Amazon CEO Jeff Bezos announces he’ll be on Blue Origin’s first spaceflight with humans. Vulcan Materials buys U.S. Concrete for $1.3 billion in cash. In this episode of MarketFoolery, Motley Fool analyst Jason Moser, with host Chris Hill, analyzes those stories and discusses the rebound of travel-related businesses like Airbnb, Booking Holdings, and Marriott
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This video was recorded on June 7, 2021.
Chris Hill: It’s Monday, June 7th. Welcome to MarketFoolery. I’m Chris Hill. With me today, Jason Moser. Good to see you.
Jason Moser: Hey, good to see you.
Hill: We’re going to talk about travel and lodging. We’ve got news from the sexy world of concrete, but we’re going to start with the hottest new sci-fi series “Bezos in Space.” Yes, Amazon CEO Jeff Bezos announced that on July 20th, when Blue Origin makes its first space flight with humans onboard he will be, in fact, one of those humans. I’m not going to lie, when I first saw this story, my heart was in my throat for just a second. Then I took a deep breath and I thought, you know what? He knows what he’s doing and he’ll be two weeks out of the CEO chair by then, so look, he can do what he wants. Is this a good sign for Amazon shareholders like me who are hoping that Andy Jassy is going to get to run the company for a while? [laughs] Because when I thought about it a little more, I thought, well, maybe he really is going to lean into Blue Origin and he’ll be the executive chairman at Amazon, but he’s not going to be looking over Jassy’s shoulder 24/7.
Moser: I think that Amazon, the business, is in a position today where it can handle something like this. I must admit, and I don’t mean to get more of it. I read a headline like this and immediately my mind goes to, oh, my God, this is shaping up to be one of those situations in hindsight where something bad happens and it could have been avoided or whatever. I think that’s probably human nature in a lot of cases when you’re talking about something so uncertain as space travel. Now, the flip side to that is, and I think that investors’ names on M1 should take solace in knowing that Amazon, the business has transcended to Jeff Bezos at this point. I really do believe that Amazon is in a position today where it can move forward, it can grow, it can continue to prosper even with Jeff Bezos not at the helm. If you’re in a position like that, which is a nice situation, then you can’t really hold it against Bezos who wanted to do this.
When you look into what’s going on here, this ultimately really is like a childhood dream of his. So anybody who ever has the opportunity to actually fulfill a childhood dream, it’s really hard to argue against doing something like that. I’m not surprised at all to see this. Honestly to me, the more interesting implication for investors is to think about, we talked about companies like what’s their second act? What are they going to do next beyond their core competency? I think that in this case, we’re watching Jeff Bezos’ second act start to play out here.
Blue Origin itself has been a passion of his for a long time. I think in its first iteration, it was founded back in 2000. It’s been around for a while. It reminds me of the book that we talked about before the book that Christian Davenport wrote called The Space Barons. We had the good fortune to interview Christian on the Motley Fool Money radio show. There’s a story in there that talks about how back, I think it was 2013, Jeff Bezos had just this itch where he undertook this insane multi-million-dollar deep sea exploration to go recover the F-1 engines from Saturn V, which was the Apollo missions from back in the late ’60s, early ’70s. These F-1 engines that released from the exploration and from the launch, they dropped down into the middle of the ocean. You assume they’re gone forever. Well, Bezos said, “You know what man, I need those.” He funds and goes on this multi-million-dollar three-, four-, five-week exploration in the deep-sea to pull these F-1 engines up. That to me is just one small little example of his passion for this space. No pun intended. He really is all about it. I think that for investors, I’m really fascinated to see what becomes Blue Origin. I really do feel like there are going to be some neat opportunities that come from investing in space over the course of the next decade and beyond. To me, it seems like Bezos is going to be one of the people leading that charge as well. Talking about second acts, I think investors need to keep an eye on what he is doing because there are going to be opportunities that come from this.
Hill: I’m assuming the reason shares of Virgin Galactic (NYSE:SPCE) are up nearly 10% today is because of this. Virgin Galactic is a public company. Richard Branson was asked for his response on this, he’s looking to get up there either later this year or sometime next year. Yeah, it is going to be interesting to see where this goes. I could be wrong because I frequently am, but I would be surprised if Blue Origin ends up being a public company. I feel like Bezos has had his share of running a public company. He’s like, “No, I’m all-in on this, but this is going to be a private endeavor.”
Moser: I feel like you’re probably right, and watch this, just the complete opposite happen. But to me, it does make sense, what you’re saying makes perfect sense. There are a lot of benefits that come with being a publicly traded company. There are plenty of drawbacks as well. He’s gone through so much of his life as a publicly traded founder/CEO. If he doesn’t need it with something like Blue Origin, then I can’t imagine he would really want it. It really gets you from another microscope. Now, it’s also worth noting, there could be plenty of opportunities that are born from Blue Origin. Maybe Blue Origin itself doesn’t go public, but maybe you see it start spinning out some of these technologies that it’s developing, and those become investment opportunities. I absolutely could see that happen. Then maybe down the road, you’d see Blue Origin as this futuristic Berkshire Hathaway, so to speak, or it’s a holding company with all of these different opportunities that are focusing on all of these from cross-sections of what is this 21st century economy that really hasn’t fully formed yet.
Hill: Vulcan Materials is the largest producer of construction aggregates in America, aggregates being stone, gravel, sand, and crushed stone. Vulcan is buying U.S. Concrete for $1.3 billion in cash. That means shares of U.S. Concrete are up around 30% off of where they closed on Friday. Vulcan Materials shares are up about 1%, which indicates to me that the market likes this deal at this price. I read this story, Jason, and it took me back to last Friday when we were doing Motley Fool Money, and Emily Flippen made a point about Etsy‘s recent acquisition and how all things being equal, she would prefer to see companies making acquisitions in cash because she feels like that’s a better indication of how they feel about it. They’re basically all-in on the acquisition in a way that’s a little bit more invested than if they’re doing it with stock. This is Vulcan Materials just stroking a big check. It looks like a good deal on the surface for all involved.
Moser: Yeah, you used the word sexy. I have that first impression as well. This is the deal that on its surface, the headline will make you sleepier than a Thanksgiving turkey. The sexy world of aggregates and concrete, lets Tim, the tool man, tailor up here and grunt because that’s what this deal makes you think of. It’s just construction, infrastructure, and while that may not be the sexiest sounding industry, I actually think there’s something here. I think it’s a fair deal. U.S. Concrete is a business that has not been growing. You look at the top line revenue numbers there over the last five years, really not moving anywhere. U.S. Concrete is interesting in that, while it’s part of that aggregates industry, this is a mixed concrete story, that’s what they do most. I think 85% of their revenue is tied to mixed concrete. It is something where it’s going to be a complementary acquisition for Vulcan, where Vulcan, as you mentioned with aggregates, that is primarily Vulcan’s business. That’s 75% of total revenue for Vulcan, it’s just straight-up aggregates. Ultimately, the two go hand in hand. It’s like Reese’s Peanut, you can’t really have one without the other.
To me, this is actually a very smart acquisition from a number of angles. For Vulcan, it’s a company with a long history of growth by acquisition. They even noted in the 10-K, they said since becoming a public company in 1956, Vulcan has principally grown by mergers and acquisitions. It’s just fascinating to think the U.S. aggregates industry is composed of over 5,000 companies that manage close to 11,000 operations. You can see with aggregates, for example, stone, sand, whatnot, that’s heavy stuff, which means it costs a lot to move. So you really want to get these resources as close to their end-user as possible. Consolidation is something that can really help that. It sounds like this is going to be something that Vulcan is going to continue to do in the coming years. Now, a couple of things, if you look at Vulcan, it’s not been the greatest investment. It’s not been a bad investment. If you look over the last five years at total return for Vulcan there, it made money. Stocks are up around 60, 62% there, but the market is outpacing it. Take that however you will. But I think the one thing to think about here, and this is something I’d want to dig into a little bit more.
I talked about this a little bit on Motley Fool Money last week, it was just this idea that the infrastructure build that is being batted around here in D.C. There are a lot of T’s flowing out there, Chris, a lot of trillions. It’s going to come down to a big number, no matter what the number is. It’s going to come down to a big number. It’s going to be somewhere in that trillion-dollar range. I’m not going to call this a reopening play. I don’t want to view this as a reopening play, but I do believe this is a company that could really benefit from the tailwind of this infrastructure spending. I mean, a good portion. I think somewhere in the neighborhood of half of Vulcan’s business is tied to public projects. Government-funded projects, they’re very reliable. When you have a government that really is dead set on infrastructure spending as it seems like we are heading in that direction. Vulcan strikes me as a company really poised to benefit from this. Bringing that ready-mix concrete business into the fold, I think makes a lot of sense, and it seems like they’re getting a fair price and I agree, I like the all-cash dynamic of the deal.
Hill: Our email address is MarketFoolery@fool.com. We got an email from Robin Rifkin in Emerald City. He sent an article about the hotel industry and roads. I thought you might find this interesting. “I love Airbnb (NASDAQ:ABNB), and we’ll be doubling down on this substantial dip. But I’m staying long on my investments in Marriott and Booking Holdings (NASDAQ:BKNG). Before I get to the article, the dip in terms of Airbnb, earlier this year, was over $210 a share, it’s down around $150. It’s definitely dropped down from there. But the article he sent was essentially transaction data tracking how travel-related industries are recovering. What I like about the data is it doesn’t just go back a year, it goes back to January 2019. You do see more of a boost for Airbnb than you do for hotels at large. Although interesting to see that they’re back above where they were in January 2019 as well.
Moser: Yeah, I like Robbin’s perspective there on both counts. No. 1, I agree. I think Airbnb just has a ton of potential. I also think that companies like Booking and Marriott remain very relevant when you consider how large of a market opportunity travel really is. I know that over the past year we’ve been talking about the demise of business travel, yadda, yadda, yadda. I think business travel is going to be impacted somewhat from what has transpired over the last year. But I don’t believe that business travels are going away, I think a lot of people are ready to get back out there and do stuff. You see it. I think that these numbers, this data in the article that he sent, I think that really speaks to that. Not just from the perspective of those Airbnb numbers and hotel numbers, but just the general desire for people to get back out doing stuff.
The nice thing about Airbnb is just, this is really a fascinating business from a number of perspectives. The brand awareness alone is so strong and it’s built up a very nice repeat customer base. I like the idea of just going back all the way to 2019. We’ll try to normalize this a little bit. But in 2019, 69% of Airbnb’s revenue was generated by stays from repeat guests. Repeat guests are just a terrific indicator that a business is doing something right. That’s going to be a valuable metric to continue to follow. I think that younger travelers, particularly those that are just coming into the market, are just starting to work and travel on their own and do things like that. Airbnb, just the sharing economy, so to speak, this is the normal way of doing things. We grew up staying at hotels and making reservations by calling on the telephone. Now it’s seal the deal with an app on your phone and Airbnb has just done a tremendous job of building out their mobile presence. When you look at the serviceable, addressable market, they view it as $1.5 trillion. You can see that not only as Airbnb, a company that you really probably want to own on the space. But I think it also speaks to it’s point. Don’t leave Marriott and Booking Holdings for dead yet, because I’ll tell you, Marriott’s got more than 7,600 properties around the world, and we’ve talked before about that Bonvoy loyalty app. I mean, 150 million Bonvoy members. There’s a lot that you can do with that. Bookings, we’ve been watching that play out for years now. It’s just been a tremendous one-stop-shop for travelers. Again, I like watching this recovery.
Hill: Do you think Airbnb can pull off any type of a rewards program, or is the very nature of their business and the fact that they’re not a hotel chain? They’re just a massive platform of individual homeowners. Does that preclude them from rolling out a rewards program that is similar to what Marriott has done?
Moser: It does not preclude them from doing that now. I will admit, I don’t know if they are doing anything in that realm now. I don’t think they are, but to me it seems like a no-brainer that you have to do something like that. When you have a network that large, and it’s a two-sided network too. We see companies like Etsy and Square talk about the value of a two-sided network. Airbnb is that two-sided network as well, scratching the itch for both travelers and hosts. To me, when you have that type of brand awareness, that type of loyalty and repeat customers. It only makes sense to build out some loyalty programs. It could be something internal, it can be something in partnership with credit card companies, retailers. There’s a lot of different ways they can go about it. I suspect that if there is not something that they’re doing right now, it definitely has to be something in development there because it’s too much loyalty with that company now. You can’t take that for granted. Particularly today, the way technology has changed things. There’s so many more competitors that can come online somewhat more quickly now than ever before. Going back to Jeff Bezos, always waking up in fear every day of the customer of the competition. I think Airbnb management would be wise to wake up every morning being afraid of the competition in what customers can do, because there are a lot of choices out there today as you want to do everything you can to keep that loyalty strong and a rewards program, a loyalty program, absolutely one no-brainer way to do it.
Hill: Jason Moser, great talking to you. Thanks for being here.
Moser: You got it. Thank you.
Hill: As always, people on the program may have interest 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. That’s going to do it for this edition of MarketFoolery. This show is mixed by Dan Boyd. I’m Chris Hill, thanks for listening. We’ll see you tomorrow.