The Success of Disney+ Kicks Off This Look at Stock Market News

In this episode of Motley Fool Money, host Chriss Hill is joined by Motley Fool analysts Jason Moser and Emily Flippen. News on their radar includes Disney‘shitting an all-time high as Disney+ reports 95 million subscribers. Dating app Bumble surges 70% in its Wall Street debut and Twitter and Zillow surge on earnings. Find out more about Electronic Arts buying mobile video game developer Glu Mobile and why Under Armour reported a surprise profit. Guests weigh in on the future of pharmacies, and share two stocks on their radar: Brooks Automation and Unity Software.

Plus, Motley Fool co-founder David Gardner shares his thoughts on Amazon‘s next CEO, Jeff Bezos’ second act, and how today’s stock market compares to the one 20 years ago.

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 12, 2021.

Chris Hill: We’ve got the latest on housing, retail, entertainment, and more. Rule Breaking investor David Gardner is our guest. As always, we’ve got a couple of stocks on our radar. But we begin with the Magic Kingdom. Shares of Disney hit an all-time high on Friday after the company’s first quarter report was highlighted by the news that the Disney+ streaming service now has 95 million subscribers. Jason, when they launched Disney+, the company said that they were projecting they’d hit 90 million subscribers by the end of 2024. It’s nice to see them get there a little early.

Jason Moser: I was going to say, let me check my watch here. I think it’s 2021, right? Much like the content that they produce so well, I think Disney is doing a really, really good job of telling the story here because it is a tale of two Disney’s right now, it’s subscribers versus the actual business. So you mentioned the subscribers, but look at the actual business. Revenue was still down 22%, adjusted earnings is still down 79%, and yet the stock is up 34% over the last 12 months. So I think a lot of that really boils down to that number that you just quoted in regard to subscribers. That makes a lot of sense.

I think that, given the pandemic, given everything that we’ve seen in regard to entertainment in general, clearly, we’re not fully back open. Disney World traffic is coming around, they noted, but they did quantify the park’s segment of the business has been hit to the tune of about $2.6 billion in operating income for the quarter. It doesn’t look like we’re going to see any real relief in the near term. They’re hoping to see Disneyland Paris open up in the back half of the year, but they anticipate those parts will be closed for the second quarter, hoping to see Hong Kong Disneyland reopen later during the quarter, as well. But again, it just boils down to the story that they’re telling in regard to this move to over-the-top the subscriber growth. I think that is really what’s keeping the stock where it is today. Because if that story, if that narrative, didn’t exist right now, I think we’re looking at a substantially different story in regard to the stock price.

Hill: Do you think they hold off a while before really starting to pull the lever on the subscription costs to Disney+?

Moser: As soon as I say, they probably will hold off for a while. They’re going to start throwing through some price increases. I actually wouldn’t be surprised to see them nudge through a couple of price increases here sooner, rather than later, because they did such a good job pricing them so low at the very beginning. They priced them so low, they were virtually forgettable price points, and then they offered a pretty compelling bundle valuation there. We’ve seen them already bump up the price thing on that Hulu product, particularly the Hulu Live product, and that seems to be going through without too much friction whatsoever. I don’t think they will have nearly as hard of a time doing that, particularly with Disney+. As we see that service continue to roll out to the rest of its international markets here over the rest of 2021, yeah, it wouldn’t shock me at all to see them, maybe, flex that pricing power muscle just a little bit.

Hill: IPO of the week goes to Bumble. Shares of the dating app rose more than 60% on Thursday, making Bumble Founder and CEO Whitney Wolfe Herd a billionaire. Emily, obviously, Match Group is the dominant player in the dating app industry. So, Bumble has their work cut out for them.

Emily Flippen: They certainly do. But if anybody is up to the task, it’s Bumble. That’s because Bumble has really done a great job in differentiating its platform from the other dating sites out there. They’ve done this by being female first. It’s an interesting concept, but the Bumble platform is different from the Tenders of the world because women have to send the first message within 24 hours of being matched on the site. That’s attractive to women who feel like they want to be in control of the conversation, but also to men who, on other sites, oftentimes never get responses to their messages. So it’s this unique strategy about trying to penetrate online dating that I think Match Group needs to watch out for. But what is worth noting here is that Bumble, despite its suddenly very large size, only has around $490 million in revenue, and that’s for the fiscal year 2019. That’s growing pretty significantly, 36% year-over-year. But it’s nothing. It’s a fraction of what Match does, has over $2.4 billion in revenue over the same time period. So while Bumble certainly has its match cut out for it, it has to take on what is a deeply entrenched player. At the same time, I think it comes at it with a very unique and very exciting strategy.

Hill: Cloudflare wrapped up its fiscal year in style. Fourth quarter revenue for the cybersecurity company was up 50%, paid customers were up 35%, so naturally shares of Cloudflare fell 5% on Friday. Jason, is this a valuation thing because 2020 was an amazing year for the stock?

Moser: Yeah, I think that’s the most reasonable explanation, possibly, a little concern on the margin side in the near term. The valuation is the biggest risk for a company like this right now. They’re still working toward that path to sustain profitability. This was a terrific quarter by virtually every measure. The stock selling down, I wouldn’t really worry about that. This is a dip, perhaps, but it’s not that big of a deal. It’s selling down to levels we’ve not seen since, wait for it, Chris, a week ago. So let’s keep everything in context here. You mentioned some really good numbers there. Fourth quarter revenue, $126 million, up 50%. Paid customers, 35%, dollar-based net retention up 300 basis points to 119%. I think the guidance for this coming year exceeded expectations early on all fronts as well.

Cloudflare is a really good business, I think, partly because of its diverse offerings. It’s focused essentially on wanting to build a better Internet. So, these offerings center on application management content delivery, security, edge computing. They’ve got an interesting revenue model as well, from a freemium offering to usage based, to contract and subscription based. They’re covering I think all the bases there. They have a user base of 3.5 million total free and paying customers. The overwhelming majority of their customers right now are free. But when you look at those paying customers, large customers, those that spend over $100,000 per year, they continue to really contribute to this business. They added 92 new large customers for the quarter. That brings the total to 828. A lot of their customers are moving into their Teams product offering. I mentioned Edge, the Edge opportunity there with Cloudflare is a really big one with their Cloudflare worker platform.

In quarter four, more than 50,000 new developers wrote and deployed their first Cloudflare worker application. That rate of developers building on that workers platform has more than doubled since reporting it last quarter two. All things considered, I think this is a business that continues to do what they say they’re going to do. They’re not focused on raising prices, and maybe that’s where the margin question came in because we did see a little bit of margin compression there. But they noted that this is nice compared to what we heard Satya Nadella say a while back. Cloudflare noted, in April, traffic grew across their network more in two weeks than they had expected it to grow over the course of two years. So they really focused on being able to provide their customers with what they needed, less focused on the pricing side. That might have contributed to a little margin erosion there, but I think that’s temporary. All things considered, this is a business that continues to execute very well, very encouraged.

Hill: Shares of Zillow up more than 20% this week and hitting an all-time high on Friday after reporting the most profitable quarter in company history. On top of the results, Emily, Zillow’s guidance for 2021 was pretty strong too.

Flippen: The guidance for Zillow is largely a result of the guidance that their economists are putting out for the housing market in 2021. For a lot of investors out there, they may think there is no way the housing market in 2021 is stronger than what we saw in 2020. But early guidance says, “Yes, it will be.” It’ll continue to be an exciting time for Zillow, especially as they push more into the iBuying business. So, this is the direct purchasing that they have for people who are looking to buy or sell homes and that’s what’s really most exciting about Zillow. A lot of investors may just think about the zillow.com platform, the funny SNL skit that is just getting everybody’s attention over the past week, but Zillow offers in particular alongside their mortgage business in their home segment. This is where the exciting part of the business comes in. When we looked over this previous quarter, we saw first ever positive returns on each home sold in the quarter to the tune of around $22,000 per home. So this is a step in the right direction for Zillow.

Hill: They also made an acquisition, a website called ShowingTime, which really seems like a smart acquisition. I know they don’t have all the cash in the world. So $500 million is a not insignificant amount of money for Zillow, but it really seems like a smart acquisition in terms of where this business is going.

Flippen: It certainly is. Zillow’s new focus is getting consumers and purchasers of home to feel comfortable buying on the Zillow platform, and a lot of that experience is going to come down to the services that Zillow provides in the acquisition of ShowingTime, which is this AI-driven 3D home modeling experience that allows people to experience the home virtually before buying it. That’s the thing that’s really going to set Zillow offers in Zillow’s iBuying above the top, above the competition that they’re seeing from businesses like Redfin and Opendoor.

Hill: Early in the week, Electronic Arts bought Glu Mobile, a developer of mobile games, in a deal worth nearly $2.5 billion. Emily, no surprise that shares of Glu Mobile shot up because of the buyout price, but shares of EA were up a little bit too.

Flippen: This is a move in the right direction for EA because when you look at their mobile profile, their existing mobile profile, the biggest games they have are really outdated. We’re talking about Plants Vs. Zombies and Sims FreePlay. This was EA’s push into the mobile market. Acquiring Glu Mobile gives them a great collection of intellectual property, already really popular games, that allows them to hopefully spur more internal development for mobile games in the future. As we’re looking at the landscape for social interaction, not just coming out of the pandemic, but in the future, we’re seeing a shift toward digital interactions, toward active and interactive interactions, as opposed to just kind of passive TV or movie watching. So it’s smart for them to try to get into the mobile market, which is the fastest growing gaming market in the world right now. The only question is whether or not $2 billion was too much to pay for this business. Needless to say, it’s a pretty lofty price for what is going to be something that they still need to internally develop. Glu Mobile alone, it’s not just what they are acquiring in terms of their current game profile. It’s the people working on that team that they need to churn out more successful games in the future.

Hill: Affirm Holdings went public in mid-January. The provider of buy-now, pay-later loans issued second-quarter results featuring a loss that was smaller than Wall Street was expecting, but shares of Affirm falling 9% on Friday. Jason, help me out. Was this related to guidance? Was this about valuation? What’s going on here?

Moser: It probably is primarily evaluation-related again. We’ve got a business with tremendous opportunity in front of it, but it has just taken off with so many of these other names in the market that just haven’t really developed any sustainable path to profitability yet. But when we look at the business itself, I mean, this is their first quarter out of the gate since the IPO, and I think all-in-all, I would say it’s very encouraging. I wouldn’t call this a buy-at-any price business, but I do see a lot of potential with it. They have a very consumer-centric management team and they do seem to be developing some interesting partnerships with companies like Shopify and Adyen, which are helping expand their network.

If you look at the numbers, revenue of $204 million, that was up 57%. Now if you back out the transaction costs, revenue was $90 million, that was up 141%, so that was strong. They’ve got active consumers now of 4.5 million of folks using their platform that was up 52%, and the merchant base grew 90% as well. If you remember, one of the bigger risks we’d noted with the firm early on was this reliance on Peloton, around 30% of their revenue was tied to that relationship with Peloton. Looking to see that number come down as the business gets bigger. It seems like there are some signs that that’s happening, but we’re also seeing signs that that reliance on Peloton can create some timing issues in the revenue that this business earns. I think ultimately it’s worth remembering, this is a very competitive space. We talked about that ‘buy now, pay later’ opportunity, and the question of whether it was one that consumers really wanted. It feels like it’s one that consumers want, but now the incumbents in the payment space are really making those investments, as well. PayPal recently called it their biggest surprise of all of their new offerings for the quarter with 3 million customers already trying it at hundreds of thousands of merchants. I think it’s just worth remembering, the competition in this space is very heated. With that said, a very big market opportunity, and this will be an interesting business to follow.

Hill: Shares of Under Armour were up 10% this week after the company reported a surprise profit in the fourth quarter. Emily, I don’t want to get too excited about this because it’s not like Under Armour blew everyone away, but this was a solid quarter.

Flippen: Yeah, you shouldn’t get too excited, Chris, because despite having a somewhat profitable quarter, unexpectedly, this business is still very much in the early stages of what will be a very long turnaround. Relatively new CEO Patrik Frisk is starting to deliver on some of the promises he made when coming into Under Armour’s business. But when you look at the most recent quarter, apparel and footwear, despite the new product launches in those segments, were both down year-over-year. The only segment that grew for Under Armour was accessories, which investors should read as masks. Mask sales were better than expected, which is to be expected in the environment that we’re living in today. We don’t want to see them overinvesting into masks and end up with a situation where their current brand portfolio doesn’t sell-through in future years.

What’s really most important, not in this most recent quarter, but when evaluating their turnaround story for Under Armour in the long-term future is looking at their success in strategy and going direct-to-consumer. This is something they highlighted a lot in the most recent quarter. They’re following in the footsteps of brands like Nike, which are trying to pull out of these partnerships with smaller retailers and focus on establishing a more premium relationship with their most loyal consumers. They haven’t started cutting relationships with their partner stores yet, but that’s expected to happen in the back half of 2021. Nike did it somewhat successfully, so we’ll want to see the same success coming out of Under Armour. Regardless, as you mentioned, this was a good quarter, though. Almost half of their direct-to-consumer sales were digital, which is up 40% year-over-year, and wholesale revenue, which is what you want to see come down as they cut partnerships, was down 12%.

Hill: Twitter’s fourth-quarter revenue came in higher than expected and shares rose nearly 30% this week. Jason, Twitter is close to an all-time high. Was it that good?

Moser: It’s nice to see the stock finally getting some love. I think for all of the things they’ve not done so well, Twitter, at the very least, to me, has shown its resiliency as a general information platform. When you look at its user base compared to others, it’s still, to me, it’s really a story of unfulfilled potential. They were part of that broader recovery in the ad market, so no surprise their top-line growth of 28% with $1.29 billion in the quarter. That was nice to see. Ad engagements were up 35%, however, cost per engagement fell 3%. They said in the call that was mostly a function of supply outpacing demand, so it’s always this constant conversation of them trying to figure out how to make their ad tech better. I feel like that’s just going to always be a constant with this investment. To the users, I mean, the monetizable daily active users sequentially up just modestly from 187 million a quarter ago to 192 million now.

For comparison sake, look at something like Snap, for example, 249 million a quarter ago to 265 million now. When you look at all of these platforms, Twitter really is the smallest of them all, and they continue to have a hard time really ginning up impressive and compelling user growth. You couple that with growing headcount by 20% in 2021. They are going to see expenses rise by 25%. I’d expect to see stock-based compensation go up as well. It’s hard to get really enthusiastic about this business at this price level. There is sort of a wildcard in there. They’re talking more about subscription offerings. They made a small acquisition of Review to pursue potentially long-form newsletter style subscription offerings, or they may even look at subscription offerings for Twitter-specific features. That’s all yet to be determined, and they do move at a glacial pace, it seems, when it comes to innovating.

Hill: David, thanks for being here.

David Gardner: It’s great to be with you, Chris. Thank you.

Hill: Let’s start with Andy Jassy, the next CEO of Amazon. What did you think when you heard the news? Because Andy Jassy, for as important a player as he has been at Amazon, in the growth of Amazon, helping to start Amazon Web Services, is not exactly a household name.

Gardner: No. One thing that I have to admire, just right upfront, is he joined Amazon in 1997. That’s right. He’s been there for 24 years. He’s about as tenured, as a follow-up to Jeff Bezos, as anybody could hope to have. Yet, even though he’s been there 24-years, he’s just 53 years. He’s obviously been close with Jeff for a long time. He held increasing amounts of responsibility. In the same way that I trusted Steve Jobs to say, “Hey, Tim Cook, I’ve worked with you a long time. I think you’ll do a good job with this company,” and sure has. I would accord Bezos the exact same respect, and hope, and expectation. Now my expectation, by the way, Chris is never that Apple would be a better stock under Tim Cook than it was under Steve Jobs, or that Amazon will be a better stock under Andy Jassy than it was under Jeff Bezos. It’s just I expect more greatness. That’s what I expect.

Hill: Sometime later this year, Jeff Bezos, his second act will officially begin and obviously he can do anything he wants. He is still going to be Executive Chairman at Amazon, but the expectation is that he will focus on other things. Realizing he can do whatever he wants, as an investor, is there part of you that hopes he focuses on one industry or another?

Gardner: I think that it’s fair to guess that he is focused on outer space, and I think many people know that he has his own company in the same way that Elon Musk has had SpaceX. With a little bit less fanfare, and maybe a little bit less scale, Jeff Bezos has had Blue Origin. I did see Bezos present to an open gathering two years ago, sort of CEO types in and around Washington DC, and he was, two years ago, all about outer space, how this was probably the great opportunity of our lifetime for all of us. The steps that we’re taking toward outer space mean more to mankind than anything else we could do. In his mind, more than e-commerce. Again, this was two years ago. So I’m not surprised to see him step-down from Amazon. Let’s be clear, I was surprised to hear him step down from Amazon, Chris. I don’t think anybody was calling for this. But then, once it was announced, A, I thought about space, and that’s still what I’m thinking about for him, and B, the stock barely budged the next day, which shows us that it’s about a great company and a great opportunity, not the superstar CEO. I think that’s a consistent lesson, whether we’re talking about Tim Cook, a number of other times. People are like, “What about after Warren and Charlie are gone? What about Berkshire Hathaway?” The answer is, probably just fine. There are tons of people who work at these companies, great cultures, lots of great leaders.

Hill: Now that, maybe, not all the dust, but let’s say a lot of the dust has settled, I’m curious what your reaction has been to the run-up of GameStop, the drama that we saw between hedge fund managers and investors on Reddit. This whole scene was playing out, what were you thinking?

Gardner: Well one thing I did is, I went into Motley Fool CAPS and gave it a thumb down when it was around $300 or something, and said, “I’ve never seen such an overvalued stock, basically.” In a lot of ways, I think this is similar to how the Motley Fool started with an April Fool’s joke about pump-and-dump penny stocks, which was happening back in the 1990s. Sure enough as it will happen in the 2090’s because this is a timeless thing where you get people whipped up and excited about buying something, and they all buy from each other, and they send the stock price raging up, but it’s not sustainable. We’ve seen GameStop lose, I’m going to say, at its peak. I think it’s down 80% now from where it was just a week or two ago. I think that’s a sad misuse of people’s money. At the same time, I realize there are about 23 factors here. They were, on one hand, going after short sellers. Some of those people I think probably deserved to be gone after.

Part of me wants to celebrate the democratic spirit of people banding together on the internet and moving like a mob with their money into things and out of things. But ultimately, I hope this is a flash in the pan. I don’t think this is a new pattern. I don’t think this is going to feel relevant in a year or two. I certainly welcome people’s belief that they could collaborate together and invest in a better world. That’s what the Motley Fool has been doing for 27 plus years and I hope for the rest of my life. But we’re all about the long-term, Chris. We’re about sustainable things and finding companies that are down in outers that are shorted and then briefly causing their stocks to skyrocket, while it’s amusing for a while, so many people are losing so much money on the way back down, which is a story that still has yet to be told. It’s basically a misallocation of capital in a way that doesn’t serve just about anybody.

Hill: In some ways to me, the only part of the whole story that was surprising was the number of people who treated it as though this is the first time anything like this has ever happened. I thought, “No, we’ve seen a lot of versions of this drama play out in the past.” Speaking of which, I’m seeing and hearing more people making comparisons of the stock market right now in 2021 to the stock market of 20 years ago. As you might guess, they’re not favorable comparisons. You and I have talked before how there are always going to be people standing up and loudly proclaiming we’re at a market top, and eventually hoping one day they’ll be proven right. But we were both around during that time in the market. The comparisons of today’s market to the market of 2000-2001, is there any validity, because certainly you can point to certain valuations, put aside the GameStop drama. There’s certain frothy valuations out there, just as we saw 20 years ago.

Gardner: Yeah. I think it’s perfectly fair to compare anything to anything else. I think that’s part of what we do as humanities people, or at least that’s what I was taught to do as I was majoring in English literature at University of North Carolina. I think any things can be compared, and I certainly see some similarities. There is a feeling among many that stocks not only have gone up a lot, but will probably keep going up a lot more. Guess what? Good news, I think they will over the long term, which is the game I’m playing, the only term that accounts. But there is a sense that wow, that thing went up three times in value last year, which by the way is amazing. How many stocks trebled from March last year to now? A whole bunch. That is such unusual behavior. It is so rare to have good companies that scale double in the year, let alone triple in a year. I see comparisons between huge run-ups that we’ve seen. There are certainly some glam industries, that if you’re part of Software-as-a-Service, you feel like you are the .com winner right now, and good news is, a lot of them will, and will be long-term winners. After all, Amazon was born in the .bomb years, and it’s now one of the most successful companies in the world today.

There will always be long-term winners, but there are a lot of “Me too’s,” a lot of, I think, second and third bit players who are showing up. That’s probably going to happen anytime. The market has a great run. I can’t see that not happening. It’s just inevitable. Human nature being what it is. We’re all bandwagons. We bandwagon on to Tom Brady. I found myself cheering on Tom Brady, when his whole career, I never really did. But then I’m just, this is amazing. The guy is 43. So how can you not love it and yet that doesn’t feel very sustainable to me either? I think that we have to get outside ourselves, and I think a question about comparing now to 20 years ago is perfectly fair. It helps us try to look at things more objectively.

Hill: Let’s stick with sports to wrap up here because I know you’re a huge fan of college basketball. You’re a huge fan of Major League baseball. What is your confidence level right now that an NCAA basketball tournament actually happens, or that we get as close as possible to a 162-game baseball season?

Gardner: You’re asking me to separate my confidence level from my hope. I think you know my hope level, Chris. I have to admit my hope level often guides my confidence levels in life, and it’s not a bad approach to life. I was the person among my friends’ set of sports fans, where I would say, “I think it’ll happen,” this is going to happen. I’m not talking about this season. I was talking about last season. People thought that baseball had blown it. They should’ve gotten started at the all-star break on July 4th of last year. It would have been a great day, Independence Day. Some people thought now, since they didn’t do it, and they’re all just arguing with each other, the owners and the players, “This will never happen,” but it did, and I really enjoyed the baseball last season, just like I enjoyed the NFL football season just concluded, which, as you and I talked about it off-air ahead of time, it was a small miracle that it all happened all the way through a Super Bowl.

I will just say, as a betting person, and as a person of hope, I would bet and hope that March Madness will happen this year for college basketball, I will bet and hope that major league baseball will happen this year. I’m not just hoping, I’m betting. I think that the financial incentives in place are large, and I think we have to respect those. We saw those play out for the NFL this season. Obviously, college basketball, for those who watch it, like I do every day, you know that for the ACC, which is where I went, University of North Carolina. You went to Boston college, you’re in the ACC now too, Chris and one-fifth of all ACC men’s basketball games have not been played this year. That’s just how it is. I wouldn’t be surprised if we see some of that dynamic potentially with baseball. But I think it was a harder environment last summer to operate baseball in than it is this summer as vaccines are starting to show up. I would bet that major league baseball will have a World Series this year and mostly a normal season. I will bet that college basketball, with this lockdown in Indianapolis, will manage with the economic incentives in place to play out March Madness. Whether your team or my team is actually there this year, that is a separate topic.

Hill: You want a weekly dose of insights and observations from David Gardner, listen to, subscribe to the Rule Breaker Investing podcast. You can find it everywhere you find podcasts. David, always great talking to you. Thanks for being here.

Gardner: Thank you, Chris. Fool on, Fools!

Hill: Coming up, Emily Flippen and Jason Moser return with a couple of stocks on their radar. Stay right here. You’re listening to Motley Fool Money.

Welcome back to Motley Fool Money. Chris Hill here, once again, with Emily Flippen and Jason Moser. Our email address is radio@fool.com. Write to us, will you? We’re lonely over here, radio@fool.com. Great question from Jerry Lynch, who asked, “Are stand-alone pharmacies doomed? We’ve got CVS locations inside of Target stores, retailers ranging from Walmart to publics have offered full pharmacy and personal care services for many years. This appears to leave Walgreens in a precarious position. Is the concept of one-stop shopping for all shopping needs a juggernaut that will wipe out stand-alone pharmacy chains?” Jason, a lot on pack there, including the fact that we have online businesses, Amazon being one of them, getting into the pharmacy space. But let’s start with that last part. How much trouble do you think the stand-alone physical bricks-and-mortar pharmacy business is in?

Moser: I wouldn’t say doomed. I would say they are being forced to iterate and change. I always look to CVS as the leader in this space, so to speak, maybe that’s just because that’s the pharmacy that’s closest to my house. But then that speaks to the lack of competitive advantages. Often with these pharmacies, it’s not really about going to which one you prefer more. It’s about which one is closest to you. But I do think that they are being forced to iterate and become something else. What I mean by that is you’re looking at these pharmacies starting to create new relationships in order to become more like virtual healthcare centers. There’s this one statistic that CVS likes to always quote, and it’s approximately 70% of the U.S. population lives within five miles of CVS. I think they’re finding that, “Hey, instead of selling Pringles and beef jerky, why not focus on selling things like healthcare services? So you’re seeing a partner up with companies like Teladoc, for example, that offer telemedicine services and MinuteClinics, the Aetna acquisition, for example, from CVS. That was something where they’re ultimately becoming more of a 21st Century healthcare company. I don’t think they are doomed, but they absolutely are being forced to iterate. I think that probably will consolidate the sector a little bit.

Hill: Emily, what stands out to you in this space?

Flippen: It’s funny because, when you look over the past year, you would think that virtual buying, in particular virtual healthcare, would be at its all-time peak. While we have seen an adoption of telemedicine, at the same time, more and more Americans are actually going to CVS. They’re actually going to Walgreens. In fact, at peak pandemic, only about a quarter of Americans ordered things like delivery online. The vast majority of people were still physically going into places like grocery stores and pharmacies. I think there is always going to be some segment of the population that prefers to go to a local pharmacy, and if their most convenient one is a CVS or Walgreens, that’s probably where they go to. Now, that’s not to say that it’s a great investment. There are clearly some headwinds. I think virtual medicine is a headwind. I think the more noticeable headwind is the initiatives that Walmart is actually doing into creating small integrated pharmacies focused on healthcare within that shopping experience. I do think there’s a threat from these one-stop shops to disrupt traditional pharmacies. But that’s not going to put them out of business. I think it’s going to act as a headwind because ultimately, when you look at what people go and how people utilize pharmacies, it’s not necessarily a one-to-one substitute between walking into a Walmart and walking into a CVS.

Hill: Let’s get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with the question. Jason Moser, you’re up first. What are you looking at this week?

Moser: I’ve been digging more into Brooks Automation, ticker, BRKS. They are providers of manufacturing automation solutions for, interestingly, the semiconductor industry, as well as the life science services industry. It’s a two-for-one here with Brooks Automation. But in the semiconductor manufacturing market, they provide precision robotics and automation systems, contamination control, life sciences. They offer a full suite of services for analyzing, managing, and storing biological and chemical compound samples. Interesting, diverse business model there. The value proposition seems to be that what they do is really specialized. It’s difficult to get into, and it’s even more difficult to really do well, and they’ve been at it for several decades now. It’s a business I’m learning a little bit more about. CEO Steve Schwartz, who has been with the company as CEO since 2010. They’ve grown revenue at a compound annual growth rate of 11.2% over the last five years. It could be a business for some interesting competitive advantages.

Hill: Dan, question about Brooks Automation?

Dan Boyd: Absolutely. When I think about Brooks Automation, I of course think Brooks Brothers, the men’s fashion company, founded in 1818, I think, 160 years before Brooks Automation. But Brooks Automation has the website brooks.com, and I feel like that was a huge git for them in the Brooks-sphere.

Moser: I feel like you’re right. I’ve got a Brooks Brothers tie in my wardrobe. That was a gift to a member at the country club where I left the golf business years and years ago, and I still have that tie today. I love it. Brooks Brothers is good stuff.

Hill: Emily Flippen, what are you looking at this week?

Flippen: I’m actually looking at a company that took a little bit of a nosedive this week. That’s Unity Software. The ticker is just U. I’m a big fan of this business. Unity as a 3D-rendering platform aimed at the gaming industry, but it’s increasingly targeting other industries like automation, engineering, manufacturing. So it’s an exciting rendering platform that has done an amazing job, grew revenue nearly 40% last quarter, and had a 32% growth year-over-year in customers spending more than $100,000 a year on its platform.

Hill: Dan, question about Unity Software?

Boyd: Yeah. Emily, what about Unity taking a nosedive makes it interesting for you to bring to the show this week?

Flippen: Because when you look at why a nosedive, that’s actually because of Apple potentially changing its rules around activity tracking. But if you listen to management talk about the change of these rules, they’re actually really bullish about their ability to adapt to Apple’s new world and actually increase their ability to provide different services and change their monetization strategy. It actually paid it up to be a bad thing last quarter. But I think long term, it can be good.

Hill: Two very different businesses there, Dan. You got one you want to add to your watchlist?

Boyd: I was originally going to go with Brooks here, but Emily convinced me with the answer to her question, so I’m going to go with Unity.

Flippen: Yay.

Hill: Is it because, in some small way, you’re still mad or surprised that Brooks Brothers let brooks.com get away from them?

Boyd: They’ve been around for 160 years more than Brooks Automation, I think this was a huge blind spot for them.

Moser: Dan, as a Unity shareholder, I cannot […] good choice . You made a good call. Good pitch, Emily. Nice job.

Hill: Emily, Jason, thanks for being here.

Flippen: Thanks for having us.

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