In this segment of the Oct. 29th MarketFoolery podcast, host Chris Hill and MFAM Funds’ Bill Barker discuss the company’s growth, its outlook, and the wider reasons why the market was unimpressed. But for those looking ahead rather than behind, they also dig into Alphabet’s as-yet-unconfirmed plans to make a bid for Fitbit (NYSE: FIT).

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 Oct. 29, 2019.

Chris Hill: We’re going to start, though, with Alphabet. Shares down a couple of percent because Alphabet’s third quarter… it looks to me like a speed bump, but you looked at it more closely than I did.

Bill Barker: Why would you assume that?

Hill: Well, I’ll tell you why. They were light on earnings. Everything else was essentially as expected —

Barker: You’re not giving yourself enough credit. Look at you, revealing how closely you’ve looked at it already.

Hill: I don’t want for one second for anyone listening to this podcast to think, for one second, that I’m an analyst. Over the years, I’ve gotten that comment from time to time. “You’re a financial analyst.” No. I’m not. [laughs] I’m really not!

Barker: What do you call yourself at parties?

Hill: [laughs] I don’t really go to parties. Let’s get back to Alphabet’s third quarter. This did look like they missed on earnings. Revenue was in line with expectations. The different divisions seemed to be performing about as expected. They didn’t really do anything radical to the guidance. So that’s why I look at this and say, I get why the stock is down 2% for a company and a business that has otherwise been crushing it for the last 15 years.

Barker: Yeah, it was up 2% yesterday, down 2% today. I think it’s up about 5% over the last month. It’s a little bit of, I don’t know, taking some profits kind of move, rather than a, “Oh, my God, there’s something we didn’t see here” kind of move. Continuing to grow mid-teens, which is awfully impressive. Top line growth was up 17.5% year over year. It continues to be an incredibly large company, growing faster than you could really have hoped for.

Hill: Well, one way that companies grow is through acquisition. Shares of Fitbit are up 30% since Monday morning on reports that both Fitbit and Alphabet are not commenting on, that Alphabet is going to buy Fitbit. Ruth Porat, the CFO of Alphabet, was asked about this, and declined to comment. No reason she necessarily needed to, although it’s always nice when executives comment on things. Certainly, Alphabet has the money. And for a while now, I’ve been throwing out there about Fitbit —

Barker: Do you get a cut if this deal goes through, for putting this one together?

Hill: [laughs] You know I don’t like to comment on that.

Barker: [laughs] You’re pulling a Porat here.

Hill: I’m pulling a Ruth Porat, I’m going to decline to comment on that. No, I mean, Fitbit has some level of brand equity. There’s a basic interface that has led to some level of success. There is some value to Fitbit. For a couple of years now, it has looked like, at the right price, someone with deep pockets would come along and make them some type of offer. And if the reports from Reuters and other news agencies are to be believed, that has happened, and it just hasn’t been formalized and announced yet.

Barker: Yeah. I think that it makes sense on the level of Google being a serial acquirer of ways to develop, first of all, but also acquire ways to get personalized data and then monetize it. Fitbit is in the business of collecting personalized data on you. Ever used one?

Hill: A Fitbit? No.

Barker: Well, if you did, there would be all sorts of data about you captured. The question is whether you want Google to capture it. You do, because you’re an advisor on this one. Therefore, you’ve got a stake in it, or at least you’ve got some mental stake in it. Like, “I suggested this, therefore it must be a good idea.”

Hill: Look, any reports of my having dinner with Fitbit executives earlier this year, and then later in the year executives of Alphabet, those are rumors and I’m not going to comment on them.

Barker: Well, if Fitbit goes this direction, and, as you say, Google certainly has the money to do it, they put a fair amount of money in the last quarter to share buybacks, which is in a sense the absence of an idea of what to do with your money. And they are not typically running out of ideas. Certainly, the market is giving this report credibility, in terms of the likelihood.

Hill: Last thing on this topic, and then we’ll move on. Right now — and this is obviously after a 30% rise — Fitbit’s market cap is just under $1.5 billion. Let’s assume that this deal goes through. Maybe there’s even a slight premium to what we’re seeing today. I don’t know, let’s call it $1.6 billion, $1.7 billion. How confident are we that Alphabet is going to make more of this acquisition than they made of, say, the YouTube acquisition that they made back in 2007, for which they paid roughly the same amount of money? If memory serves me correctly, I believe they paid $1.6 billion for YouTube, and all they did with that is turn it into the second-biggest search engine in the United States.

Barker: I would bet that it’ll never come close in terms of value creation to YouTube. That’s a tough standard. Also, if you were to compare, what do you put more faith in? People taking care of their health, or people sitting around and watching stuff? Just as a proposition, right?

Hill: I’m going to bet on the latter.

Barker: I’m going to bet on the latter. Google wisely bet on the latter. Now, that’s not to say that people aren’t spending money taking care of themselves and aren’t interested in how to take care of themselves better. But I think that YouTube serves more of the lethargy that people are prone to.

The post For Alphabet, Just OK Is Never Enough appeared first on The Motley Fool Canada.

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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 Nov. 1, 2019.

Chris Hill: On Friday, Apple reclaimed its crown as the biggest company in the public markets, so we will start there. Shares of Apple hit a new all-time high in the wake of its most recent earnings report. iPhone revenue in the fourth quarter came in higher than expected, Andy, but services segment continues to do well.

Andy Cross: Chris, it’s all about the services with Apple, at least on the growth side. As you mentioned, the iPhone business, as we’ve talked about, pretty stagnant now. They continue to make really good iPhones. The iPhone 11 is seeing good reception. But revenue up 2%, a little higher than guidance. If you back out the iPhone, growth is up 17%. But really about the wearables. The wearables business continues to drive a lot of the growth on the services side, which includes the wearables. Up 18% on the sales. Now makes up 20% of sales but 33% of the gross profits. They now have 33,000 apps across all the platforms. It was the best quarter ever for AppleCare. 450 million now paid subscribers across all of those platforms. Up from 330 million a year ago. That’s up 36%. When you look at the growth of Apple, they continue to add and innovate into the wearables side as they continue to build out that ecosystem that is really tied to the iPhone. And, they continue to drive that part of the profit picture. The net income was basically flat to down, but when you add in all the share buybacks, they boosted the EPS by 4%. Really nice quarter, and about what I think investors expected. But the innovation that they’re showing on the wearables side continues to drive the growth.

Jason Moser: I really like how Tim Cook is managing this company beyond the iPhone. I think there were a lot of questions just a few years ago, I think he’s answering those questions. We’ve always talked about Apple being a premium hardware provider. They had some pricing power on that hardware. We’re hitting a saturation point there. The ASPs on iPhone are starting to come down a little bit. The neat thing with this business, and I think they can pull this off, it’s going to take a little time, but with the services that they’re offering, whether it’s AppleCare or cloud or music or streaming, there’s the opportunity for some pricing power there. I know we talk a lot about those low prices on the video streaming product. If they put out good services, good products, I think that over time, they actually would have the opportunity to raise prices on those services, whether it’s the music product, or the video product, or whatever it is. This could be kind of a second act for them, where they could demonstrate some pricing power that maybe some investors aren’t really expecting.

Ron Gross: Since 2012, $288 billion in share repurchases. You add in dividends and it’s $385 billion of capital returned to shareholders. It’s an amazing, amazing number. Turning to Apple TV for a second, am I right that you get Apple TV for free for a year if you buy a phone or upgrade?

Cross: Yeah, if you buy one of the qualifying Apple devices starting September 10th, you get 12 months free of Apple TV+.

Gross: And I’ve heard the shows are terrible.

Cross: It’s still early.

Moser: That evolves.

Gross: One should hope.

Moser: They have all the resources in the world to throw at this. It’s just going to be a matter of locating some good ideas and then just paying the money that they need to get those things produced.

Gross: So, Jennifer Aniston and Steve Carell are just not getting it done?

Moser: Wasn’t getting it done for me, I just couldn’t care less about that show. But to your point about the devices, it’s iPhone, iPad, Apple TV, and Mac. If you go just a couple of years back, that’s in the neighborhood of 80 million devices they sold for the holiday quarter there. So they’re going to have tens of millions of instant subscribers here. And it’s really about that first year, communicating some kind of value and getting you to grab onto just one piece of content that you like.

Cross: The wearables business overall was up more than 50%. Now, at $6.5 billion this quarter, it’s about as big as the Mac category for Apple.

Hill: To go back to the video streaming service for just a second, you look at all the streaming services. Apple has, I think, very intentionally priced theirs lower than absolutely anyone else’s. So, you’re right Ron, the early reviews on the first shows right out of the gate are not promising, but Amazon Prime had some stumbles out of the gate, so did Netflix. Not every show they produced right out of the gate was a hit. When you’ve got the lowest-priced option, I think that buys you a little bit of permission with customers.

Gross: You have to price it low until the content ramps. What is there, four shows? Six? I forget which. You’re not going to pay a premium, certainly, for that. I bet we’ll see price hikes as that ramps.

The post How Apple Earned Its Way Back to Most Valuable Public Company Status appeared first on The Motley Fool Canada.

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