mark reeth: i'm mark reeth, and joining mein studio today, from million dollar portfolio, jason moser. jason, how's it going? jason moser: howdy!reeth: happy tuesday! moser: happy tuesday to you, too. reeth: we've got plenty to get to today, includingsome comments from tim cook that don't exactly
apple inc stock quote, make things look good over at apple. but webegin with earnings. jason, why don't we start with the new york times? we've been tellingthe same story about newspapers for a while now. money is heading in the opposite direction.paper is the way of the past. print is dead. but, new york times showing a little sparkof life this quarter.
moser: you're going to have some big pro-printpeople who are going to say, "how dare you, mark reeth! print isn't dead!" reeth: radio@fool.com, send it my way. sendit via email because print is dead. moser: definitely facing some challenges there.we had talked about this, i guess, a couple of weeks ago in regard of the big gannettacquisition recently. the bigger question today is, what's worth more -- the informationyou're getting or the brand that's giving it to you. and i think, for the longest time,the brand was very important, because it signified a reputation and earned trust. i think, astime goes on, you see a lot of these brands maybe skew to one side of the political spectrumor the other. you have your loyalties there.
reeth: you pick and choose your side. moser: exactly. and i think that's fine. there'sno big deal with that. but, generally speaking, what the internet has done is disrupt virtuallyeverything that we do in our lives. newspapers indeed fall into this category. i think, whenyou look at the new york times, the good news for them is, they've made this pivot awayfrom print and towards digital media subscriptions, and circulation is growing in that regard.that's a positive. i think the bad news, though ... there are a number of bad points, or challengesthey have to deal with. they're dependent on advertising as part of their revenue generator. reeth: it's newspaper, yeah.
moser: and advertising is dwindling. it'sbecoming less and less a piece of the pie, which isn't good. we look at this quarter,advertising was 37% of total revenue. a year ago, it was 39%. a year before that, it was41%. so, they're becoming more and more dependent on paying subscribers. and that's fine, ifyou can grow paying subscribers. and they are growing their paying subscribers. butwhen you look at the actual subscription revenue, the subscription revenue is growing far moreslowly than the actual subscribers, which would indicate a lack of pricing power. andthat's not surprising. we don't really have to make a leap to get there. but then, you have to start asking yourself,from an investor's perspective, is this something
that is really worth investing your capitalin? i see enough challenges here to where ... i think really, the best opportunity foranybody in this space is going to be consolidation. and we're watching that shake out right now.and i think the new york times is going to have to be a part of some type of consolidationin order to make it a more attractive story for investors. as it stands today, i justdon't see enough there to make investors excited about the years to come. reeth: yeah. they're clearly trying to makeinvestors excited. they've got some big promises. and one of them, i pulled this from theirearnings, they generated $400 million in revenue through online advertising and subscriptionsin 2014. they want to double that to $800
million by 2020. moser: i want a toilet made of gold, mark,it doesn't necessarily mean it's going to happen. reeth: (laughs) when you have other companies,like facebook, for pete's sake, is struggling with online advertising right now. i thinkyou said this earlier -- it's a large pie, but it's getting divided up very quickly betweensome large companies out there. new york times is going to be fighting for the same ad revenuewith facebook. facebook, with their news feed, is trying to become the new york times ofthe internet. the new york times is going to have to fight them, on facebook's hometurf. i don't see $400 million turning into $800 million in six years. i don't see ithappening in 20 years for new york times.
moser: (laughs) i tend to agree with you there.i think this landscape only becomes more and more competitive. and when you have platformsout there like facebook and twitter and instagram and snapchat and maybe even linkedin, to alesser degree, competing for all of those digital eyeballs ... for the new york timesto be able to grow advertising revenue at that kind of a rate seems like a stretch.i think it'll boil down to consolidation in the industry. i think there are going to bemore partnerships reached with a lot of those major platforms in order to potentially offersome revenue sharing there that could be beneficial for them down the road. but it's just a fardifferent space than it was even 10 years ago. unfortunately, the new york times wasbuilt in a different time, on a different
premise. it's not as nimble or as savvy asa lot of these newer media companies are. and i think that's where a lot of the challengesare going to be for a while. reeth: really quick, let's speculate wildly.who buys the new york times? what conglomerate does the new york times become a part of?a lot of media companies, like you said, are combining forces these days. i think comcastjust bought dreamworks the other day. is it so far afield to say that one day, the newyork times and, i don't know ... warren buffett owns a whole bunch of newspapers out there.is it so crazy to say warren buffett gobbles up the new york times someday? again, speculatingwildly. what are your thoughts for the future? moser: yeah, i don't think that's necessarilyas crazy, or as big of a leap. buffett likes
newspapers a lot. i think he really likesgoing down to the local level. i think, when you look at it from a national level, that'sprobably where more competition is. but, that local level, that's where, i think, probably,those local tabloids have a little bit of a better advantage, because they're the onlyones covering that space. i mean, that's a really good question. i mean,jeff bezos bought the washington post for himself. that's not an amazon-owned business.but it is a bezos-owned business, and it's becoming more and more a part of amazon'smodel. i mean, i don't think it would be all that far-fetched to see a digital propertyconsider bringing something like the new york times under its wing, in order to bring somemore national media savvy.
i don't know ... speculating wildly, perhapsgoogle? perhaps facebook? i mean, i don't know that i necessarily see that happening,but it wouldn't shock me if it did. reeth: yeah, absolutely. let's move on togrubhub, which also announced earnings earlier. bit of a mixed bag here. quarterly revenuewas up, net income was down. what's your takeaway from the earnings report from grubhub? moser: i think the crucial part of the equationfor anyone looking to compete in this market is, it's all going to revolve around customerservice. this is a customer service deal right here. when you're having your food delivered,you want two things -- you want it in a timely fashion, and you want the right order. ifyou miss out on either one of those, it really
creates a bad experience, and you're not aslikely to use that service again. this is a really interesting space, becausethis is what grubhub does. this is the advantage that they have. this is what they do. so,when you look at the competition in this space, something like amazon, for example, in theirprime offering now, they are getting more into this space. i'd worry that amazon ... reeth: it's amazon? moser: (laughs) the mandate of the business,the mission of the business is to be the most customer-centric company on the face of theearth. on the flip side there, you look at other competitors like uber, postmates, doordash... i'm a little bit more on the skeptical
side as far as uber being able to incorporatethis into their model and being as effective with it. i think uber does something verywell in getting people from point a to point b. i don't know that it's necessarily as easyto leverage that infrastructure and throw food into the mix. it could ultimately workout for them. but again, i think, it's not their specialty. it's not what they do. we are seeing partnerships with companieslike postmates. i think postmates is the one that's partnering with chipotle. and i'm surethat more and more partnerships like that will shake out. but, grubhub went public ata very good time. now they're there. they have that funding, and they're out there.all these others are still private, with the
exception of amazon, so they have to dealwith raising more and more capital and building out the business. there are a lot of attractive qualities, ithink, about grubhub. this is kind of a pure play. it's a big market opportunity. you havesome estimates out there of a $70 billion takeout market here domestically. now, that'snot their market opportunity, but they'll measure total food sales, and their revenuesare going to be a part of those total food sales. all of the metrics are trending inthe right direction. they have a solid balance sheet. they're profitable, they're cash flowpositive. shares are actually trading at a semi-reasonable level at 32x full-year non-gaapestimates. so, it's not like it's really all
that outrageous of a stock right now. yeah,it's going to be a very competitive environment, for sure, but-- reeth: actually, i want to come back to that.you mentioned this right at the top. in fact, you actually said something about the newyork times earlier that i wanted to go back to as well. you talked about information vs.brand, and how in the news industry, brand used to be everything, and now informationis everywhere, so brand has become less important. i kind of feel like it's almost the same thinghere with grubhub and its competitors. that's what you were talking about at the beginningof this portion of the show. i've used grubhub. i used it this past weekend.i also used eat24, which is a yelp product.
i think i used that two weeks or so ago. incase you didn't know, i am about 75% of this market. the eat-in market is all me at thispoint. moser: (laughs) there you go. reeth: but, in my mind, the two are interchangeable.even in terms of offerings, of the different kinds of food out there, even in terms ofservice and delivery times and everything. to my mind, there's not much differentiationbetween brand or information at this point. you can get food from anywhere, any thesedifferent services out there. if i can call an uber from a bar and have them have a pizzain that car on my way home, that's the golden ticket right there, that's beautiful.
i guess, what it comes down to for me, andmaybe there is no correct answer here, but what differentiates grubhub? why grubhub overall the others? again, their business sounds great. you've been giving us some great numbershere. it doesn't sound like grubhub is a bad investment. just, is there a moat? is thereany way for it to distinguish itself from the competition? moser: i think the quickest way to buildingany kind of a moat is to have the biggest network. i think, with any of these businesses,having the biggest network is going to be a great way to separate yourself from yourcompetitors. whether i'm in georgia or california, i could use grubhub, and i'll find a largeselection of restaurants where i can get basically
whatever i want. ultimately, yeah, you'relooking for the food first, and how do you get it is going to be secondary. back to thenewspaper conundrum there, i think you're going to see consolidation being a part ofthis industry as well. grubhub, which also owns seamless, and they just made anotheracquisition here of a los angeles-based delivery service.reeth: labite. moser: i think we're going to see a lot ofnetworking here early on. it's kind of the wild west right now. that's going to be, ithink, the biggest advantage. and i think that's an advantage that grubhub certainlyhas over other businesses that haven't been able to go public yet, because they're goingto be a little bit more constrained financially.
and as your network grows, those network effectsstart to take place, other restaurants see you as being the company with the biggestnetwork and the most reliable service. then, you can develop a brand from that. they kindof work together. i think it's going to be building that network out. and the fasterthey can do that, the more of a competitive advantage, or at least some sort of a moatthey'd be able to develop. and after that, really, it just becomes aboutexecution, making sure you're providing that great service, and making sure that you reallyare focused on that. it's easy for companies to be customer-centric in the early years.it's another thing to really sustain that behavior and grow it. customer service isone of those things that's difficult because
it's really not so scalable. you're lookingfor that human interaction, which is why i'm generally a bit skeptical of these bots wehear so much about. i think they can provide certain things, like, you could find out thehours a restaurant is open, perhaps. but, if you're having an issue with a service,you're probably going to need to interact with a person. i think that service, again,is going to prove out to be a very important dynamic to this market. reeth: alright. let's move on to our finaltopic of the day, which is apple. tim cook, apple ceo, went on kramer the other night,trying to convince investors and shareholders that everything is a-ok. and one of his quotes,that you sent to me before the show, i quote:
"we are going to give you things that youcan't live without, that you just don't know you need today."moser: yeah ... reeth: well, jason, i just don't know whatthe hell he's talking about. they've been saying over at apple that the pipeline isstrong, there are more products coming, the next iphone, the next ipad, the next whatever.the watch was an attempt at that, which i think largely has flubbed. i'm not confident,personally, in apple's pipeline. and i think that's drawing a lot of fire from investorsthese days. what's your take, first of all, on tim cook's comments from the show the othernight? moser: i think, with apple, let's separatethe stock from the business. i think they
each deserve their own fair consideration.from a business perspective, this is a phenomenal company. it's huge. the balance sheet is afortress. and a lot of different resources and ways they can go. and, obviously, it'sone of the most important businesses of our time. apple the stock, though, yeah, that's a bitof a different story right now. and i'm not sure there's an easy answer there. i am growinga little bit tired of hearing tim cook say that, as well. every call, he's talking aboutthe pipeline, and these products you're going to need that you don't even know you need.and that sort of sounds familiar, because i think that's what jobs was always reallygood at doing, was giving us things we didn't even really know we wanted or needed.reeth: yeah, just one more thing.
moser: just one more thing. and i mean ... alot of people are investing in apple these days because they think it's dirt cheap, andthey think that's a reason to invest. and i get that. i'm not necessarily disagreeingwith the idea that it is cheap. it sells for something like 10x earnings, and backing thecash out of the balance sheet there, it's pretty phenomenal. by the same token, i think a lot of the storyis very well-known already. we know they're going to pay a dividend. we know they're goingto keep on buying back shares. i think a lot of that is priced in. maybe not all of it,but i think a lot of it is. the market generally is a forward-looking mechanism.
i think tim cook has done a wonderful jobmanaging this business. i think tim cook is not an innovator. and i'm not saying innovatingis easy, either. i think innovating is something that is very unique, and that's why you don'tsee it happening all the time. if it was easy, everybody would be doing it. i think tim cookis basically doing the best he can. i think he's making the best of a given situation.and i don't know that it's fair to really expect much more from him. i tend to agree with you. i think the watchhas basically done what i thought it would do. it's done ok. it's not going to be a newdirection for the company, i don't think. i think they're facing a lot of challengeson the tablet front. i think the phone is
certainly becoming more and more commoditizedas time goes on. and i think as technology improves and more companies out there aredoing more things, apple's closed ecosystem becomes less attractive. i think most peoplelike to be able to utilize all the options that are out there. a number of people loveapple and only want to use apple. that's great, have at it. but a number of people also wantto be able to use everything else that's out there, and maybe have an iphone while they'reat it, and that's cool, too. i saw a tweet from joe magyer maybe a weekor so ago that i think really sums this all up. you look at, when tim cook took over in2011, i think it was, they first implemented a dividend in 2012. you look at that stockfrom 2012 to today, and it's clearly underperformed
the market. even with the dividends and buyingback shares and everything. i think that's for a number of reasons, but part of it is,it's obviously a very big company. they are trying to sell hardware at a high price point,which is not going to work everywhere. there's a reason why the majority of the world isusing android and not apple. people tend to want to be able to utilize all of the optionsthat are out there. i think apple stands a chance to do very well.i think they're going to need to make some acquisitions. i think a catalyst could bein that balance sheet, because so much of that money is overseas. i'd love to see ourgovernment here offer up a tax holiday and let some of these companies repatriate someof that cash. i think they could do a lot
of great things with it, and shareholderscould really win from that. who knows what'll happen on that front?! i do think that a lot of people are probablygetting a little bit tired of the, "just wait, we've got a great pipeline talk," becauseyou know what? i'm just not seeing it yet. reeth: been waiting for a long time. appleshares closed down for an eighth straight day yesterday, which might be a non-headline,but it's the headline today. that's the first time this has happened since july 1998. thestock has lost 11% since april 26. in your mind, it's looking a little cheap. is nowthe time to buy? moser: i think if you're looking for a steadydividend play that you can sleep well at night
knowing is in your portfolio, apple is a veryfine stock to own. you have to put into context to try to figure out, how does this stockdouble? it's already a huge company. you need to keep your expectations in check. this isa far different apple than it was five years ago. but, it's a great company that's doinggreat things, and they have a lot of opportunities to take the business in new directions. i wouldn't be backing up the truck on thestock today. i think it's cheap for a reason, and i don't know there's necessarily a catalystthat takes this thing to the moon. but it's a very high quality business, and again, ithink tim cook has done a very fine job, given the situation. he's not steve jobs, and weall knew that. i think the biggest challenge
for him is trying to figure out what the nextinnovations are. and he has a great team there, it's just probably taking a little bit moretime than a lot of people feel like they have. reeth: waiting and seeing and hoping and wishingand praying. moser: i still like my iphone.reeth: sure, nothing wrong with that. moser: not at all. reeth: jason moser, thanks for being here, man.moser: thank you. reeth: as always, people on the program mayhave interests in the stocks they talk about, and the motley fool may have formal recommendationsfor or against, so don't buy or sell stocks based solely on what you hear. that's it forthis edition of market foolery. the show is
mixed by dan boyd. i'm mark reeth. thanksfor listening, we'll see you tomorrow.
