back in the market relatively soon.

Hill: Shares of Stitch Fix are down more than 10% this week, after company founder, Katrina Lake announced she will be stepping down as CEO. She will stay on with the company as Executive Chair. Emily, this is surprising when you consider she is only 38 years old, and there are a lot of people out there who bought this stock based on their belief in the CEO.

Flippen: It’s certainly a sad day for Stitch Fix because Katrina Lake, Stitch Fix was her baby. It was her mind child. She had spent decades developing this idea and this business, and she is relatively young. But it just goes to show that having a really motivated, invested founder doesn’t necessarily mean that the business itself is going to succeed. I like when those two things align, but in this case, I think Stitch Fix is fighting an uphill battle with its core service, which is subscription box clothing. While I think Katrina Lake has done an amazing job in many areas, one area that I think is right for improvement is this business’s strategy. It seems to be confused about if they’re using algorithms and AI, if they’re using stylists, or if they’re going direct-to-consumer or subscription boxes. They’ve been a bit all over the place. With Elizabeth Spaulding coming in as the new CEO, it will be really interesting to see what strategy she takes in terms of segmenting Stitch Fix’s market and really going after one strategy in particular.

Hill: Bed Bath & Beyond ended the fiscal year not with a bang, but a whimper. Fourth quarter sales fell double-digits there were charges due to store closures and shares at Bed Bath & Beyond down 15% this week. Ron, you and I are both shareholders of this company. I get why the stock is down, but the turnaround that CEO Mark Tritton is trying to pull off is not for the faith of heart and I still like what he’s doing.

Gross: Yeah. I think he’s still on track too, despite the sell-off in the shares this week. The stock had already run up pretty nicely amid the high expectations for Tritton’s turnaround, and also, some of that nonsensical read at GameStop, stuff that they got caught up in. I think investors were likely to take some money off the table, if they saw any weakness in the turnaround story, and in this case, it was the light revenue. But overall, I think the quarter was solid, comp sales across all the stores up 4%, up 6% across Bed Bath stores. Third straight quarter of comparable store sales growth. We have the tailwinds from some COVID home-related projects going on, but that was offset by a decline in traffic at the physical stores.

As you said, revenue down to 16%, that’s largely due to the divestitures of World Market and Christmas Tree Shops, which I was actually really pleased to see them get rid of, as well as some planned store closings. The turnarounds on track, adjusted gross margin was up a bit less promotional activity going on. Operating expenses were mostly lower due to the divestitures, the bottom line looks fine to me. Adjusted EBITDA up 13%, they had earnings-per-share of $0.40, which actually beat expectations. They reiterated guidance for fiscal 2021 of around $500 million in EBITDA, which translates to about 8.5 times enterprise value at the current share price, which is not pricey in my opinion, especially if Tritton continues to execute and profitability continues to increase. I happened to be in a Bed Bath earlier this week and I will tell you the remerchandising is very, very evident. The focus on private labels such as Nestwell and Haven. There’s mostly private label goods in some of the departments there and it was very evident. Let’s give Tritton some time, I think the story is still on track and despite the pullback, I think we’re OK here.

Hill: Last year, sales of hard seltzer were 160% higher than the previous year. But one market leader is not sitting still. This week, White Claw introduced surge, which is hard seltzer with a higher alcohol content, and it comes in a bigger can. Emily, if this is even remotely popular, there is no way Boston Beer Company doesn’t do the exact same thing with their truly line of hard seltzer.

Flippen: Chris, I think this is a disaster. [laughs] Hear me out. White Claw created an entire industry off of convincing alcohol consumers that picking White Claw was the healthier choice. They were small cans, simple design, no-carbs or low carbs, only 100 calories, 5% alcohol. These were the things that you could sit with your friends out on a patio sipping. If I’m at a friend’s house, having a barbeque and someone pulls out a can of Surge, these things are double the calories, double the size, nearly double the alcohol content. You don’t think that’s going to start a conversation, [laughs] I mean, it’s a Sunday night, what are you doing with your life?

Gross: [laughs] Well, I think before we know it, they’re going to do the same thing without the carbonation, and before you know it, we’re all just drinking whiskey.

Flippen: [laughs] Here’s what I will say though. Why I think it’s really critical from an investing standpoint. We saw Constellation Brands last week come out with earnings and they spent a lot of time talking about their Corona Seltzer. They were the second-fastest moving seltzer brand over the last year. That’s a genuine threat to White Claw. What I think White Claw was thinking here is, OK, we’ll continue with our dominating seltzer brands. But this new product isn’t going to cannibalize any of the people who are already buying White Claw, it’s going to get to Four Loko’s crowd. The college students who maybe see a giant can on their way out of Total Wine and pick it up.

Hill: I don’t know. [laughs] Imitation is the sincerest form of flattery. It’s not going to surprise me if Boston Beer does this with Truly, we’ll stick with beverages. First quarter profits and revenue came in higher than expected for Pepsi (NASDAQ: PEP). Ron, as Pepsi waits for restaurants and sporting venues to open at full capacity, the Frito-Lay snack division continues to get it done.

Gross: As we were all basically sitting home in quarantine snacking, which is the truth and it’s the offset to the fact that restaurants, theaters, stadium were closed and the beverage business was really hurt. Pepsi has stayed a fluid as a result of their diversified business. Interestingly, just from a stock perspective, shares were up about 6% over the last year and they are actually down slightly from pre COVID levels. Investors are not too excited about owning this company right here, right now, some metrics, revenues up 6.8%, Frito-Lay up 4%, Quaker up 2%, and the beverage business up 5%. Numbers look fine, they’re just not all that exciting. Their operating expenses, I think, were pretty well controlled in the absence of some COVID related expenses and you saw a nice increase in margins which led to a net income or earnings per share increase of 29% as a result of that leverage of margins going up. That is pretty strong in my opinion. They reiterated their 2021 guidance, which has mid-single-digit increase in organic revenue, high-single-digit increase in earnings per share. As you said, management predicted an acceleration in growth in the second quarter as a result of the gradual reopening of restaurants and theaters following the roll-out of vaccines.

They said, “We’ve been losing market share in the beverage space in the past, it’s getting better. We’re gaining share right now.” That was interesting to see because Coca-Cola has been eating their lunch, so to speak, for a bit recently. Interestingly, the company also signaled uncertainty over demand for multipack snacks as consumers return to offices and colleges. We all get out of our living rooms and off of our couches. Shares are not too expensive, 23 times, Coke is 25 times in the same ballpark here. They remain very strong companies, they’re just not high-growth, high fliers.

Hill: Well, and we’ve talked about different businesses pulling forward growth. I saw one industry report that North American snack sales in 2020 rose 11%. Typical growth is more in the range of 2%-4%. I think it’s telling that Pepsi stock really isn’t doing all that well when you consider that this division is just going crazy with growth over the pandemic and it’s not likely to continue in 2021.

Gross: Yeah. We think of stocks like Disney or the cruisers or the airlines as reopening players here. There’s nothing wrong with thinking about Pepsi in the same way, once restaurants are back online and theaters and stadiums, that business is going to come back pretty significantly. If you’re only paying 23 times now, you might have some nice upside here.

Hill: According to some estimates, the cosmetics industry is valued at more than $500 billion. One of the more recent entries into that market is e.l.f Beauty and no, e.l.f Beauty does not sell products for Santa’s Little Helpers. E.l.f stands for eyes, lips, face. Mandy Fields is the Chief Financial Officer at e.l.f Beauty. Recently, my colleague Bill Mann caught up with her to get a sense of where e.l.f is going in the future and to get an overview of the cosmetics industry.

Mandy Fields: E.l.f plays in both the color cosmetics and skincare space. Both are large industries both domestically and globally and we are well-positioned to play in both of those spaces. I would start by saying e.l.f stands for eyes, lips, face. That’s usually where I start these conversations, what does e.l.f even stand for, so eyes, lips, face. In the color cosmetics space that we play in, we are what we call on a mass side of color cosmetics. There’s a mass side and there’s the prestige side, you think prestige like you mentioned L’Oreal, the body of L’Oreal brands largely live in the prestige space, but they do have the L’Oreal brand that lives in the mass space. When you think about some of e.l.f’s key competitors, L’Oreal, Revlon, CoverGirl, Maybelline, those really round out the top five is what e.l.f is being in that fourth or fifth slot there. On the mass side, you think about color cosmetics, we are mainly distributed in places like Walmart, Target, Ulta, are our top customers. We’re also in the drug channel and internationally. I think that one of the key differences with e.l.f is that we actually were a digitally native brand. We were founded online back in 2004 and we have that relationship with our consumers, so direct-to-consumer and that certainly has played in our favor during COVID, especially as a lot of consumers have shifted that purchase behavior from in-store to online. Color cosmetics, a great category historically, has been a growth category. Prior to COVID, it was on a -2%, -3% trend overall. But certainly, the expectations are when things open back up, color’s going to get back to grow.

Bill Mann: I want to talk a lot about that over the time that we have together. I do want to make sure when we use industry nomenclature, so maybe give me a definition of what you mean when you say color cosmetics. What is that exactly?

Fields: Sure. Color cosmetics, just think about lipstick. Like I said, eyes, lips, face. Anything you put on your eyes, lips, face. Eyeshadow, mascara, blush, foundations, concealers, primers. All of those things fall under color cosmetics. Then like I said, we also have our skincare side, which has been a growth driver for us as well. Skincare cleansers, moisturizers, things of that nature.

Mann: Just to define, skincare is probably something that you’re not looking at, like changing the shading of your face, that is actual care. Fantastic. You’ve given us a little bit of where e.l.f fits into the industry, but you mentioned both prestige and mass.

Fields: Mass, yes.

Mann: What is the difference between the two? Or is there a bright line between them in terms of how an e.l.f would interact with its end customers versus a prestige brand?

Fields: I think that the difference is, and actually, now there’s a new term called Masstige out there that if you know is a blend of both mass and prestige.

Mann: Of course, there is. [laughs]

Fields: [laughs] I guess the way to think about it is, like I said, mass players traditionally are those Walmart, Target, drug channels of the world. Then you have Ultas of the world, really start to play in that what we call masstige space and then into prestige. I think the great thing about e.l.f, is that e.l.f Beauty has really been on an evolution over the last year. From moving from a single brand in the mass space to now we have three brands under our portfolio. We have e.l.f, which is more on the value side of things in the mass space, we have well people, which is more so in the middle from a price point standpoint, but also distributed in Target and has presence in Ulta as well. Then we have our key sole care brands that we just launched in December, that really fits on the more in that prestige space. You talked about where it’s distributed, exclusive with Ulta, and with price points in that $20-$40 range. There’s more sales on the prestige side of things.

Mann: It had to be, particularly, going back a year ago from now, and you started in 2019.

Fields: 2019.

Mann: — late in the year.

Fields: No, it was spring of 2019.

Mann: Okay. You are about a year in and suddenly everything’s shutting down, for a brand that’s about beauty, that’s about self-care. You had to be really careful that you were doing something that you weren’t missing the boat on what people were feeling at that moment.

Fields: That’s right.

Mann: In March of 2020, not that many people were worried about feeling beautiful.

Fields: Yes. No, there’s no doubt about it. I mean, March of 2020, we saw significant declines in the business and we went into COVID contingency mode. What are the plans that you’re putting in place to weather the storm? The first thing I did, having been [laughs] in a highly levered environment prior to e.l.f, I went out and made sure our credit agreement was amended so that our confidence would remain intact during this time. But outside of that, our first priority was really making sure our consumers and our employees were safe. We did not fall tone-deaf to that at all. We did not continue with our marketing campaign that we had been on prior to that, we flipped and you mentioned eyes, lips, face, safety was one of the things that we did to really educate people. Wash your hands, make sure you use a sanitizer, we started putting out hand sanitizer with every purchase on elfcosmetics.com. We sent care packages to our employees making sure they had masks and gloves and bleach wipes and whatever it is that they needed in those early days.

We wanted to make sure that everybody felt safe, cared for. We made donations during that time to food banks because we knew people were in need during that time. We really are a company that cares about our consumers, our employees, and making sure everybody feels connected. You talked about interviewing the CPO from Zoom. I mean, we have leveraged Zoom so much. [laughs] There’s so much communication now in our town halls, we’re doing weekly town halls to make sure people feel connected during this time and so big credit to Zoom for keeping us all together.

Mann: Could you just imagine if this had happened even five years before?

Fields: Oh my gosh. I know. I told my kids if this would have happened when I was a kid, I don’t know what we would have done. We would have been out of school for years.

Mann: They would have had to have sent a pigeon to tell me that [laughs] things were opening back up.

Fields: Yeah, exactly.

Mann: It really, really has been remarkable. So I’m going to ask a question, I’m going to try not to sound like an idiot in doing so. It’s totally OK for you to say, it’s really not a great question. My first as an analyst, the first company that I ever analyzed in your industry. It’s a company called Amorepacific and they’re based in Korea and this was 10 years ago. They had made the point very strongly that most cosmetics companies did not have a palette that was reflective of their market. Their market was primarily Korea, Japan, China. How much has the industry changed now? How much has the industry changed so that the palettes meet everyone where they want to be. Are you OK with the question?

Mandy Fields: You did OK with the question. Yes. When you’re getting diversity, making sure people feel represented in color cosmetics. I think that the industry has made a lot of strides in the right direction. Especially, e.l.f, we certainly have and making sure that we have concealers and foundations that represent the full shade range. Certainly, more room for us to continue to improve upon that and make additional shades, making sure people feel well represented in everything. I will say that from a diversity standpoint, it does start at the top and so starting with our Board, very diverse, over 55% women, 20% black, representation on our board, which is very rare. I think our diversity stats put us in of three publicly traded companies with that kind of profile.

Mann: Fantastic.

Fields: Our executive team is also quite diverse. You don’t normally see that in these types of publicly traded large companies, and then our employee population, over 75% women, very much at least toward millennials. I think it’s over 60% millennial and over 35% diverse. We have started to really see that at the top, and that it filters down to all of our decision-making when it comes to colors and talents, our shade range is how we show up in our marketing, making sure that from a marketing standpoint, when we put images on Instagram and out there in social media, that is fully representative of everyone out there.

Mann: We’re going to close with this. My wife is a professional who’s also been working at home for a lot of the year. Last week I went downstairs and she was wearing heels and she’d had the earnings on. It was a little shocking to me. She looked amazing, but it was a little shocking because it’s the kind of thing that we used to do all the time. We always were about dressing up a little, trying to feel attractive. 2020 and the beginning of 2021 changed that a lot for a lot of people.

Fields: Yeah.

Mann: You all shifted very well. Your numbers reflected. I feel and hope like we’re about to shift again.

Fields: Yeah.

Mann: What is the strategy or thoughts too as we all come out of our cocoon? What does 2022 and 2023 going to look like for you?

Fields: Yeah. Well, as you said, we were doing well before the pandemic, have done well during, and feel well-positioned as we come out of the pandemic, and we have continued to build share over that time, and feel good about our ability to continue to build market share. As we look forward, we’re hopeful that things are opening back up and vaccines roll-out and people get back to wanting to get out there. We’ve heard people call it the roaring ’20s. We’ll come back and [laughs] people will want to really get out there and dress up.

Mann: Seems a little aspirational so far. [laughs]

Fields: Yeah, I know. We’re consciously monitoring this situation. It will be, I think, a full recovery, totally depending on the speed of vaccination roll-out and how quickly people can get back to what they were doing prior to the pandemic.

Bill: Yeah.

Fields: That’s right. So we’re watching it and we’re hopeful.

Hill: Last fall, IBM announced it was spinning off a quarter of its business to focus on opportunities in hybrid Cloud growth. At the time, IBM used the word “NewCo” as a temporary placeholder name for the business. This week, IBM announced the permanent name of the new company is Kyndryl, K-Y-N-D-R-Y-L. The company said, and I’m quoting here, “Kyndryl is a modern adaptation of two words that are central to the new company’s identity and mission. Kyn is derived from the word kinship, referencing the belief that relationships with people are at the center of this strategy, and that long-lasting relationships must be built and nurtured. Dryl comes from tendril, bringing to mind new growth and the idea that business is always working toward advancing human progress.” Emily, where would you like to start?

Flippen: I genuinely don’t know where to begin. I imagine there’s somebody out there really patting themselves on their back for writing this up, feeling really proud. It’s hilarious, not just because Kyndryl, like kinship and tendril, they replaced the Is with Ys. So that just adds an extra level to unpack here, but it’s the fact that IBM is doing it. The more I think about this, and I’ve had a couple of hours to ponder over this name change this morning. I’ve developed a rather sophisticated take, if you don’t mind me saying. It’s IBM, International Business Machines, the world’s oldest most legacy name, now going a complete 180 too far to the other end, Kyndryl. This is a naming disaster, Chris.

Gross: Well, I would agree, and I know we tend to make fun of these new names on the show. Mondelez, we got a lot of laughter out of, as well as […] Truist, but you can do it right. Like I think Accenture is fine. Accent on the future makes perfect sense to me, and it’s not that hard to pronounce or spell. You can get this done if you really want to go that route. However, this is, I think, a big mistake.

Hill: I am glad you mentioned Truist, Ron, because one of my thoughts was the people who came up with Truist must be high-fiving each other right now. They must feel so good about themselves relative to Kyndryl. Let’s get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Emily Flippen, you’re up first. What are you looking at this week?

Flippen: I am looking at Bilibili, the ticker is B-I-L-I. It is a Chinese live streaming service that’s back on my radar after listening to some great thoughts from Aaron Bush and his team over a Master the Meta last week. Bilibili has really reinventing its business to become a diversified, not just live streaming, not just gaming, but e-commerce and social interaction platform. It’s truly taking up a lot of market share in China, and it’s one that I’m really excited to be a shareholder of.

Hill: Dan, question about Bilibili?

Dan Boyd: Sure thing, Chris. Emily, over the last three months, four months here since January, the stock has been on a little bit of a wild ride. What do you think for the next eight months, is this volatility going to come down at all?

Flippen: Bilibili is volatile not just because it’s a Chinese company, but it also had a little bit of controversy earlier this year regarding some content that they had featured on their site taken from Japan that was, to be kind, less than appropriate. I expect this business to continue to be volatile, especially, since they’re going through a business transformation, but I do think Bilibili long-term could be a $100+ billion business.

Hill: Ron Gross, what’s on your radar this way?

Gross: Dan, because I know you are a huge fan of specialty chemical companies [laughs] and you’re a huge fan of making fun of me. I’m going to go with Ecolab (NYSE: ECL), ECL, a leading provider of cleaning, sanitation, and other specialty chemical products and services. $12 billion in sales, global leader in water hygiene, infection prevention solutions, low-risk profile, long track record of success, gaining share from rivals, margins have been improving. They are increasing innovation through growth investments, moving into digital technologies, and sales capabilities. They’ve raised their dividend annually for the past 29 years and they’ve paid dividends for 84 consecutive years. Yields are just under 1%, so not huge, but, hey, it’ll be cash every day. I think you’ll have a nice total return opportunity about the yield and price appreciation going forward.

Hill: Dan, question about Ecolab?

Boyd: I was just thinking, what does the value of a stock make a value investor or does a value investor search for value stocks? This is a classic wheelhouse, Ron, stock. It’s chemicals. It’s a dividend aristocrat. It’s been around for almost 100 years. Ron, is it you or is it the stocks [laughs] when you are pitching me on these value stocks?

Gross: It’s pond fishing, I think so. I don’t necessarily understand technology as well as some and I can’t predict the future as well as some, so I gravitate to these more old economy companies that for me are easier to predict and to value.

Hill: What do you want to add to your watch list, Dan?

Dan Boyd: Well, I like giving Ron a little bit of reeving every now and then about his stocks, but I actually like Ecolab a whole lot. I think there is a lot of future in water and how important that’s going to be through a lot of people. I’m going [laughs] to go with Ecolab.

Flippen: What do I need to do to get you on my side, Dan?

Boyd: I don’t know. Water or Chinese video games.

Flippen: It’s clear to me.

Boyd: So is water.

Hill: We’re out of time. Emily Flippen, Ron Gross, thanks for being here.

Gross: Thanks, Chris.

Flippen: Thanks, Chris.

Hill: That’s going to do it for this week’s show. Our producer is Mac Greer. The show is mixed by Dan Boyd. I’m Chris Hill. We’ll see you next week.

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