The Week Growth Wasn’t Enough For Wall Street

0:05We're in the heart of earnings season, so what did we learn? Motley Fool Money starts now.

0:25Everybody needs money. That's why they call it money. The best things in life are free. But you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoyam, joined today by Jason Moser and Lou Whiteman. And guys, this is really when earnings season kicks into high gear for a lot of the companies that we follow. So we want to do kind of a rapid fire look at some of the popular companies, you know, disruptive companies, and find out what we learned from the quarter. Jason, what did we learn from Cloudflare? And maybe first, what in the world does Cloudflare do?

1:06So that's a good question. It's kind of like, hey, what does Salesforce do, right? And I guess... Yeah, it's everywhere, but we don't necessarily see it. The proper answer, it does a little bit of a lot of stuff, but primarily it's seen as a content delivery platform, focuses on application development, and most importantly, I think, in today's day and age, cybersecurity. There is a big cybersecurity dynamic to Cloudflare, and it's one we even talk a lot about with, in our quantum leap service, thinking about beyond classical computing and into that post quantum cryptography stage of life that we will ultimately hit.

1:44Travis, Cloudflare is a company that is working to protect us on that front as well. But that's the answer in a nutshell. And I think this was another good quarter that showed that the language we had been talking, we've been using over the last couple of years with Cloudflare and with a number of enterprise software-type companies, the elongated sales cycle, sort of the trepidation of their customers to commit to spending, those days seem to be well past us. It was another very solid report. They grew revenue 34 % for the quarter, well-exceeding their own guidance, guiding for another tremendous year, 28 % revenue growth.

2:24And again, they tend to under-promise and over-deliver, which is certainly priced into the stock. But I think the story with Cloudflare really continues to be large customers. Those customers that pay over$100 ,000 per year, they really continue to drive results. Revenue contribution in that segment for the quarter was up 42 % and now contributes 73 % of revenue in total. And that's up from 69 % from a year ago. And then just to top it all off, that dollar-based net expansion rate of 120%. That was up from 111 % from a year ago. Very encouraging to see that not only do they sign on new customers, but they continue to really grow those relationships with customers as we've seen from that large customer data.

3:13Cloudflare is one of these companies that if you go back to 2021, this is the first one of those high-flying stocks that I remember trading for 100 times sales, and then suddenly crashing in 2022. Two, we're back to the point where they're trading for 30 times sales, which is still a very high number. And, you know, five-year growth rate is 38%. Is valuation ever a concern for Cloudflare? Is this just one of those, hey, this is kind of a utility on the internet, and so they're not going anywhere? That's why the market pays a premium for them? I think it's a little bit of both, to be fair. I mean, I always look at something like a Cloudflare and think one of the primary risks to a business like this, beyond some sort of security breach is the valuation itself.

3:54And it has always really traded for a premium valuation, saved those couple of years, just a few years back, when we were talking about those elongated sales cycles and how committed their customers were. And we really saw the stock take a huge hit back then. But it has recovered, I think, based on these growth rates that we're seeing. As long as we see that top line continue to grow at the pace that we're seeing today, I think the market, the premium is fairly well-earned, but that is a big risk. If we see that tick down, we're going to absolutely see those shares pull back. Lou, what did we learn from Airbnb?

4:34Narrative busting week for Airbnb because everything was down. Airbnb actually missed earnings, and the stock is up post. This week, that seemed really weird. A few things going on, though. For one, the stock was already down 15 % for the year, and we're still just in mid-February, so there weren't a lot of expectations baked in here. Also, they see double-digit revenue growth in 2026, which I think is better than some had feared, especially with all the macro concerns where things are going. This was a good report from a good company. The funny thing is, though, is expectations. What should we expect from here?

5:12I don't know about you guys, but increasingly, when I look at Airbnb, I see Marriott. I see a mature lodging business, asset light, that can outperform but is not going to be a high-growth stock. I've given up on experiences as a new rocket ship. Yeah, that was supposed to be their thing that they launched about a year ago. Yeah, yeah. They invented a concierge, right? I think it's tough to figure out how this is anything more than a Marriott from here. The good news is that Marriott has been a pretty good, solid company. I think it's all about expectations from here. But a good company doing well.

5:49They went public so late, so much of the growth was gone. And I think now we're just kind of waking up to this is more of a lodging company than it is a tech company, maybe. Well, correction, Lou. It was an AI-driven concierge. There was a revolutionary concept there. That's tongue-in-cheek, of course. I'm kind of with you there, man. And I love Airbnb as a consumer. I like it as a company. It is difficult to kind of see that tremendous growth going forward, just given how big the company is. And yeah, experience has just been underwhelming, to say the least. The interesting thing for them is they did actually start to, like you said, accelerate in the quarter.

6:33And so, it seems like some of those, hey, this is going to kind of be a commodity. You're going to have Booking.com come in. maybe that isn't the huge fear. And I think they talked about that a little bit on the conference call. You've got this community of trust with Airbnb and in a world of AI, and you don't know who you're going to be able to trust when you're doing something like planning a trip. Maybe that's an okay place to be. We'll see. I'm always, I was interested to hear Brian Chesky's digs at AI on the conference calls too, because he always seems to have an interesting take or two.

7:04All right, Jason, what did we learn from Shopify? Shopify. Well, this was another good one, right? This is not a surprise to see the growth rates they lobbed up. The report looked very good, revenue up 30%. And they saw quarterly gross merchandise volume surpassing$100 billion for the first time. Of course, we saw the stock sell off. That's not a terrible surprise because just like we're talking about Cloudflare, for as strong as Shopify is, I mean, it's still one of those businesses that trades like 150 plus times earnings. Like there is a lot of optimism baked in. Now I get it, right? They're taking share again, that gross merchandise volume number, very impressive.

7:46And that is poised to continue. I think one of the question marks I have with Shopify, it's not really, it's not really specific to their business, but we just hear more and more talk about this, uh, agentic commerce, right. And exactly what that means. And so I think we're going to see how that opportunity and agentic commerce shapes up over the coming quarters and years. They certainly discussed their AI investments on the call. They're very excited with the opportunities, the efficiencies, helping their merchants run better businesses, become more effective with their advertising, and ultimately closing sales.

8:27Speaking of valuation, listen, I think Shopify has at least earn that leap of faith that the market is taking. I mean, it has grown revenue 32 % annualized over the last five years. And I think the$2 billion share repurchase is an interesting announcement. Maybe it's a vote of confidence. That's a drop in the bucket, to be fair,$154 billion. It is a drop in the bucket. You're right. And ultimately, let's see that that authorization is actually having the desired effect. Yeah. It's funny, timing matters. Maybe I'm oversimplifying, but it feels like they grew by 31%, but margins were down because they were investing in AI.

9:06If that was the exact same headline last summer, the stock was probably up 15%. Part of it is just what you're doing. It feels like, as a long-term holder, I didn't see any reason to go chicken little on this, but yeah, it's just a different environment, and I think we're adjusting to all that. All right, Lou, we had Ferrari report, and I wanted to get your thoughts on Lewis Hamilton's season ahead, but we'll skip that for now. What did the numbers look like? You know, Travis, I'd rather talk about the big Brentford Arsenal game from yesterday if you want to go into European sports, but I'll spare you that and we won't get into Formula One.

9:44Here's what I'd say. Ferrari, last time they reported, back in October, shares fell 20%. This time, they beat, sort of, lowered estimates, and the stock responded well. It's still down about 20 % since October, though, so I don't think we should read too much into just the headline jump. What's going on? What's wrong? They're only guiding for minimal revenue growth in 2026, under 5%, no margin expansion. This, they say, is temporary. They're doing model changeovers. But look, the Ferrari model is, you've got a huge waiting list. Just sell the cars. Just jack up prices. I don't get why it's working.

10:22I think I still like this company, but it's still trading at more than 30 times expected earnings. There's tariffs, there's macro. I get why the market's sort of meh. All right. I want to get to that too quickly here. A sentence or two, Jason, what did you think of Spotify's results? Well, Spotify is another one. I love it as a consumer and was very impressed with these results. We saw monthly active users up 11%. Importantly, premium subscribers up 10%. And we know that is the lion's share of the revenue picture for Spotify. So consequently, we saw that premium membership revenue up 8%. But I thought what was really impressive was how they're starting to bring this all down to the bottom line.

11:05Saw operating margin for the quarter 15.5%. That's versus 11.2 % a year ago. And so I think we had some questions really early on in the Spotify story as to exactly how quickly they could get to profitability and how profitable the company could be, given the nature of the relationships with publishers and just the music business in general, I think we're hitting kind of a situation here where the company, they have so many users. It's starting to kind of become one of those Facebook-like or even Netflix-like stories where even a mass exodus at these levels probably wouldn't have that great of an impact.

11:42You know, Travis, I just realized they passed a$2 price increase on the family plan that we have here in the Moser household. I got it too. I'm happily, happily paying it. Yeah. The kids app is very sticky for us. Lou, Pinterest is down 22 % today. Post earnings. Yeah. So, they matched expectations on earnings. They grew revenue by 14%, but that was a little shy of expectations. Interesting thing, the forecast is very, very underwhelming here. And they're blaming tariffs. They're basically saying that tariffs are depressing sales among their customers, and that's leading to fewer ad sales. Which, guys, might be true, but here's my question.

12:25I don't feel like, I mean, retail has been very mixed. I don't think we have gotten the sky is falling from the actual retailers. Just throwing this out here, I hate to be too negative, but does this sort of indicate that Pinterest is low on the priority level for ads? Like if retailers are pulling back ad spending just a bit, it is affecting Pinterest more because those are the easiest ones to cut? And if so, is that a longer term issue? There's a lot of ifs there. I don't want to say it, but I both get the tariff excuse and I'm a little skeptical just based on everything else going around. A lot going on with earnings, but there's also, Lou promises me there's something exciting going on in trucking.

13:07I'm only promising fun. We'll get to that in a moment. You're listening to Motley Fool Money.

13:18Welcome back to Motley Fool Money. Okay, Lou, you are the old boring business guy. You like to talk about logistics and trucking, but you're promising that there's something exciting going on related to AI. So what's the news for this week? Okay, so first of all, it's not just logistics, all right? We saw this with SaaS stocks just crushed because of AI tools. Charles Schwab and other financials were crushed earlier in the week because of some AI tax planning tool that is supposedly the first step towards replacing financial planning. That happened on Thursday with logistics companies. A lot of truckers and logistics stocks down 20 % or more.

13:54Why? A company that six months ago sold karaoke machines announced an AI platform that it says will increase trucking efficiency by 300 % and eliminate the need for truckers and brokerages, basically. Now, guys, I am willing to keep an open mind here. I believe technology can greatly add to efficiency in the shipping business. Look, C.H. Robinson, RxO, some of these leaders have been spending millions on tech. The issue is most of their customers still use rotary phones and paper. So, now we're supposed to think that they are suddenly going to adopt AI? I'm a little skeptical. We'll see. Maybe this company does have the answer.

14:32We'll see. It's also possible that this is sort of the poster child for the idea that maybe the market is overreacting. Sell first, ask questions later. One thing I know for sure here, and I'm curious because this is, I think, a more extreme example than what's going on with the SaaS stocks, and we'll see. But this company that made the announcement, their market cap is$6 million. If this system is a half, a quarter of what they say it is, Why don't we get together? Someone should buy them for$200 million today, subject to due diligence. I would like them to do due diligence first. You get the karaoke assets for free, I guess.

15:14But I think, and the reason I wanted to bring this up is, look, I don't know what's going on with logistics. Maybe they're all that. But we have seen just a bloodbath in sectors this week, just because companies we had never heard of have introduced AI tools that are going to disrupt. I believe in AI. I believe that we are going to see disruptions all over the place. I do think as investors, it's good to take a long-term perspective and not just sell off on these press releases. Let's wait and see how it develops. Does that make sense? One of the questions I have for you is it seems like a lot of these companies that are coming in and trying to disrupt established players, it's ultimately value destructive overall.

15:57And that's what's kind of confusing about what's going on with the market is a company will introduce something. The bigger company will fall 20 % lose, let's say, you know,$50 billion in market cap. But there's no made up market cap by the company that's doing the disruption. Obviously, they're just seeing this as potentially pure upside. But it does seem like the market overall is selling first and asking questions later. And yes, disruption may be coming. But also, these companies have agency. And that's the thing that I think we don't think about. These trucking companies do have the ability to, if they can make an AI in six months that will improve efficiency, you would think that at least someone inside C.H.

16:37Robinson and all these companies would be thinking about doing the same. They're spending millions. And this has been going on back from before we called it AI, when it was machine learning. UPS famously, in the 90s, put in software to basically root out their drivers to make mostly right turns. because right turns are safer and they're quicker. You know, like this sort of efficiency driving is pretty old. And again, you can do more. But, you know, yeah, I mean, C.H. Robinson is spending millions on tech. Their issue is getting customers to adopt it. And so, you know, yeah, there's a lot that can happen from here.

17:15And I do think that AI can be revolutionary. I am not sure it's going. I mean, I actually think there's a world where on a lot of these, especially touching the physical world, that this is going to lead to actually better companies and more efficient companies. The truckers selling off with the logistic companies, I don't get. The trucks are full already. I mean, the problem is, is that there's not enough distribution centers. And I don't know how AI solves that. But we'll see, I guess. Is it possible that in trucking in particular, we sort of skip this interim phase of being more efficient and just go straight to autonomy?

17:49because it seems like that is an area where, you know, especially these long haul trucks, is it going to be safer and more efficient to just have an autonomous vehicle drive from point to point? You know, we see, we saw this in an area like India, they, they just went straight to cell phones in 5G. They didn't go through kind of this development that we went through in the U.S. Is that possible? Or am I overthinking it? If your timeline is long enough, maybe, I don't know. You know, I mean, with, with cell phone going straight to cell phones, you don't have to worry about it, it plowing into a bunch of other drivers.

18:22Yeah, we're heading all sorts of directions. How fast we get there, we'll see. Uncertainty seems to be the name of the game. And like we've seen with the example I keep thinking about is electric vehicles. You know, five years ago, we thought that everyone was going to be buying an electric vehicle today, but that is not where we ended up. Sometimes these disruptions take a lot longer than you think. And if you go back to the dot-com bubble. It really took until the early to mid-2010s for a lot of those things to materialize. When we come back, we're going to see what stocks are a falling knife and which ones aren't.

18:56You're listening to Motley Fool Money.

19:22Welcome back to Motley Fool Money. This segment, we like to have a little fun and just kind of get a feel of what's going on in the market. So I want to ask Jason and Lou whether these stocks are falling knives. So a cautionary tale, you don't want to be buying before it hits the bottom. Or are these stocks worth a fresh look? So we talked a little bit earlier about Shopify. shares of Shopify are down 38 % from their peak. Jason, is this a falling knife or worth a fresh look? I would say worth a fresh look now, going back to what we were talking about earlier in the show. I do also believe that valuation is going to be just a risk that investors have to consider with this stock.

20:06That said, it has always maintained a premium valuation. And I think that's for a lot of the reasons we discussed, right? The growth rates of the company continues to lob up there. I think just that overall opportunity in commerce, the nature of the business, there's some big question marks as to entirely what agentic commerce means and what that ultimately is going to define that. Yeah. It's funny to see that the AI companies explaining what agentic commerce means. And I'm just as a as a normie user of this stuff, I'm going, really, like, I'm just going to let it go plan a trip for me without, you know.

20:45No, you're not. You're not. No, it's not. It's not. It's not a mind reader. And I think that's kind of where we had to figure, OK, where's sort of that happy middle there? I mean, are we talking about just auto filling delivery addresses and in payment information, because you know what? That's been happening for a while now. So, yeah, I've read a lot of thoughtful pieces about agentic commerce, and a lot of them kind of talk about why that may be a little bit overblown. And perhaps what we see with agentic commerce ultimately is it serves more on the back end for these companies and is less consumer facing.

21:18I think that's a little bit of an easier leap to make there when we see these investments the businesses make in helping their merchants run more efficiently and making their actual business is more efficient. But overall, I mean, I think we still look at Shopify and I'm a long time shareholder, very happy shareholder and happy to hang on to those shares. I think when we see the company pull back like this historically, these have represented interesting times. I don't think that Shopify is the type of business that is going to be disrupted by AI as many of these companies were discussing, right?

21:51I mean, that's kind of the big question mark. They seem to be sort of necessary because they're serving the long tail of companies. And if you're going to build a business, an online business that's going to plug into these AIs, you would think that Shopify would be the place you would do it. It's going to be building, I think, on top of that layer of AI technology and ultimately helping reshape the commerce industry. I think, obviously, a very tech forward company and Toby Lukey, I think, just as clearly very dedicated to the business. And I don't want to imagine that changing anytime soon. So.

22:23Lou, my question here is when does this company get really interesting? I'll give you some valuation metrics. Enterprise value to sales is about 13 still. Even on a forward, price to earnings ratio is 126 on a trailing basis and on a forward basis, still 65. Not really a good value argument here, but you know, where, where do you get to the point where you go, man, this is just too cheap to pass up. Yeah. I mean, I would echo almost everything you guys said about, you know, I'm not worried. I'm a shareholder. I'm not worried here, but valuation does keep me from buying. I think they're a long-term winner.

22:59And look, at the end of the day, valuation is your ability to grow over what timeframe, right? So I do think there's an argument to me that if you're a long-term holder, you can do okay here, but I would like, I would probably not add to it unless it falls from here just because I do think nobody knows what's going on. We just talked about it. It's shoot first, ask questions later. I don't think you can say buy in now and it goes straight up from here. So I don't know if I necessarily want to catch this right now, but I also, I don't. I lose sleep about a lot of things, guys. I'm not losing sleep over my Shopify shares.

23:40All right, let's go to another company that's really taking it on the chin. This has been on my watch list for a long time, but I've never been a shareholder. That is Workday. Shares are down 53 % from their all-time high. That actually goes back to 2024. But the valuation getting a little bit more compelling than we get at Shopify. Enterprise value to sales is 3.8. Forward price to earnings multiple is just 13. One of the reasons this caught my eye this week was one of the big AI labs said that they were adopting Workday. So even the big AI labs aren't building a workday to replace workday. Lou, is that saying something to you?

24:20It certainly is interesting, isn't it? It's certainly worth noting. I mean, look, even before the AI drama, there was a lot of competition in this sector. So it was already sort of an uphill battle. To their credit, they have done very well beating back the competition and establishing themselves. I don't really worry about this one, but I guess I'm less confident than I am with Shopify. I do think that, look, you have all this competition plus AI, at least on the back end, automating some of the things that go on here. I think I see maybe a bit of a crack in the foundation, but I don't see rubble.