In this podcast, Motley Fool senior analysts Jason Moser and Jim Mueller take a look at two five-stock samplers from the past: 5 Stocks for the Coronavirus and 5 Stocks to Teach You Rule Breakers.
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David Gardner: Have you ever done something that was absolutely amazing. After a short period of time, I don't know say a year, absolutely amazing for a whole year? But then two years after that, it's like the worst thing you've ever done. The worst. First to worst. We're talking Kodak like first to worst. Richard Nixon, Florida Marlins 1997-1998, they win it all, and then each in their own ways first to worst. I've been there, I've done that, and if you're a vintage Rule Breaker Investing listener, you've been there with me. If you're a Rule Breaker investor, you may have invested here with me. The good news, first to worst is incredibly rare. The Florida Marlins won at all in 1997, but then one year later they became the worst team in baseball largely because they traded off all of their stars, but the reason I remember this is it doesn't happen very often, nor has it for my five-stock samplers, so the good news incredibly rare, the bad news. First to worst happens. Stuff happens. It happened. Five stocks to teach Rule Breakers and five stocks for the coronavirus. Please join me for this special review-a-palooza episode with guest stars Jason Moser and Jim Mueller. Only on this week's Rule Breaker Investing.
Welcome back to Rule Breaker Investing. Thanks for joining in this week. I want to mention something before we go into this week's podcast that's happening on Friday of this week, so I hope you're hearing this podcast as it comes out which it tends to do somewhere around 4:00 P.M Eastern every Wednesday. Well, we have a Motley Fool Foundation celebration. It's our one-year anniversary. You're invited to help celebrate our one-year anniversary and that's this Friday, April 14th at 3:00 P.M Eastern. I get to host a live event. You are invited, it's free. You're going to get to learn about our latest investment in financial freedom. Let's call it three bright sparks in financial freedom today it will be a Foolish conversation between some new Rule Breakers. I'd love for you to meet and little me, David Gardner. You can register now at Fool Foundation. We've talked about our foundation some over the last couple of years now celebrating our first-year anniversary we have some results and some new developments to share and a lot of you are on this journey with me as a community.
I'm delighted to report back, I am the Board Chair of the Motley Fool Foundation and I'm excited about 3:00 P.M. Friday. If you have some time for us, sign up for free fool foundation.org. Well, 30 separate times about every 10 weeks on this podcast over six years, I picked five stocks. I chose a theme that made sense to me at the time, sometimes sublime and sometimes silly, and then I thought to myself, what are the five best recommendations that I can come up with for stocks that fit that theme. Aiming of course always to beat the market, the S&P 500, otherwise hey, why are we bothering? Well, then one year later, we review the picks and then another year passes the two-year review, yeah. Two years later we never forget, we hope you wouldn't also, we score everything transparently and accountably because we're Fools. You've grown to expect that of us. Then the three-year review which is going to be the most telling, and why is that? Well, first because three years have passed since I picked those five stocks, we really can be smarter about what has happened and why and what we can learn, and that's the smarter part. But if I've done my job well then we'll also be happier and richer too.
That three-year review is also telling because most of the time we end the game right there. We're going to keep holding those stocks in real life mind. You should do so too if you own them, but if I kept reviewing all 30 of my samplers in years four, five and six, etc. Well, we wouldn't have time to do much else on this podcast, so 30 separate times I picked five stocks. I've called them my five-stock samplers and we're going to review two of those samplers today. Five stocks that teach Rule Breaker and five stocks for the coronavirus and review them. We will with my two analysts, guest stars Jason Moser and Jim Mueller. Now I already put a spoiler alert out there right up front on this week's podcast. Get ready to witness an unbelievable whipsaw with one of these five-stock samplers which went from the greatest performer of all time to the worst performer all in the space of just three years, and Jim Mueller and I will talk about that on the backend of this podcast.
But first, we're going to lead off with five stocks that teach Rule Breaker, and as I pick this group of stocks two years ago, this very week, the year was of course 2021. I was thinking what are five companies that illustrate what a rule breaker is. A top dog and first-mover in an important emerging industry a company that has strong past price appreciation, visionary leadership, companies that are perceived to be overvalued by many others, all of the classic traits of Rule Breaker stocks. What are some stocks that would teach that, and because I've made a lifetime of finding such stocks, there are dozens and dozens of them that I could draw on from hundreds of recommendations made over the years, but two years ago this week I thought, let's have fun. I'll just randomize. I pick the letter A and so we found five stocks, all of which five companies, all of which began with the letter A and those are the five stock picks. That will be five stocks to teach Rule Breaker. Here to help us learn from five stocks that teach rule-breakers, my friend Jason Moser. Jason, great to have you back on Rule Breaker Investing.
Jason Moser: David, thanks so much for having me. It is wonderful to be in the studio here with you.
David Gardner: You betcha now discerning listeners will note that the sound quality is a little bit better.
Jason Moser: I think so.
David Gardner: Then when it's in our respective dens Jason?
Jason Moser: I think that's a fair statement.
David Gardner: Thank you, and I note that you and this is just an audio podcast, not a YouTube production, but Jason I'll note that you're wearing quite a forest green shirt, and because I know you're a great golfer, which you really are a former golf pro and a golf fan, I thought of the masters green jacket because your shirt is awfully close.
Jason Moser: I wish it were a masters green jacket, but thankfully. This is the lovely shirt that my wife gave me for Christmas and she's thrilled every time I put it on.
David Gardner: Wonderful. Did you watch the Masters over the weekend?
Jason Moser: I watched it all, yeah. It's my favorite sporting event of the year.
David Gardner: Any Hot takes?
Jason Moser: Wow. There are a lot. Unfortunately, I think we probably have seen Tiger Woods' best days are probably behind him. Just injuries I think have caught up with him. I think really for me I know a lot of people wanted to make it about live. I don't really look to that. I think for me the story is more interestingly on the golf ball side. We're seeing more and more talk about these two golf balls Rayva, the golf ball for professionals that doesn't go as far, and then everybody else gets to play the latest and greatest technology that goes as far as you can hit it. I tend to fall on the side. I'm not splitting the golf balls up. I think it's neat that we all get to play with the same equipment. It's going to be very interesting to see how this equipment debate plays out over the next year.
David Gardner: Before we came on the air Jason, you were pointing out that someone like 52-year-old Phil Mickelson really benefits from the technology, the distance the golf balls can go these days, of course, the clubs that drive them as well, so there's so much innovation that's happened in the good old game of golf that it's made us superhuman in some cases. People who like are these courses too short?
Jason Moser: It lets a lot of us old guys keep up which is a lot of fun, [laughs] so I feel like maybe this solution is cap it. Don't let it go any further and then you can probably play with the golf courses that we built but there's so many ways you can defend the golf course, whether it's the rough or the speed of the greens or how wide or narrow the fairways are and there are a lot of variables at play. I don't think the golf ball is necessarily the answer.
David Gardner: I have to admit I have not been keeping up that well with the PGA Tour, but you were mentioning that there are some timing concerns these days. Like the game of baseball, it's taking a little bit longer than it needs to. This is after all a television-driven entertainment phenomenon. All of these sports are, and so a shot clock is being considered.
Jason Moser: I think the pace of play is always a very polarizing issue. Most people like to be able to keep it moving. They do have rules in place to try to account for that. Not very good at it enforcing them David, and that's the problem. You've seen what that pitch clock is done, the baseball and I think for some of us who maybe were a little skeptical of it at first. It really has. The pace of play is far better. I'd love to see them do something like that with golf and sorely needs that they need to pick up the pace a little bit.
David Gardner: Duly noted and I will say that as a baseball fan who probably is more of a purist myself, I was not really looking forward to the rules change. I especially didn't like that you couldn't position your fielders wherever you wanted them to, because I love the analytics and I love the innovation and having four guys on one side of the field and nobody even on the left side of the field. I love that except that I have to admit having watched the first 10 days or so of this new season I'm enjoying watching the second baseman actually play second base and sometimes the ball going up the middle and going between the shortstop and the second basement which wasn't happening as much last year. I actually think even though it felt retro-aggressive to me, I feel as if the game has improved.
Jason Moser: It's funny. Change initially is sometimes difficult for us to accept, particularly with things that we've loved for so long, but then you experienced it and you see how maybe some changes work out pretty well, and I think with baseball and golf and all of these sports. Ultimately you make changes, you tweak them along the way. It's all with the goal of making the game better, and so hopefully that's what they're keeping in mind.
David Gardner: These are both sports where you're clubbing something a little white ball with a bigger implement and so there are some bigger implement. I will say that between the two sports, it feels as if people can keep playing golf at a higher level much longer than baseball, but we don't need to cast dispersions so driving these distinctions. Let's move on to five stocks to teach Rule Breakers, so Jason I pick this group of stocks, this basket two years ago this week it was April 7th, 2021, five stocks to teach Rule Breakers. I've already mentioned that these all start with the letter A because we're having fun on this podcast, and you have taken the time, and thank you, sir, to revisit these stocks now two years later and for each of them, let's focus on the top reason in your mind Jason Moser, that the stock has done what it's done. We'll also be covering the numbers and the performance because that's what I do, and we're going to go through these, Jason, alphabetically. Are you ready?
Jason Moser: I'm ready.
David Gardner: Good. Alphabetical by company name, so the first of the five and I'll just mention right now. The five in order we're going to be talking about Activision Blizzard, and then AeroVironment, Airbnb, Apple, and Axon Enterprise. Those are the five stocks we're checking with. Again this is a three-year journey and we're just at the end of Year 2. They have a year to improve their performance. Let's kick it off with Activision Blizzard. Jason, this stock two years ago, 96.84, $96 a share or so today 85. The stock is down 12 percent. Now the S&P 500 is up 1.1 percent. That's the bogey we're competing against. Jason Moser, the market has been basically flat over these last two years, up one percent, the stock down 12 percent. What hasn't been happening at Activision Blizzard headquarters?
Jason Moser: There's been a lot going on. This one really is right now. It's very tied to Microsoft's efforts to acquire the company outright which I think ultimately my belief is we will ultimately see that happen but right now there is still plenty of uncertainty out there in regard to the deal, and as a reminder this was an acquisition announced in January 2022, and Microsoft's entails.
David Gardner: It feels like a long time ago. [laughs] Actually it was a long time ago.
Jason Moser: Close to two years and a half I guess, so that's been a little while, but they made the offer at $95 per share and so right now the big concern is on the regulatory front which is understandable antitrust concerns and plenty of reviews going. This is a global business, and so it is not something that is tied just to domestic regulators, and with that in mind, we recently saw UK regulators drop their concerns as the company continues to try to do what it can to make the deal happen. There's still a very big sticking point with Sony, and I think that makes a lot of sense because Sony is obviously a very big competitor in this regard with its Play Station. You have Microsoft with Xbox and Sony with Play Station and the big concern there is if Microsoft acquires Activision Blizzard, and it makes all of that content exclusive just to Microsoft platforms as well, you can understand regulators' concerns there.
David Gardner: Sure. Call of Duty is one of Activision's many best-selling titles that have been around for so long. Imagine if that went console exclusive just to the Xbox. Now, it seems unlikely, to me if I'm the CEO of Activision Blizzard, which I'm not, although I've met him before, I'm thinking I want to sell as many copies of this game as possible. Why would I actually not sell to the biggest platform of all Sony's Play Station 5? I even see some of the Microsoft lobbying efforts to suggest that play station is almost a monopoly at the high end of consoles these days with its exclusive content. It's a really interesting world, but for me anyway, I don't think it's in Activision Blizzard's best interests just to sell on Xbox.
Jason Moser: No. I fully agree and I don't think we will see that happen. I agree with you that you'd want to try to get this content out to the biggest audience possible. That's just normal. Think of something like a Netflix. They just want to get that content out to as many people as one, and so I think that's ultimately what we will see, and I think what we're seeing is with regulators, with companies voicing concerns they want to ensure that that won't happen that Microsoft won't build that walled garden once this deal finalizes, and I think in that case if you google the news here, you'll see another headline every day, Activision Blizzard, inks another deal with certain distributor for 10 years. They're going to get this content out they're signing agreements to make sure that it's not something where they do build ultimately that walled garden, and so when you see shares today at $85, that's clearly a discount to the $95 acquisition. Now it's also a good bit higher than the 52-week low for Activision Blizzard which is around 70. I think we're starting to see the market buying into the notion that this deal will ultimately happen.
David Gardner: When you mentioned that low Jason, it sounds fair deal, lower than 85 that lower of 70, but really that's not a very volatile stock, especially during a very volatile year or two. Because of Microsoft's offer it's created a trading pattern for Activision Blizzard ticker symbol ATVI. Basically, it's just been bouncing between 75 and the low 80s pretty much for the last year or so waiting to see if this deal would be consummated. I will mention when the deal was initially announced as you mentioned in January 2022, the stock bounced 65 to 85 overnight, but it's been going sideways for a year-and-a-half now which has not helped its performance for my five-stock sampler. I was not promising a buyout when I pick this dock back in 2021 again, April two years ago this month, but that's what's happened. We're sitting here on a stock that's down 12 percent with the market up one percent, and therefore Activision Blizzard starts us with a -13. We're in the hole on this sampler. Let's move on to stock Number 2. As I mentioned next alphabetically is AeroVironment. Now ticker symbol [inaudible] Jason, not one of the better-known companies in all of Corporate America today, but what does AeroVironment do?
Jason Moser: Well, this is a fascinating little business. They have to deal with some very well-endowed competitors, but they continue to build out the strong line of products on the cutting edge and things like Unmanned Aircraft Systems, tactical missile systems. This is real deal stuff.
David Gardner: The age of drones.
Jason Moser: [laughs] Not everybody can do it and I think that's one of the big parts about this business, and it is just a tiny business too. It's a true small cap. I think the market cap is just over $2 billion. But when you think about a business like this, do you think about what they do you would probably lean to thinking that a lot of their revenue is generated from government partners and you would be right. Close to 60 percent of their sales in 2022 were thanks to the US government. They also have considerable exposure as well to foreign militaries as well, so when you put it all together, I mean this is a business that is very tied to government spending. That's not necessarily a bad thing either reminds me a lot of Booz Allen Hamilton, which is a company that I follow here. In the near-term it's sleepy, but over the long haul you see how it really pays off, and I think that when you look at AeroVironment, you stretch this thing out over five years, it becomes a little bit more obvious. Returns on this stock over the last five years, better than 125 percent, so patience has paid off.
But it's a business we're not immune to the supply chain issues that we've been dealing with, they are not immune to the inflationary concerns that we've been dealing with. The conflict in Ukraine is something that has really impacted this business. In some ways good, some ways bad. I mean this is a company where you see a lot of their equipment being used in this conflict, but by the same token, you're also seeing Department of Defense spending shifting. They're allocating their resources a little bit based on what they need as the conditions evolve and that impacts this business to a degree. Again, that is a near-term concern. That's not something that will last forever and they are continuing to invest heavily in research and development which is the lifeblood of a business like this. I don't hold that against them, but all in all I think that it's one of those businesses where you really do need to stretch out your timeline and look over longer periods of time. It makes a lot more sense to hang onto these.
David Gardner: Well, we can't really do that with a five-stock sampler when I make it a three-year game, but as I mentioned at the top, if we've made it truly a long-term venture, I would never be doing anything else in this podcast, but doing review apaloozas which I don't mind. It's fun. I get to hang out with my friends and talk stocks which is a lot of the reason this podcast exists anyway. Again, thank you for joining in with me. Jason. I'm remiss in not mentioning the performance of the stock. It was at $113 ish two years ago, it's now at 106 ish. The stock is basically down seven percent, the market's up one percent. It did have an upgrade from Raymond James earlier this month. It's a rocking stock if you're just looking at April, but overall down seven percent, so sticking with my numerical accounting here Jason where -7 versus the market's +1, so it's eight points underwater. We're going to add that to the 13 points underwater that Activision Blizzard has set us and we're starting with a -21 as we move on to stock number three. Now stock Number 3, the ticker symbol is A-B-N-B, and this is a much better-known company than AeroVironment Jason do you ever Airbnb as either a customer or maybe a landlord yourself?
Jason Moser: Why David, I have done both as a matter of fact, and I just stayed at an Airbnb last week when we were on spring break with the family.
David Gardner: I'm so glad I picked this stock two years ago and then had you review it this week? It's kismet. Airbnb is a service that you've really enjoyed.
Jason Moser: Very familiar with it. Yes, and it's funny I was talking with Chris Hill just the other day about this. Last year we had the good fortune to take our family to France for spring break. We stayed at an Airbnb and we Ubered everywhere. I came back with the realization that Uber passes your snap test, David.
David Gardner: Great.
Jason Moser: It can't go anywhere. It is too important and that really led me to dig into it and ultimately recommended one of my services here.
David Gardner: Great.
Jason Moser: I got back from spring break this year with the same feelings on Airbnb David. I really do believe that not only from the consumer's perspective is it an important business, but it is also an important business from our business landscape here, domestically and really internationally. This is a global business.
David Gardner: Jason, thank you for calling out the snap test. You know I appreciate that on this podcast. That's one of my past five-stock samplers. It's five stocks that passed the snap tests, but that's not true of this group, although it is true of Airbnb. The snap test of course, if you snapped your fingers and accompany disappeared overnight, would anyone the next day notice, would anyone care in the stocks that I've favorite, I think I can say here we favor Jason are companies where everybody would notice and a lot of people would care. Presumably, they'd be heartbroken if their favorite purveyor of a product or service that they treasure disappears and that is gone, and so those are often in my experience, the companies that you want to own in your portfolio over long periods of time. Now, Airbnb with a market cap of $75 billion today is no spring chicken, even though it's a younger company than many other public companies today. Here's the problem I have with Airbnb Jason. I picked it for this five-stock sampler two years ago this week and this is the single worst performer of the five. I regret to say that Airbnb was at $180 a share two years ago this week. Today it's around 114 or so. I have to admit this one is down 36 percent. The market is up one percent as we've been talking about, so this is 37 percentage points more of negative Alpha and really on its own, Airbnb has exceeded. If you combine the badness, the mediocrity of AeroVironment, Activision Blizzard together, Airbnb has been even worse than those together. What is in your mind Jason, the number one reason that Airbnb has underperformed to the extent that it has losing about a third of its value in the last two years?
Jason Moser: I think with a business like this, it really more than anything, it's timing. I think with a business like this valuation is often going to be one of the bigger near-term risks. Let's put this into perspective. The Airbnb IPO in December of 2020, so I mean from that perspective still very young business getting its sea legs, learning how to live life as a publicly traded company, but it's worth noting like Airbnb opened at $146 per share on its first day of trading, more than double the $68 per share price set at the IPO. Now, this is so much enthusiasm that it actually took Airbnb's market cap beyond the size of another one of your favorites, booking.com. Now think about that for a second. Here you've got booking.com brought in $6.8 billion in revenue in 2020. Immensely profitable, proven, massive network, tremendous business. Here comes to Airbnb with its $3.4 billion in revenue in 2020, it still working, its way to meaningful profitability, and now the market is telling you it's worth more than Booking.com. I love the enthusiasm. I think that one day it is worth more than booking.com. I think there was just a lot of enthusiasm when it went public and I think that's what took the valuation maybe a little bit ahead of itself at the time. So I think the good news for investors really is I think it's just a matter of time. I mean there was a lot of enthusiasm when this company went public, but when you see what the business continues to do, I mean revenue in 2021 was $6 billion. 2022 they grew that to $8.4 billion, net income in 2020, it was a loss of $352 million. In 2022 they brought that up to $1.9 billion of net income. Again, it's a business they're doing the right things. I think this was just a matter of the market, maybe being a little bit overenthusiastic about the IPO.
David Gardner: It hurts a little bit Jason because I was watching the stock and did recommend it for Motley Fool Rule Breakers. It had hit 220 in February of that year and so two months later it was April of 2020 and I'm like, look this thing is now down 220-180, so I felt like I was patiently waiting and yet admittedly, clearly I got it wrong. At least in this 2-year period, it's lost a third of its value, but I hear general bullishness from us both here Jason, that Airbnb is one of those businesses clearly passes the snap test to me and one that we want to own over the longer-term. Do you own shares yourself?
Jason Moser: I do not yet.
David Gardner: Jason.
Jason Moser: I do not yet, but I will tell you, but I agree with you on the snap tests. This is absolutely a snap test stock in talking with Chris Hill about it the other day and I told him about coming back from France, digging into Uber, coming back from spring break this year and I feel the same way about Airbnb. To me this is just one of those businesses the world is not going to be able to do without. I think that l, we love to say, the longer you can stretch out your investing timeline, the better your chances and I think for investors owning this stock today, regardless where you bought it, I think this is one you want to hang on to for as long as you possibly can because it's making a big difference in the travel business.
David Gardner: Well mark it down of course, every one of the podcasts that we've done here at the Motley Fool is permanent, whether it's a Chris Hill lead Motley Fool Money or I started this podcast in 2015. Everything that we've said is out there forever, so we're on record here and we're never going to make a short-term prediction, and arguably even a three-year game of the five-stock sampler is a shorter-term game than we actually play in our portfolio. That makes it a little bit more of a fun game, but Airbnb you and I both like here at $114.62 which is where it's trading as we speak here on Tuesday, April 11th. Well, let's move on to the last two, Jason and speaking of companies that pass the snap test. Stock number four alphabetically, I don't know if you've ever heard of these guys before Apple.
Jason Moser: Sounds familiar.
David Gardner: Sounds familiar? Have you ever tried one of their products, or seen anyone using one?
Jason Moser: Maybe you have one or two lying around the house. [laughs]. Apple is a phenomenal business, isn't it?
David Gardner: It is, and fortunately, it was part of this five-stock sampler because I'm happy to give the numbers right now. Apple was at $127.90 two years ago, this week it's now up to 161.5, so the stock's up 26 percent with the market up one percent that gives us a plus 25. By the way, I did account for Airbnb but when you add it in the minus 37 that Airbnb was bringing into this five-stock sampler. We were at 58 percentage points in total underwater, so getting back 25, thanks to Apple outperforming the market by 25 percentage points, sparks joy.
Jason Moser: It does spark joy. I mean, this is an amazing business in virtually every respect. I mean, it just what they've done through the course of history. I mean, you talk about your snap test, this is leading the pack, this is it. Apple to me, it's like pizza. I mean, it's not always going to be great. Like any other company in the world will witness times that are more challenging and others, it's not always going to be great, but you know what? Hey, it's still pizza, and hey this is still Apple. Even when Apple witnesses challenging times, it's still Apple. Let's not forget that. I mean, you look at the holiday season that they just turned in, I think many would probably focus on the fact that revenue was actually down five percent for the quarter, and to think of a company like Apple with revenue actually shrinking, wow, what happened? Well, as we said before with AeroVironment, they're not immune to the supply chain issues. They're not immune to inflationary concerns and what not, and so they have dealt with those challenges but the good news is, while revenue was down five percent for the quarter, that was still $117 billion of revenue that they chalked up for one single core.
David Gardner: A lot of this is increasingly software and services and the hardware, which is always still how most of us should I think, think about Apple, those smartphones, that hardware, the iMac, the MacBooks, the iPads that I have in my house as well, are all hardware, but a big focus for Apple in recent years has been on services.
Jason Moser: Well, the watches, the AirPods, all of it together.
David Gardner: I've forgot my watch, I've got that on too of course.
Jason Moser: It's tremendous ecosystem and you can be a little bit of an Apple user or you can be a lot of an Apple user. I mean, I have an iPhone and I have a Windows laptop, but everything works together. We've got some Amazon devices in our house, I mean, the beauty of Apple and I think you really keyed on it there with the services for the longest time we've recognized app was primarily a phone company. That's where most of the money came from but slowly they've really done a great job of diversifying away from just being the phone. They now have an installed base of over two billion devices around the world. I mean that's just astounding to think about, and ultimately what that allows them to do is grow that services business. That services business recorded revenue of just under $21 billion for the quarter that was up six percent from the prior year.
David Gardner: Presumably at higher margins than you'd be able to sell hardware at.
Jason Moser: It typically is. I think the nice thing about Apple is it's so premium. It's such good stuff. They are able to maintain some good pricing on that hardware as well. Well, you see a lot of companies hardware is a little bit of a race to the bottom, and with Apple, it's not really that way which I think gives it a little bit of extra staying power there. But in regard to services, they have more than 935 million paid subscriptions across all of the services on their platform now, that's up more than 150 million during the prior 12 months, and it's nearly four times what they had just five years ago. So you're seeing the results of all of these investments into growing that ecosystem beyond hardware. Along the way, they've been very shareholder-friendly. They continue to repurchase shares. Share counts down 16 percent since 2018. That'll continue. While the dividend yield today, which is under one percent. Sure that seems modest. Let's take the glass-half-full approach here, David, in understanding that that dividend yield will continue to grow over time as well, so even big companies can still continue to grow and reward shareholders,.
David Gardner: Two more things to say about Apple before we move on to the final stock, which for the record is Axon Enterprise, and I'm smiling about that, we'll talk about the numbers in a sec. But I'd like to just note that Apple, first of all, as a market cap, is literally 1,000 times AeroVironment, so AeroVironment is about 2.5 billion and Apple is about 2.5 trillion, and that leads to the second point, which, and I think this is very instructive since these are Jason and everyone listening, five stocks to teach Rule Breakers. I think one thing we can all learn is that there is a connection between what I think of as the world's greatest brand and the world's just about greatest stock performer over the course of now, more than a couple of decades. Those things are tied together. I truly believe that companies with great brands are often mistaken for one thing, brand doesn't really show up on the financial statements. I mean, you can do some goodwill if it gets acquired, this or that, but the things that are invisible to people who are looking at the financial statements or dialing their computer algorithms to look for certain numbers, or ratios, they're missing brand, and yet the companies that often have the greatest brands often, and Apple is a great example, are the greatest stocks that you could hold over the course of a long period of time. So Apple is front and center for me, one of those exemplars that do teach Rule Breakers a stock that we've had in our services for well more than 10 years now and a lot of happy Motley Fool members owning Apple. I'm happy to say Jason, as we go here to close with Axon Enterprise that Apple has been a stock that you wanted to hold these last couple of years. The market again up one percent, Apple up 26 percent. Let's close with Axon Enterprise ticker symbol A-X-O-N. Axon Enterprise was at $147.27 a share when I picked it on this podcast on April 7, two years ago, it's gone from 147-225, just about even. That's up 53 percent. I'm going to ask you that in a sec, but to account for the numbers here, that 53 percent gain minus the markets one percent gives me a plus 52. That's exactly what I need for this five-stock sampler to be beating the market two years in now, let's be real clear. This game is not over. It will not be over for another year. I personally, I'm pretty bullish on a number of these companies, so we'll see how it plays out. I'm also excited because what's coming after you, which is Jim Mueller talking about my worst five-stock sampler ever. I am celebrating. I'm looking for the light right now and basking in it with my friend in his green masters jacket with a shirt right across the mic from me. But Jason, what's been happening for Axon Enterprise?
Jason Moser: Thank you for putting me on the good side.
David Gardner: Absolutely. You just looked like a winner in here.
Jason Moser: Oh, I must admit I was following you to lead on this one because Axon I actually recommended shortly thereafter in May 2021 for our augmented reality service.
David Gardner: Awesome.
Jason Moser: Obviously very happy with the returns, very neat business in the virtual reality training tools that they offer. For folks who don't know what Axon does, I think you'd probably be more familiar with it. We just said taser. I mean, they are the company behind the taser stun weapons that we see police forces carrying.
David Gardner: Yeah, that used to be the company name, they changed their name.
Jason Moser: Yeah. I think the neat thing about Axon, this is a top dog, which I know is a trade of a Rule Breaker. This is a top dog and you really can't I don't think anyone can really name off the top of their head the closest competitor to Axon, they really do own this market. I think that's given them the leeway to be a little bit patient in how they develop this business. I think a lot of the strong performance is really coming from not only this market-leading position, but a strong and growing recurring revenue dynamic. There's not just the hardware side of the business, but there's the software and the services that they're providing a law enforcement so they can keep track of what's going on and add that visual documented proof that they may need in certain cases. You go back to April of 2021, annual recurring software revenue at the time it was $242 million, which represented 39 percent growth from prior year. You go to 2021 for the full year beyond just April, that full year of 2021, that recurring revenue was up to 327. A million dollars, 2022, they grew that revenue up to better than $360 million. This is higher-margin revenue. Apple with the services, this is like Axon services. It's higher-margin revenue is growing very quickly. Finally, i mean, this is just a business too. They continue to invest heavily in research and development to the tune of around 20 percent of total revenue every year, makes a lot of sense to me. They understand our market leading position. They are investing in that dominance and, I expect their performance to continue.
David Gardner: Well, thank you for that, Jason, and this is a company, I'm so glad that you brought it to Augmented Reality. Motley Fool members and certainly for Rule Breaker members over the years this has been a stellar performer. In fact, all of these companies well predate for Motley Fool members in their portfolios, the pick that I made two years ago on this five-stock sampler. Basically every stock ever pick for a five-stock sampler, we picked before then somewhere in one of our services, often at much lower cost bases like Apple. But that's irrelevant to the five-stock samplers and to listeners who are following these, because all that really matters is what happened from that point forward. From that 0.2 years ago this week forward, again, Axon, the star performer in this sampler up 53 percent, the market up one percent, take it all-in-all. After two of the three years of five stocks to teach Rule Breakers journey, they're up 4.8 percent on average, the market up now 1.0 percent as we speak. Happy to say 3.8 percent on average, beating the market largely on the strength of just Axon and Apple, the other three underwater, but we'll see a year from now. Jason, you want to hang out with me a year from now this week.
Jason Moser: Count on, and I'll be here.
David Gardner: Let's talk it through five stocks to teach Rule Breakers will close out a year from now, but we're not sending this wonderful Halla yet. There's 12 months ahead of us. Jason Moser, great to see again. Thank you so much for joining us again on Rule Breaker Investing.
Jason Moser: Yes sir. Thanks so much for having me.
David Gardner: I think it's fair to say this sublime, I'm not even sure three percent outperformance per stock is sublime, but compared to what we're about to do from the sublime to the ridiculous. In so many different ways, five stocks for the coronavirus have been ridiculous. I want to welcome in my friend, longtime Motley Fool analyst, Jim Mueller. Jim, welcome back to the show.
Jim Mueller: Thanks, David. Good to be here.
David Gardner: You know these companies.
Jim Mueller: I know a little bit about them.
David Gardner: Enough to explain what you're about to do.
Jim Mueller: Have to go on what's happening.
David Gardner: Why did the stock to what is it? That's what we're going to talk about. But before we just reflect on why, let's say Peloton, the first stock, we'll talk about. Why Peloton primarily did what it did over the last three years. It's necessary briefly to remind everybody what happened over these three years and obviously five stocks for the coronavirus being the name of this five-stock sampler. It was this very week, three years ago, April 8, 2020, and most of us were under a lockdown or we're about to be under lockdown. There were lots of unexpected things happening in the world. Jim, it's almost hard to get back in that mentality. People have said we may never get away from the coronavirus like the fluid may be here the rest of our lives, but at least the sense of pervasive fear in some cases, obviously huge human loss, which is real. But also just that locked down the change of how we do business, which stays with us even to this day. Jim, you and I are here in Fool HQ in Alexandria, Virginia in our lovely studios today. But still many of our fellow employees here at the Fool are working from home. That's not just true of The Motley Fool, that's true of so much of the working world today.
Jim Mueller: Yes, I think, and it's likely to stay that way for a while. But, and this ties into, I think why many of these companies have fallen so badly. Is that humans are human, and we're not tech. We'd like the personal interaction. There's all the body language that comes through and it's not just seeing the person's from the middle chest up. There's all other stuff that goes on, and there's the spontaneity of meeting and just talking with people before we started recording, you and I were chatting about wineries in the state.
David Gardner: We wouldn't have had that. We wouldn't have scheduled Zoom time to talk about Virginia wineries?
Jim Mueller: Exactly.
David Gardner: Well, and that's certainly is true. I do think that we're being whipsawed as a culture. Nine to five, every day for decades and decades and then no office at all. Then trying to find some hybrid middle space, some remote, some not. Lots of businesses have had people working there all the way through. Sometimes here in the greater Washington area, Washington DC, we're surrounded by a lot of lawyers, lots of other information workers, forgetting that so much of the rest of America, there's manufacturing, they're baristas, there's healthcare. There are so many of our fellow Americans who every day have gone to an office for years now.
Jim Mueller: And pay the price, and both getting sick and the worry and a stress and all that.
David Gardner: God bless him. I mean, certainly grateful for all of that sacrifice and necessity. I mean, for a lot if that's your job, you need to go in and serve coffee the others, if you want to be a breached and earn a paycheck. Of course, we're all coming from different places, but these five stocks, after a single year, check it, you can go back and listen to me probably crowing on this podcast two years ago this week. As a group, these five stocks averaged to gain of 240 something percent after a single year.
Jim Mueller: Just incredible. April of 2020 when you pick these, was right near the start of the pandemic and I can't.
David Gardner: The market have been crushed.
Jim Mueller: The market was crushed.
David Gardner: March, it was horrible.
Jim Mueller: February, last half of February, and first half of March, it went down one. A third. The fastest it's ever dropped that much. People were just freaking out and buying up toilet paper and stockpiling this and that.
David Gardner: I remember those days.
Jim Mueller: Man. We thought that we'd be like that for ever and ever. This is one of the biases of being human in that it's called recency bias. We think that what's happened recently is the way the world is going to work from now on. I think a lot of that got baked into many of these companies, Peloton, Teladoc. You're never going to go to your doctor's office again, you're never going to go to the gym again. Teladoc, was actually the worst performer of that group.
David Gardner: We're going to get them in a sec.
Jim Mueller: But Peloton was up 290 percent.
Jim Mueller: Now it's down almost 60 percent.
David Gardner: Let's get into it right now, Jim, because that is Stock Number 1 in this five-stock sampler and this five-stock sampler started on April 8th 2020. We're sending it off to full halla this week technically, it closed out last week. The market was closed on Good Friday so 4/6 2023 are the final prices for each of the stocks I'm quoting in Peloton is alphabetically the first of them, down to the letter P Peloton I picked 27.5 three years ago. It closed out last week, about 11 and a half so you mentioned Jim, the stock had been up more than a triple after its first year and it gave all of that back. It went from near $100 a share down today to 11.5 where Peloton's sits. The market by the way, the bogey we're competing against, the S&P 500 is up 49 percent over that three-year period. Astonishing performance really especially when you consider what happened those three years, but the S&P 500, which has a lot of industrials and other companies, wasn't necessarily as coronavirus proof initially, but as these stocks whipsawed all the way down, stocks like Axon started looking like much more of a safe haven than otherwise Jim, what happened to Peloton over these three years?
Jim Mueller: Peloton, as you know sells these high-end exercise bikes, standing bikes and so they were video linked to, you could watch a trainer running through an exercise routine and you can follow along in the trainer it'd be cheering you on and there'll be other than that.
David Gardner: I feel like you're using the past tense, Jim, but this is still true today. You can do that today and I hope tomorrow.
Jim Mueller: They still do this and so with all the fear and uncertainty, nobody wanted to go to the gyms. Nobody and with six feet distancing and all the super cleaning and everything else and not even knowing if breathing the same air would get you sick and all that stuff so having the idea of a home gym was a fantastic thing and Peloton just ramped it up and really management overplayed it and thought that, hey, this is going to be the way it's going to be the recency bias. We can keep on selling, we can sell more bikes, we can sell more subscriptions and then the pandemic ended and we got back into the gyms and we got back into seeing people exercising as a group and running on trails, but that was also going on during the pandemic, but the whole idea that no one would ever go to the gym again turned out to be false.
David Gardner: Indeed, looking at the stock chart and I highly recommend use your favorite stock chart app or come out to us at fool.com and look at the stock chart for PTON, but we're talking about a stock that three years ago, again right around 40 and within that first nine months from 40 to 160. Basically, it was a four-bagger, and then Jim 160 it was still right around 100 as of Halloween of 2021. It had dropped 160 to 100 a cavernous drop as we entered Thanksgiving of 2021, the stock free fall from about 90 to 55, and then just a slow dropped below 20 and it's been bouncing around 10 sometimes single digits here, Jim, for the better part of the last year now. I personally find myself interested in the stock down here at this level, but hey, I was the guy who liked it way higher than this so of course, I guess it would look better to me at 11 and-a-half.
Jim Mueller: It's certainly not growing like it did back in the heyday.
David Gardner: New CEO?
Jim Mueller: For the year ending March of 2021, this is the best 12 month period they had. They grew revenue by 156 percent and that was almost a double over the revenue growth over the year prior 81 percent. March 2022, four percent growth, 156 four. No wonder the stock is down so much and they've shrunk revenue for all of 2022 their cash flow from operations has been negative. They've had six quarters of slowing revenue growth from 156 all the way down to four percent, still growing, but not nearly at the pace they did. They've had to issue debt because they're not bringing in the cash from their business and so now equity has fallen that's the net worth of the company. Assets minus liabilities has fallen from 2.4 billion a year ago to just 30 million this year at the end of December and it's sad. Barry McCarthy, the new CEO you mentioned.
David Gardner: He basically said we can't be all things to all people here we need to batten down the hatches and really get this business to a point that it's sustainable.
Jim Mueller: He was a solid CFO at Netflix 1999 to 2010, and then did a stint at Spotify, the same role, CFO 2015 to 2021, and he was appointed CEO of Peloton in February 2022. He came in and says, he has a bunch of subscription business background, Netflix and Spotify and he says, we've got to close down a bunch of manufacturing because we're losing money on the bikes and what else you have, focus hard on the subscriptions, but even now, subscriptions are growing. They've been at 6.7 million members for each of the past four quarters and not really growing that.
David Gardner: Thank you for that, Jim. We could go deeper on Peloton certainly for Motley Fool members, we have discussion board, we have ongoing analysis about stocks like Peloton, which I picked for Rule Breakers.
Jim Mueller: I've got one more thing to say.
David Gardner: Sure.
Jim Mueller: There are glimmers of good things going on. Operating expenses are down significantly which you need for this company, but it's in a deep hole and if he can pull off a turnaround, if McCarthy can pull this off, that would be incredible, but Warren Buffett's quote is ringing in my head. Buffett, has said, when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it's the reputation of the business that remains intact. I'm afraid that might be what's going on. We'll end up being what happens with Peloton.
David Gardner: The numbers, the truth of it is with the market up around 50 percent over these three years and Peloton down 58.5 percent, well this five-stock sampler is already in trouble and we haven't even gotten to the other four Jim, let's go to the next alphabetically Roku ticker symbol. Roku. This stock was at $87 plus three years ago, it closed last week around 64 down 27 percent. Jim, in your mind, what is the top reason to explain Roku's 27 percent drop over those three years.
Jim Mueller: I would say increase in competition in streaming and advertising businesses. That would be the main reasons. Roku sells these devices that turn almost any TV into a smart TV.
David Gardner: Do you have one?
Jim Mueller: No, I do not.
David Gardner: I do, I've got like four.
Jim Mueller: That's part of the problem [laughs] They get some revenue from that, but they get a lot more revenue from selling advertising on the various streaming and television that you're watching and they have their own proprietary section of the screen where you can buy products and stuff and I don't know what all but totally I don't have one.
David Gardner: [laughs] You sound a little skeptical.
Jim Mueller: No because what they do is it's a great bundling of all these services for streaming and they give it to you in one device and you have a one-stop shop, but you also have Chromecast and a phone that's how I watch TV. I open up the app on my phone and I cast into my television.
David Gardner: Nice.
Jim Mueller: You have the Apple TV, which is another desktop device that turns your TV into smart TV and offers all things through Apple TV. You've got streaming on Disney and Disney Plus, and now they're adding advertising to Disney Plus. You've got Hulu, which has always been an advertising. You've got Discovery, you've got Netflix who had to start adding advertising. Now everybody is doing targeted advertising, which is what Roku was doing and so competition is ramping up. Roku was actually slightly better than Peloton at the one-year review, 300 percent versus 290.
David Gardner: But who's counting?
Jim Mueller: But after the two-year review, Peloton was down by a third, while Roku was still up by about 20 percent.
David Gardner: That's not the case anymore.
Jim Mueller: It's only been the last year where this other competition has grown up and analyst and investors are worried, but it's still doing well.
David Gardner: Let's point out that the stock was around 40 as this year started in today it's 64, so depending on when you entered, I hope you didn't enter with my five-stock sampler three-years ago although if you had that first year was amazing and maybe you sold, but this is a volatile stock. This is a business with a market cap of about $8.5 billion. It's been all over the map, but mostly down, not up the last three years, but it's a vital business. They're not about to get run out on the rails. It's a brand that people know and we like convenience. Typically as humans, we are as you mentioned earlier, we're humans, not robots. Things that make our lives easier I think Roku is one of those.
Jim Mueller: Roku's are users, the number of users they have signed using their stuff is up 16 percent over 70 million users, over 60 million year before, and it was up 40 percent that year. The total hours streamed over their devices up 24 percent in 2021, up 19 percent more last year in 2022, over almost 90 billion hours total stream through the Roku device.
David Gardner: Now the company is not profitable, which is part of the problem, Jim?
Jim Mueller: That is part of the problem. Their average revenue per user is pretty flat.
David Gardner: But a growing platform.
Jim Mueller: It's growing platform. The platform revenue, which is all the advertising and content distribution, that's up 20 percent revenue-wise. They're shifting more toward the advertising, much more toward the advertising than the device revenue. But as I said, they are competing with Netflix, with Disney, with Apple. It's going to be a struggle for this company.
David Gardner: It's the kind of company that might get bought out by somebody else looking to take leadership or build a big business. In a lot of ways, Roku does what my PlayStation 5 or Xbox do. They also have media apps.
Jim Mueller: About that too.
David Gardner: It's a big world out there. Everybody is streaming these days. They were especially, Jim, streaming during the coronavirus. What a first-year it was for Roku. But let's keep moving because we could go deeply into the misery on all of these and probably spend way too long crying at least, I would, over the performance. But there is a little bit of bright light here. The third stock we're talking about. This is the one that's up. If Harry Potter was the boy who lived, Sea Limited was the coronavirus stock that actually went up. Sea Limited three years ago this week, $45.45. The stock closed out last week just over 84, up 85 percent, not nearly enough to save the sinking ship of five stocks for coronavirus but I guess Jim, what was Sea Limited doing right where it seems like everybody else was doing wrong?
Jim Mueller: Well they've expanded into some things that are still going strong. E-commerce, they now have $7.3 billion of revenue up 774 percent versus three years ago. Remember this is all in Southeast Asia.
David Gardner: That's what Sea Limited stands for. SEA is Southeast Asia. A lot of people probably think this is a shipping container company. Ticker symbol by the way, SE.
Jim Mueller: About two-thirds of the revenue comes from Southeast Asia, about a sixth of the revenue, 16 percent, comes from Latin America, and the rest from other places, mostly the rest of Asia. But gaming is their only profitable segment. Generated $2 billion of operating profit out of $3.9 billion of revenue. But that revenue is up 240 percent over where it was three years ago. Fintech though, they started off at fintech at just barely anything at nine million and now they brought in $1.2 billion in fintech revenue last year.
David Gardner: Fantastic.
Jim Mueller: If they can get that profitable this company will do well.
David Gardner: But these are PayPal-like services when you say fintech, that's what we're talking about.
Jim Mueller: Moving money around via apps and computer system.
David Gardner: Well, we're going to keep moving here, Jim, but Sea Limited again with that plus 36. I want to make sure I get my math back here. Peloton down 108 percent points to the market and Roku is down 76 percent points to the market so that's minus 184. Sea Limited giving us a plus 36 back the other way which makes you feel like maybe we can make a comeback here but no, it's going to get a lot worse from there. Go ahead.
Jim Mueller: Sea Limited was also the biggest winner after the one-year overview, up 420 percent.
David Gardner: What an incredible year the stock market provided for these companies from spring 2020 to spring 2021.
Jim Mueller: What I think is hurting it right now compared to two years ago is that it's still cash-flow negative and last year the market really turns sour on all companies that were cash-flow negative.
David Gardner: Well, the last two we're going to do them both together and you can speak out one side of your mouth for each of these, Jim. But the headliner is that Teladoc ticker symbol TDOC and Zoom Video Communications ticker symbol ZM, one a Teladoc-based company, the other the world's video platform to communicate with each other during the coronavirus, both of these companies were stellar performers in 2020, but both, Teladoc having gone from 139 to 26 and Zoom having gone from 117 down to 70. We're talking about stocks that have declined 80 and 40 percent respectively again against a market that's up 49 percent. These have contributed mightily to the misery of five stocks for the coronavirus. Jim, give me a little bit on what happened to Teladoc.
Jim Mueller: Teladoc again was how the pandemic is going to change the world and how we interact.
David Gardner: I was grateful to be able to work with the doctor remotely when I couldn't go into their facility.
Jim Mueller: But I'd rather meet with my doctor in person.
David Gardner: I think if you're going to have an annual physical, which by the way we all should, I do think it makes more sense to be there in person.
Jim Mueller: Just like with all these others, revenue growth which was high double and triple digits year-over-year has slowed way down and from a high of 127 percent for the year ending June 2021, 18.4 percent last year and they're guiding just nine percent revenue growth this year. Anytime company management pulls back the revenue growth expectations like that, the market is not going to like it. Things have just not done well for that company as far as the share price.
David Gardner: Livongo, this was a merger as well.
Jim Mueller: That turned out to be a major mistake. They wrote down almost the entire purchase price.
David Gardner: Both of those stocks were Rule Breaker picks and I loved it at the time. This is was one when you buy full retsu where one of my companies works with another and they buy each other out. It looked good. It looked like the right move at the time.
Jim Mueller: It did. Teladoc paid $18 and 1/2 billion for Livongo in 2020. Last year they wrote down 13.4 of that. That's not a cash loss this year but it's cash they spent three years ago that's turned out not to have been worth spending. That hurts the company and they're really struggling as a result of that.
David Gardner: Teladoc Jim, now with a market cap and this includes having folded Livongo healthcare into it, Teladoc market cap is just $4.2 billion. It's smaller than Peloton and this is the forefront of the Teladoc industry.
Jim Mueller: Less than 25 percent of what they paid to buy Livongo. It's so sad.
David Gardner: Wow. Again Telehealth for me feels like something the world benefits from and will continue to use in an increasingly virtual world or data-driven world where we can learn a lot without having to be in person with each other. I still want you to give me a blood test. [laughs] I'm not going to do that myself although some others can do that themselves. But I feel as if Jim, Telehealth was additive. It has brought some new into the world which some people can use and it's beneficial and yet, wow, has it ever been degraded and devalued?
Jim Mueller: Definitely. For those who find it hard to take the time to go to a doctor it's a lot easier to go into a conference room with your computer and call them up on the screen.
David Gardner: Feverish child on your knee?
Jim Mueller: Exactly. That's fantastic. For where you need expertise from an expert halfway around the world, that's fantastic. I think the idea that we're going to be working from home forever is we're slowly going to creep back into the office because we want that human interaction. We want that look a person in the eye face-to-face rather than over a screen.
David Gardner: Well, the five-stock sampler I covered earlier with Jason, that one still has another year to mature and do even better. This one is a closed book. But before we fully close the book and send five stocks for the coronavirus to Fool Halla. I'm going to give the final numerical accounting. But I'd love for you to speak to Zoom. I don't want to give short shrift to arguably the best known of all of these five. Jim, what has happened to Zoom ticker symbol ZM over these three years? Or maybe more aptly what hasn't happened to Zoom? It's been such an important service for so many people.
Jim Mueller: For so many people. Hundreds of millions of users most of which were family people talking to each other and so on.
David Gardner: For free.
Jim Mueller: For free. I'm going to concentrate on the paying customers. Companies who are paying.
David Gardner: The Motley Fool is one of them by the way. We were early days. We've been for years paying corporate enterprise customer.
Jim Mueller: They have a metric called customers with 10 or more employees. These are small companies or very large companies. At the end of Q4 2020 which was January 31st, 2020, they have a fiscal year ending in the [inaudible].
David Gardner: Odd fiscal year.
Jim Mueller: They had only 82,000 of these companies paying for their services. That was the very beginning of the pandemic. In fact, when was it announced? February or something. When the shutdowns happened, their user base for companies exploded. They went from 82,000-467,000 a year later. That's just incredible. They got rewarded by the stock market for such phenomenal growth. Unfortunately, that growth can continue. 2022 a year after that,510,000 and now, most recently just this last January, only 478,000.
Jason Moser: Flattish numbers in the face of just incredible growth. Jim, I'm looking just the revenue numbers, they're going from basically 50 million a quarter to all of a sudden 750 million when we were at the height.
Jim Mueller: Exactly.
Jason Moser: This is a company that is maybe the poster child for the coronavirus whipsaw. When I think of all five of these companies and what happened to them over the last three years, and this has not been true of all of corporate America, these are rule-breaker companies, often lighter business models, often with higher multiples and higher things expected of them. This is maybe the ultimate, like it was up so far and now down so far.
Jim Mueller: I think that your word expect of them is a good word. The important word of the sentence in that the stock market is forward-looking.
Jason Moser: You bet.
Jim Mueller: We're looking at what we think will happen in the future. With such a huge amount of growth, and again, that recency bias during the pandemic, we're all going to be working from home forever and ever. Of course, the market expected more of the same and when that didn't happen, the market had to readjust and that's what has brought the stock price back down. Zoom's not in trouble, they have $5.5 billion in cash and short-term investments on their balance sheet.
Jason Moser: Wow, $5.5 billion just sitting there on the balance sheet.
Jim Mueller: They have just under $100 million in leases, that's all their debt, just leases, which they'd be paying for corporate headquarters and stuff like that. They don't have any debt. I don't think they've ever had debt of any large amount if ever. They're still generating over $1 billion in cash flow from operations, over $1 billion of free cash flow. They are very much going concern.
Jason Moser: Yeah, the market cap for the company is just over $20 billion today.
Jim Mueller: Right. But the expectations have ratcheted way back and therefore the share prices ratcheted way back, and Microsoft Teams has grown like gangbusters just as much Zoom has. Microsoft Teams had 20 million daily active users at the end of 2019 where i ticked Zoom, at the end of 2022, 270 million, so up 13, 14-fold. But office, a lot of companies, even the small ones, are paying for office and teams comes free with office. Zoom you have to pay for.
Jason Moser: Understood. Ironically, Jim, as we finish with the tail of the tape for this five-stock sampler, I think what happened because you're talking about expectations and I think you're spot on with that. Am I right that our expectations were not that a vaccine or vaccines would show up as quickly as they did and then become deployed worldwide and we would actually open the world back up, not that it's fully opened up yet faster than anyone expected? Is the good news for society. Maybe ironically, the death nail for this five-stock sampler?
Jim Mueller: Could very well be. The speed at which the vaccines came out only happened because we've had 20 or 30 years of research behind it in developing mRNA technologies and learning how to work with it. Vaccines would take three years to develop under previous technology. The expectation was that we'd be locked up for so long. We'd go stir-crazy. But I truly believe that you're right, the speed at which those vaccines came out and the speed at which they got pushed out to a large percentage of the population here in the US and Europe, to some extent into China.
Jason Moser: Yeah, it was astonishing.
Jim Mueller: It was incredible at the speed at which it happened. I think that's a great thing for humanity.
Jason Moser: It crushed the multiples.
Jim Mueller: That's such a good thing for the set of stocks.
Jason Moser: All right, well, you know what? We take our medicine in every way on this podcast. As a basket to close out, five stocks for the coronavirus averaged losing 24.2 percent. Now, that doesn't even sound that bad to me, some of these again, Teladoc is down 81 percent, but good news, Sea Limited is up 85 percent. Anyway, as a basket, they're down 24.2 percent over the three years. The problem is the market over that three year's up 49.3 percent, which means take it all in all, this is the worst performing five-stock sampler I ever did. Seventy three and a half percent points per stock behind the market averages, which eclipses my previous worse total, which had been five stocks for the age of miracles, my biotech picks, picked in April, is this a bad month for me too? 2019, they had lost the market by 65 percent. The good news is the majority of my samplers beat the market and most of them really beat the market silly. In fact, Jim, I hope this doesn't sound defensive, but I was looking over another April sampler earlier today in preparation for the podcast, longtime listeners will remember April The Giraffe, yup, the giraffe that was born on YouTube and was named April.
But I leveraged off of that important news by picking five stocks that spelled out with their corporate names, the first letter of each April, and I'm really happy to say five stocks for April, the Giraffe that was in April 2017, that ended in April 2020, but we keep holding these stocks, Jim. When I reported on five stocks for April, the Giraffe and I probably was crowing in April 2020, as I announced, they were up 90.6 percent, margin was up 22.8, so we won by 67.8. But importantly, we keep holding these stocks. And so stocks like, I don't know, Axon Enterprise, which were up 237 percent back that are now up 885 percent. This is the key takeaway for me. Keep holding these kinds of companies now, if they never come back and they're already way down, it won't matter that much because as long as you're not adding to them, which i never do to my losers, it really will come irrelevant. But if you keep holding five stocks for April, the Giraffe, for example, what looked like a really good sampler becomes spectacular. Over the course of time. A little bit of positive light here shining at the end of this dark, dark tunnel. Five stocks for the coronavirus.
Jim Mueller: I would add, spread your investments across a wide net.
Jason Moser: Yeah, we're not just building little five-stock portfolios here at the Fool, these are samplers.
Jim Mueller: If you only had, if your entire portfolio was these five, you're hitting life. But if you have 30 or 40 or 50 of these things, yeah. Ten or 15 of them have crashed and burned and might never come back. But 10 or 15 of them are doing really, really well. It's that mathematics, the most you can lose is 100 percent, the most you can gain is infinity.
Jason Moser: That is true and that is profoundly important to understand. If you're going to be what Jim and I are, which are investors by definition, actors over the long term, I say, make a lifetime commitment to the stock market. You will be amply rewarded well, you sure where it by five stocks for the coronavirus. It's time to send this one off to Fool Halla, and Rick Engdahl has painstakingly selected the saddest music you'll ever hear to send a five-stock sampler off to full halla, Rick. Jim, as that sad music continues to play. I want to thank you for helping me in good times and in bad. This was a hard time that we shared together. There have been many good times in the past, there will be in the future.
Jim Mueller: I firmly believe so. Thanks.
Jason Moser: Well, from the top of this week's podcast, I led off with the phrase, first to worst. Indeed it's how I want to close. I really do feel like it's rare that you will see in your life first to worst happen whether we're talking about sports or business, or in this case, the stock market. It does happen, but it's rare. It did happen this week we had a winner, five stocks to teach Rule Breakers, we'll trust the year ahead for those stocks will be even better. But we also had our single worst performer ever. It's one thing to watch bad stock picks just start out bad and keep going down and have a bad three years of it. But what is so astonishing about this group is that after their first year, they weren't just up. They were up by far more than any other sampler has ever started with the stocks tripling on average after just a single year. To report at the end that these stocks went truly from first to worst, still has me scratching my head, but we need to own up to all of the good and all of the bad. The good news is for Foolish investors who are playing the game, as Jim mentioned, diversified and as I'll always mentioned over the long term, you'll be guaranteed yourself. Happy ending have a lovely week, Fools.
David Gardner has positions in Activision Blizzard, Apple, Booking Holdings, Netflix, and Walt Disney. Jason Moser has positions in Apple, PayPal, Teladoc Health, and Walt Disney. Jim Mueller, CFA has positions in PayPal and has the following options: long January 2025 $120 calls on Apple, short January 2025 $130 calls on Apple, short July 2023 $290 puts on Netflix, short July 2023 $80 puts on PayPal, and short May 2023 $190 puts on Axon Enterprise. The Motley Fool has positions in and recommends Activision Blizzard, AeroVironment, Airbnb, Apple, Axon Enterprise, Booking Holdings, Netflix, PayPal, Peloton Interactive, Roku, Sea Limited, Spotify Technology, Teladoc Health, Uber Technologies, Walt Disney, and Zoom Video Communications. The Motley Fool recommends Booz Allen Hamilton and recommends the following options: long January 2024 $145 calls on Walt Disney, short January 2024 $155 calls on Walt Disney, and short June 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.