Comments from Federal Reserve Chair Jerome Powell last week sent the overall market lower. How should investors think about the impending interest rate hike in May?
In this episode of Motley Fool Money , Motley Fool analysts Ron Gross and Jason Moser also discuss:
- A challenging immediate future for Netflix (NFLX 5.82%).
- Tesla's (TSLA -0.45%) record profits in the first quarter.
- Elon Musk's progression toward buying Twitter (TWTR 0.97%).
- Papa John's International (PZZA -3.28%) signing a new three-year deal with board member Shaquille O'Neal.
- The latest from Gap (GPS 2.80%), Boston Beer (SAM 4.89%), and Johnson Johnson (JNJ 0.75%).
Matt Argersinger, who leads investing on the Mogul and Real Estate Winners services for The Motley Fool, analyzes the current state of housing, why we still have too much office space in the U.S., and areas of real estate investing he likes right now.
Then Ron and Jason return to answer a listener's question about Traeger (COOK 2.73%) and share two stocks on their radar: Atlassian (TEAM 6.70%) and Twilio (TWLO 0.46%).
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 22, 2022.
Chris Hill: Elon Musk, Jay Powell, and Shaquille O'Neal walk into a bar. They didn't really, but we're going to talk about what investors can pick up from each one of them. Motley Fool Money starts now. [MUSIC]
Film clip: "Everybody needs money. That's why they call it money."
Introduction: From Fool Global headquarters, this is Motley Fool Money.
Chris Hill: It's the Motley Fool Money radio show. I'm Chris Hill and I'm joined by Motley Fool Senior Analysts Jason Moser and Ron Gross. Good to see you as always, gentlemen.
Ron Gross: Hey.
Jason Moser: How are you doing, Chris?
Chris Hill: We've got the latest headlines from Wall Street. We will get the latest on real estate investing with our guest, Matt Argersinger. As always, we've got a couple of stocks on our radar, but we begin this week with the big macro. The overall market fell toward the end of the week after Federal Reserve Chairman Jay Powell gave a speech indicating an interest rate hike is coming next month, probably an increase of a half percent. Ron, let me start with you. What does this mean for investors?
Ron Gross: Way to ruin a good rally, Chairman Powell. Thanks a lot. But the guy is got to do what he's got to do. You've got consumer inflation running at an annual pace of 8.5 percent, so he used the word expeditiously. The bank is committed to raising rates expeditiously, which means a 50-basis-point hike in May most likely. Expectations for that level of a hike rose to 98 percent from traders, so it looks like that's a gimme. Traders also priced in additional increases through year-end. It would take the fed funds rate to 2.75 percent. It's at an effective rate of around 0.33 percent now. Then 3.25 to 3.5 percent is in the range currently priced into the markets a year from now. Clearly, the Fed is saying inflation is the most important thing that we need to get under control. The economy otherwise is pretty strong, including the very tight labor market. That is the biggest thing on their mind. If that means stocks remain weak or take a hit, so be it, we need to get this under control. The Nasdaq on Thursday got hit especially hard filled with growth-heavy stocks, stocks that rely on future growth to make their valuations make sense. That was down about 2 percent following Powell's comments. So some shakiness still to come for sure.
Chris Hill: Jason, part of me wonders why there's any real surprise here on Wall Street. I mean we've been talking about this all year. It doesn't seem like a half-percent hike is anything other than what we all expected. To Ron's point about the Nasdaq, however, it does seem like more of a case for investors moving maybe more toward steady, profitable businesses rather than unprofitable upstarts.
Jason Moser: Yeah, and I'm glad that you used that word surprise because that was the first thing I was thinking. I was like, we've been talking about this for so long. I don't understand how anybody in the right eye can be surprised with at any of this. In fact, just to give you a little insight into how I view these things, the longer these discussions go on, the more I tend to just go ahead instead of discounting it and I'm thinking, they're talking about maybe 50 points? Let's pump it to 100. [laughs] They're going to go ahead and go a full point. Like, let's just go ahead and assume that that's at least on the table because I bet you somebody's at least mentioned it. But to your point there, in regard to where investors are flocking, it has been very interesting to note that because you have the high growth on profitable names become a little bit less attractive as the cost of doing business goes up. But we're also in this weird state where we've got the supply chain crunch. Obviously, inflation is out of control. I think most people would agree. So you're seeing a lot of really good, profitable businesses out there that are being taken down with this, babies being thrown out with the bathwater. Then you're also seeing at the same time, a lot of interest going into names that might not necessarily be perceived as such good protection in inflationary times, and I'm just looking recently here. If you look at the SP Consumer Staples fund, that's 32 holdings, then there's companies like Procter Gamble, Coca-Cola, Mondelez, Walmart, the median trailing P/E ratio now for that collection of companies is 31.3 times, which if you look at that compared to other businesses out there in the market like Facebook or Alphabet, for example, 31.3 times seems pretty high. It feels like maybe this encapsulates that one-year view versus the three-year view. The market seems maybe very focused right now on the near term where companies like these staples are perhaps in higher demand, they might be able to pass along at least some of those inflationary costs in the near term. But I think if you're willing to extend your timeline just a bit, it feels like there's some great opportunities forming out there in other areas where the pessimism is a bit more real, they based on valuations or interest rate policy concerns.
Ron Gross: The P/Es of those companies is really interesting. One thing that came to mind is that perhaps the E of that equation, is somewhat depressed as a result of supply chain disruptions and margins getting hit as a result of inflation. If you project recovery from one or both of those things, the P/E might settle down to something a little bit more reasonable.
Jason Moser: Yeah, I think you're right. I believe I saw a statistic out there that referred to the forward multiple in that same index at around 22 times, which is still given the nature of those businesses, more stayed borrowing dividend-paying companies, it still seems fairly high given the current state of affairs.
Chris Hill: Let's get to some of the companies making headlines this week and we're going to start with Netflix. Positive first-quarter earnings were completely overshadowed by the news that for the first time in over a decade, Netflix lost subscribers. It was only 200,000, but Netflix guided for a loss of 2 million subscribers in the second quarter and shares fell more than 35 percent. Jason, this was a rough one.
Jason Moser: It was and I do want to be fair here because if you adjust for the situation in Ukraine right now, I think that actually, they didn't technically lose subscribers. But the bottom line is, they did lose subscribers in the real world and it sounds like that is poised to continue. It doesn't seem like it's that big of a stretch to assume that maybe they are hitting a ceiling in regard to growth. They've got 230 million some monthly subscribers at this point. It's clearly a good business. Otherwise they wouldn't have so many subscribers. But with that said, there are obviously a lot of criticisms out there in regard to the content.
I think the criticisms in regards to the business model are probably a bit more fair as we see more and more competition enter the fray. We heard talk on the call there. This is a big pivot, of course, in regard to the ad-supported model, which founder Reed Hastings has been just adamantly against for so long. Now, they seem very open-minded to it. I think frankly that's the right call because when you look at the rest of this landscape, most streaming services out there today that are succeeding are built on some form of an ad-supported tier. I think for Netflix, that could be a wise decision because it gives them the opportunity to not only grow subscribers, perhaps capture some of those freeloaders that they mentioned, but it also I think is a good way for them to maintain subscribers. If you're a user and maybe you're not really using the service all that much, you could downgrade to that ad-supported tier without necessarily leaving the service. Then while Netflix may not necessarily capture the subscription revenue, at least they have the opportunity to monetize on the ad side. I think the flip side of that is just that they are light years behind the competition when it comes to building out an ad-supported model so would look for that solution to offer any meaningful results over at least the next year or two.
Ron Gross: On the non-ad-supported side of the business, I think what would concern me the most is pricing power or the lack there of. It appears that based on the competitive landscape out there, so many other streaming services with great content, Netflix with some good content, their ability to continue to raise prices in the future is questionable and to me that changes the model quite a bit.
Chris Hill: Busy week for Elon Musk. Tesla reported record profits in the first quarter. According to documents he filed with the SEC, Musk appears to have found the money necessary to buy Twitter. He is planning to pay $21 billion himself, and he's lined up loan commitments from Morgan Stanley and other banks. Like I said, Ron, busy week. Where do you want to start?
Ron Gross: [laughs] Let's start with Tesla. Boy, oh boy, what a quarter. Highest quarterly profit ever, sales up 80 percent, delivered 310,000 vehicles globally. That's up 68 percent. That's despite rising input costs hurting the business, surging prices for everything from lithium to nickel. Musk said the company would likely produce more than 1.5 million vehicles in 2022. That's up 60 percent over last year. Let's see what happens. But perhaps they're working through recovery from the shutdown of the Shanghai facility as a result of widespread COVID in China. Musk also said he hopes the robotaxi will enter volume production in 2024, I don't know about that. Let's hold our breath on that for a bit. He likes to talk as book quite a bit. But listen, record quarterly profit of $3.3 billion. You can't deny that. Turning over to the Twitter saga. Musk who has 82 million Twitter followers, has an outstanding bid of $54 and change for the company to take it private. Following the bid, Twitter management adopted a poison pill, which will make it virtually impossible for Elon Musk to increase his stake above 15 percent, he owns around nine percent now. Given the fact that Twitter's board has not been responsive, Musk is exploring a tender offer to go directly to shareholders maybe to purchase stock from them. Again, I think that's going to be difficult. As you said, funding looks it has been committed to which is essential. You can't just go out there and make offers without funding, that's a no according to the SEC. But we'll see who else steps in. Maybe some other private equity buyers, big tech is going to be tough because of antitrust. But LBOs are tougher for business like Twitter because it doesn't have those stable cash flows that LBO buyers really require. It's going to be fun to watch this play out at the very least.
Chris Hill: It really is in part, because Jason, I have no idea how this movie is going to end. [laughs]
Jason Moser: I think it's a difficult ending to predict for sure, the outset of it. My general thought was he's going to try to rock the boat, he is going to end up not being able to make this deal happen. He will then sell the shares that he purchased at whatever gain and just move on. It still didn't seem like really a stretch for that to happen. I guess it really does boil down to exactly how Twitter's board responds to this. I understand where he is coming from, given Twitter status is that town square and it feels like his number 1 focus, a priority here really would be censorship. That's a difficult one to really fully unpack because Twitter is not an entitlement. You don't have a right to use Twitter. It's a service that you can use and they have rules. If you don't follow those rules then they have the right to stop you from using the platform. Now, it can also be argued that they don't enforce or apply those rules in a coherent or consistent fashion, which then potentially limits the utility of the platform. Particularly a platform like this is got so much power to tilt so heavily toward news and politics. That makes content moderation a very difficult thing, so even if this does work out and he does end up getting this that's only one part of the problem there. Then figuring out how to fully crack that nut and make this a platform that is as productive [MUSIC] as possible that's another thing entirely.
Chris Hill: Coming up after the break, we've got pizza and beer, don't go anywhere. This is Motley Fool Money. [MUSIC] Welcome back to Motley Fool Money, Chris Hill here, with Jason Moser and Ron Gross. Shares at the Gap fell 20 percent on Friday after the company cut revenue guidance and announced that the CEO of Old Navy will be leaving. Ron, of all the apparel makers, this is the most confusing to me because the Gap seems such a straightforward value proposition and I don't understand why they have struggled for so long.
Ron Gross: They can't get it right, and it's not just in one of the divisions. They can't get Gap right, Banana Republic right, Old Navy right, it's really been a struggle for them for many years. The CEO said they're looking at bringing in a new leader with the operational rigor and creative vision to execute on the brand's unique value prop, which just sounds like a shot to me and exiting Nancy Green. But they don't even have a person yet, external search is underway. As you said they lowered guidance to reflect the weak business supply chain disruptions, rising inflation, hurting the Gap as well as most retailers. A plan is in place to close 30 percent of Gap and Banana Republic stores in North America by early 2024. I think that's important, they got to decrease the footprint here. You got to focus on getting the right merchandise in the stores at the right price. They are increasing promotional activity, which is going to hit margins again. It remains a bit of a mess.
Chris Hill: Boston Beer continues to struggle. The parent company of Samuel Adams posted a loss in the first quarter. Overall sales were not great and yet somehow Boston Beer has a P/E ratio just above 300. Jason, on paper this looks like a software start-up.
Jason Moser: [laughs] Let's forget about that for a second because those numbers you would need to adjust for it to get to where you want to go. But ultimately let's talk about the business. There's a term that management uses now in regard to the business that I think should help investors frame their expectations on what investment this is going forward. The term is Beyond Beer. You got that right? We're not talking about Beyond Meat, we're talking about Beyond Beer. Now, we talked for a while how it's becoming more dependent on things other than beer, and that really is a story. I think with this company going forward, it's ciders, seltzers, partnerships, cannabis, it's all going to be on the table. I think the difficult part for them is really just spotting the trends early enough and rolling out the product accordingly. But the numbers themselves, depletions down seven percent, revenue down 21 percent, margins getting hampered due to supply chain constraints. But it's also worth remembering that's coming off of a crazy first quarter from a year ago. The comparable from a year ago was an anomaly, so let's not hold that against them. With that said, again, I think there was particular weakness in seltzer and we have seen this story play out before with cider, and they continued to have some difficulty there on the beer side of the business as well. It is really going to be that Beyond Beer mentality going forward and what they can come up with to add to that portfolio.
Chris Hill: Shares of Johnson Johnson hit a new all-time high this week after a first-quarter report highlighted by the board of directors approving a 6.5 percent increase to the quarterly dividend. Ron, this is 60 years in a row of increasing the dividend at JNJ.
Ron Gross: Love it, 2.5 percent yields right now, not too shabby for a company. That's putting up pretty good results. Revenue up five percent, six percent increase in the pharmaceutical division. That remains the company's strongest growth area. That is expected to be the profit engine after the plant split with the consumer device division which JNJ will end up being two companies. The medical device business which will join pharmaceuticals was up six percent. Now the weak business was Consumer Health, down 1.5 percent hurt by you guess? You guessed it, global supply chain disruptions, inflation exchange rate. Much more excitement on the drug and medical device side. Earnings up three percent overall. Love to see that dividend increase I think we're going to continue to see acquisitions on the pharmacy and the medical device side of this business once the split happens. I like JNJ.
Chris Hill: Papa John's announced a new three-year endorsement deal with board member Shaquille O'Neal. You may recall Shaq joined the board three years ago when Papa John's was reeling as a business. Jason, some in the investing world laughed at the idea at the time that the basketball Hall of Famer and celebrity pitchman could help revive the pizza chain but not us, not on this show. [laughs]
Jason Moser: No, sir, not on this show. I think we recorded that for posterity if I'm not mistaken. [laughs] You look back to March 22, 2018, I was actually looking through my show notes for that particular show. I said in this, "I'm calling it the worst is over for Papa John's. This is officially now a comeback story and I think they're pulling it off nicely. Stock component all this compensation, 1.5 cash, 1.5 stock, so Shaq is calling this stock a buy, me too." You know what? It's worked out OK. I think a lot of that is because honestly, at the end of the day, this was a PR problem obviously a very bad one but it wasn't a problem with the food, and that really is important to remember. You look at the ad campaign that focused on the owners of the local chains I think that was brilliant. They really pushed Shnatter out of the way there so they could disassociate from that issue at the time, and so what we've seen now is obviously a terrific turnaround.
Ron Gross: Jason, you got to eat Papa John's or Domino's for dinner, which one?
Jason Moser: I'm going with the Papa.
Ron Gross: Interesting.
Chris Hill: [MUSIC] Stock has doubled since Shaq joined the board three years ago.
Jason Moser: Eating brown thin and crispy Italian sausage at Papa John's.
Ron Gross: Oh, he knows it. He knows the menu.
Jason Moser: Yeah.
Chris Hill: You guys can continue this debate during the break. We will see you later in the show. But up next, we're going to get the latest in real estate investing with Matt Argersinger. Stay right here. This is Motley Fool Money. [MUSIC]
Welcome back to Motley Fool Money. I'm Chris Hill. Time to check in on the state of the real estate market and to do that, we go to Matt Argersinger. He's the lead investor for Millionacres, the Motley Fool's real estate investing service, and he joins me now. Matt, good to see you.
Matt Argersinger: Good to see you, Chris.
Chris Hill: Let's start with residential housing because I'm curious where things stand now that we live in a world where mortgage rates are above 5 percent.
Matt Argersinger: A world that we have not been to for many years to actually, at this point. When it comes to the housing market, I think it's really a tale of two markets. On one hand, you've got inventory that is still extremely low in most places, while demand is extremely high. I mean, people are looking to buy a house. Either they're at an age where they are starting to family, or they are tired of renting, or they're moving to a new location because their work allows them to, but it's just a huge demand for homes. At the same time, we've just underbuilt homes for so many years since really the great financial crisis, almost 15 years ago now. There's just a little supplier of available homes to meet the demand. Fundamentally, I don't see any housing crash or anything like that, given just the sheer imbalance between supply and demand in most markets. That said, as you said, we do have mortgage rates that are now over five percent, the highest they've been in about a decade. I think you're seeing the effects of that.
My wife and I are in the process of trying to sell one of our rentals in D.C.and we've met with a couple of brokers who give us a sense of the market and what we could price it for. Buyers are getting more cautious because the open houses that they're having, they're seeing less traffic. They're getting less offers for the deals they have that are coming to the market and that's with a tight inventory supply situation in D.C. The other thing that higher rates do, if you think about it, encourages people to hold on to their homes longer. If you're someone who bought a house several years ago and locked in a 30-year fixed mortgage at 3.5 percent, are you going to sell, and move out of that house to buy a bigger house even if you want to? No. You're probably going to hold onto that house and at very low mortgage for as long as you can. We've got this really crazy demand supply imbalance. I don't think home prices are going to come down, but I do think that higher rates are going to slow things down a bit. You'll probably see a flattening out of prices and sales at least for the next several months, if not longer.
Chris Hill: When you and I talked last summer, it wasn't looking great for the commercial real estate market. Now we've got major tech companies opening up their offices. The pandemic, knock on wood, looks like it is in its last days here in the U.S. What are the next six to 18 months look like for office or real estate? Do you see it coming back and if so, how quickly and to what extent?
Matt Argersinger: As you probably know, Chris, Robert Morse passed away. Great actor, Broadway musical star for decades. He played Bert Cooper on Mad Men. I spend a few minutes today watching old Mad Men clips of Bert Cooper and Don Draper walking around these majestic 1960s-era offices. I was just was like, wow. I mean, that era fields feels really gone. I mean, that era in the show is over 50 years ago, but I just feel like the era of the office feels like it has reached a peak. I do think pandemic is waning finally. You do see headlines with major companies like Facebook and Google. They're leasing office space really at record pace is. The problem is, I just think we have too much office still in this country. Millions of square feet of office in a lot of cities that I just don't think it's going to be used traditionally the way it has in the past. That's going to mean i think a lot of that office space gets converted to apartments, hotels, maybe co-working places or other uses. I don't necessarily see a strong rebound in the office market. That doesn't mean that certain segments of the market and certain breach and companies might do OK, that have just been beaten down with the decline in the office market. But I just think we have too much. We have an excess supply of office and that's going to weigh on the markets for quite a while. I mean, it's remarkable because if you just go back ten years ago, office was by far the biggest part of the commercial real estate market. It's been trumped by industrial and multifamilies become a really huge category and I can see that trend continuing.
Chris Hill: You and I live in the greater Washington, D.C., area, but I do see a lot of what they refer to as mixed-use buildings going up where it's going to have retail and restaurants and that thing on the first level. Then above that we're going to have apartments, condos whatever. Is that is that more the trend in commercial real estate?
Matt Argersinger: I think that is a big trend. I mean, there is this idea of taking what we love about urban living and transporting it to everywhere. Suburban even rural in certain instances. I think the idea of can I have the place where I live, where I can shop, where I can go be entertained and work all in one place. That makes a lot of sense. You see that in a lot of European countries, for example. There's also this just a big adaptive reuse trend that I think is happening. I mean, I'm looking at a deal right now for one of the services I work on where they're going to take an old office complex in Alexandria and turn it into what you just described: big mixed-use retail, multifamily, and maybe some co-working places as well. It's just a stone's throw from Amazon HQ2. I think there will be a huge demand for properties like that. Just continuing away from that traditional office to more dynamic uses.
Chris Hill: What are a couple of areas in the real estate market? Feel free to think in terms of broad areas, but also in terms of stocks or writes If you want that you feel like are worth shining a light on right now.
Matt Argersinger: Sure. We start off by talking about the housing market. Even though I see the housing market slowing down, one area that really intrigues me right now is the home improvement stocks. If I look at Home Depot, which is down about 30 percent from its high, I think just since December base. I mean, the market has been volatile. But I think a lot of it is based on the idea that the housing market is slowing down. But I view that as a strength. I think a lot of people's starting to stay home. They are going to work on building out a home office because they're working from home more often or they're interested in doing more landscaping. At the Home Depot or Trex payments for the composite decking has become really popular replacing traditional wood decking. Those two companies who are just really been beaten down. I like what I see there where people are staying at home. That nesting trend of investing more in the place they live.
The other area of the market that I liked a lot, I think we've talked about a few times on the show, which is just the hospitality market. Especially with, as we said with COVID ending hopefully, knock on wood, there is a lot of opportunity in some of these companies which are still beaten down. I'm thinking of companies like Pebblebrook Hotel Trust, Ticker, PEB or Ryman Hospitality Trust, Ticker RHP. They own big tourist resorts, destinations, places where a lot of people have waited to travel to, places that hosted weddings and other events that have been put on hold. Those are intriguing to me, or more well-known names like the Vail Resorts, ticker MTN, or even like a Live Nation, which is not a real estate company in a sense. Particular there is LYV, but they own a lot of real estate. Lot of big concert venues. I see a lot of people going back to that as well, especially during the second half of this year. Home improvement hospitality to areas that I think offer a lot of value to investors right now.
Chris Hill: Last thing before I let you go, earlier in the show, we were talking about Netflix and what happened with Netflix this week. One of the things we've seen in the streaming video space is essentially this convergence of you have this upstart years ago in Netflix and now you have legacy media companies coming in with their own version of streaming to compete with Netflix. Do you see something analogous happening in the hospitality space in this regard? Airbnb. With all due respect to Vrbo, Airbnb really seems like the leader in this space when it comes to rental. Do you anticipate major change like Marriott, Hyatt, Hilton, etc. Do you see them going into that space as well? Or are they just going to say, you know what, we're going to stick with what we do. You stick with what you do.
Matt Argersinger: That is something I had not thought about. What's fascinating is, as everyone has been very volatile, stocks like Marriott have actually recently hit new highs. Part of it is I think people are realizing like, "Well, I'm getting back to traveling and generally when I travel to someplace, especially some places I haven't been, I like the what I am going to get, the familiarity with the hotel room and hotel service." Whereas the service on Airbnb it's not predictable, it changes from host to host. I think there's opportunity for them to take advantage. I mean, in a way, I always think about real estate as space. What's the best use of space? These companies have a lot of space. They don't have quite the network or reach that Airbnb has because it just on a personal level. But they also have tremendous real estate in tremendous locations, ways they can advertise and market that space and more Airbnb like wage. I think that is certainly a possibility.
Chris Hill: If you want to read more from Matt Argersinger and his team, you can go to millionacres.com. Matt, always great talking to you. Thanks for being here.
Matt Argersinger: Thank you, Chris.
Chris Hill: Up next, Jason Moser and Ron Gross return with a couple of stocks on their radar. Stay here, you're listening to Motley Fool Money. [MUSIC] 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.
Welcome back to Motley Fool Money. Chris Hill here once again with Jason Moser and Ron Gross. We love getting questions from the dozens of listeners. You can email us. You can post a review on Apple and Spotify and include a question in the review. You can also call the Motley Fool Money hotline 703-254-1445. Dan Boyd, our man behind the glass, we got a voicemail.
Carson Blank: Hi, my name is Carson Blank I'm in Jacksonville, Florida. The stock I want to ask you about was Traeger with a ticker COOK. It' not a company that I own but I listen to a lot of your stuff and as a college student who likes cooking I think Traeger is really cool. I think it's coming, it has a lot of potential to tap in the market, and I see that among people of all ages, mostly my dad and my grandfather on both sides. It's interesting to me that it's something that could get me excited about wanting to buy some type of grill in the future, and also seeing it with older people and people of my age connecting over that. I thought it would be cool to hear you guys talk about that company because honestly it hasn't performed very well since IPO. That's it. Have a good one.
Chris Hill: Love it. Great question.
Jason Moser: Awesome.
Chris Hill: Love the way this guy is thinking, Jason. Looking for opportunities, thinking about the market, but also keeping in mind that Traeger, again the ticker, COOK, has not done well since it's gone public. But you are a fan of the product, yes?
Jason Moser: I'm a fan of the product. I guess I should tell you how well my Easter Dizzy Pig Raging River ribs came out [laughs] from that smoker last week. It was heavenly to say the least. But we'll save that for another time. Listen, I love the question here.
Chris Hill: Yeah, let's get to the business.
Jason Moser: Because it could be one of those things where, "Hey, it's a great product, maybe not the best stock. I'm not willing to say that yet, I will say it's a great product, the stock I'm still a little bit out on but I was digging through some of the company's filings to get a better idea of where they see this going, how big they see their opportunity, they talk about their total addressable market, which ultimately is what they offer today, is well as what they'll offer in the future, there're longer-term opportunity and it's comprised of approximately 75 million households that own a grill here in the US. That represents about 60 percent of households in the US. They said that they sold approximately 2 million Traegers in the United States between 2016, 2020. They have that penetration somewhere in the 3, 4 percent range of their total U.S. TAM. Now, we're not assuming they'll collect all 100 percent of that total addressable market but can they collect more of that? Can they get more of that? Yeah, I think they can and if they can continue to innovate and come up with some recurring type sales products, there might be something there.
Ron Gross: For me Traeger versus Weber, for example, is all about Traeger's hardwood pellets that they use versus Weber which is either charcoal or those flavorizer bars we've even talked about. For me who grills three times a week, but I'm not a purist or a grilling snob by any means, I like the convenience of it. I like propane. I'm not really going to probably ever go Traeger, and I think that's a smaller subset of the overall market that is willing to go there. I'm not surprised to see demand wane now that COVID is kind of behind us selling at 16.5 times EBITDA right now. That's pricey for me for a company that is not really putting up the growth numbers I would need to see.
Chris Hill: Jason, let me throw out an idea to supercharge the subscription possibilities for a Traeger. It's just a monthly box that you can send people. Send me a spiced rob, a marinate, a couple of new recipes. I grill a couple of times a week and just a quick Google's search showed that there are some smaller businesses that are doing this type of thing that are charging an incredible amount of money to me. I mean, a $100 for three months, that kind of subscriptions. It seems like for the power grillers, which I think people like Ron and I are and you're as well, give us some new ideas along with a little spice and some marinate.
Jason Moser: I think that's a great way to look at it and certainly they are looking at it from that same perspective. I mean, that's a very competitive space for sure. But any and all brand-building opportunities I think are on the table subscriptions, I mean, obviously the recurring sales over hardwood pellets. I mean, there are a lot of different ways to go about it and I think this is really just the beginning stages of a very interesting story to follow.
Chris Hill: Carson, thanks again for the question and the call. We're going to get to stocks on our radar in just a second. But if you know anyone who is looking to get started investing, we have a free investing starter kit, it covers everything from saving money to 401(k) plans, to buying your first stock. It also includes stock ideas and ETF ideas from our investing team and it's free. You can just go to fool.com/starterkit. That's fool.com/starterkit all one word. Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week?
Ron Gross: I'm going to go with a stock that's been around the Fool for a while, but that I never spend much time with personally. That company is Atlassian, T-E-A-M, team is the ticker symbol, a recommendation across many Foolish services. Atlassian has gotten smacked around with lots of other tech and software companies. Shares are down almost 50 percent from the 52-week high reached in October, so I'm taking a fresh look. They are a provider of collaboration and project management software founded 20 years ago. Most of its revenue comes from their Jira and Confluence products. Some people may know Trello. They've got a unique sales model, there is a free product, a freemium product, and then you can upgrade to the page just from their website. They are serving almost 50 more customers now than they did just two years ago. Large enterprise customers are playing an increasingly important role as well. I'm taking another look on the stock's weakness.
Chris Hill: Dan, question about Atlassian?
Dan Boyd: We at the Fool are actually Atlassian customers using Trello quite a bit in our workplace. Ron, what do you think makes this stock interesting after coming down back toward July 2021 levels?
Ron Gross: The reason I actually look at it is because of the Fool's affiliation with it. First using Trello and now we're switching over to Jira a little bit and I've been exposed to it as a result. I do think that Jira is probably one of the bright spots that will lead to the company's future growth and that makes the stock interesting.
Chris Hill: Jason Moser, what are you looking at this week?
Jason Moser: Just circling back on the stock I purchased last week, I noted this week once trading guidelines lifted, but I added to my position in Twilio, which is a cloud-based communications company. They enables developers to build and scale and operate real-time customer engagement within their applications. But to me, it's a very interesting business. I think it's one of those babies being thrown out the bathwater here. It's mission critical for a lot of these companies out there, they are very sticky service with a low cost of adoption. Continuing to grow customer base, 256,000 customers now. That's up 16 percent from a year ago. They're growing organically, they're maintaining their dollar-based net expansion. They've got big customers out there including Airbnb, Stripe, Salesforce, and others. With the stocks really pulled back now at seven times full-year sales estimates, I think it's starting to look a little bit more attractive in the face of a lot of these businesses which are still trading at higher multiples. Earnings on May 4 after the market closes, Twilio.
Chris Hill: Dan, question about Twilio?
Dan Boyd: Well, it looks like it's software Friday here at the Motley Fool [laughs]. That's something. Jason it's a very crowded market with Twilio, what really excites you moving forward about the company?
Jason Moser: Dan, I'm going to have to get back to you. I've got a Boston butt out here on the Traeger that I need to go check on [laughs] real quick so we'll talk about this next week, all right?
Dan Boyd: Dodging the question [laughs].
Chris Hill: Dan, what do you want to add to your watch list?
Dan Boyd: You listen, man, I don't like question dodgers whatsoever [laughs] so I got to go with Atlassian with Ron Gross for this one.
Jason Moser: No pork nachos for you, Dan.
Chris Hill: Jason Moser, Ron Gross, guys, thanks for being here.
Ron Gross: Thanks, Chris.
Jason Moser: Thank you.
Chris Hill: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you next time.