In this episode of Rule Breaker Investing, we give you Aaron Bush vs. Emily Flippen. Will the new format give Emily an edge? Will Aaron break the game again? We won’t know until we play…The Market Cap Game Show!
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This video was recorded on June 22, 2021.
David Gardner: Given my love of games, there was really no way in hindsight that we wouldn’t feature games on the Rule Breaker Investing podcast. Indeed, for instance, one of my more popular clicks each year with this podcast is our Games, Games, Games episode, where I pick out and share all my recent favorite board games for you. We tend to do this at the end of each year. For you to take a look at, play with friends and family, maybe have a holiday gift for somebody. Yes, stock market investors and people of all nations, you repeatedly let me know that Games, Games, Games is an annual highlight. Well, there’s another game we’ve focused on even more frequently on the Rule Breaker Investing podcast, and that would be the Market Cap Game Show. We play it only four times a year, not nearly enough. I always feel and yet, like Halloween or Easter, they’re even more special in that they come around infrequently, regularly, but rarely. Well, so to the Market Cap Game Show. What I love about it is that we play this game for you. We’ve devised the whole thing so that you can play along at home, learn from our contestants, play with friends and family members, maybe even beat us all at our own game. This time, for the second time ever, thanks to our listeners’ suggestion, we are using our new rule. We have revised the game, we’ve made it smarter, which I know will make you happier and I hope at least, a little richer too. So fasten your seat belt, buckle up and get ready. It’s the Market Cap Game Show, June edition, only on Rule Breaker Investing.
Welcome back to Rule Breaker Investing and yes, as I mentioned right at the top, it is the Market Cap Game Show, and in a new form because, let’s review this one more time and then I think I won’t say this anymore going forward, but we got a wonderful note written to us and I featured it a few mail bags ago. In fact, it was the January mail bag of this year. I want to throw a shutout one last time to Adam Nelson. Adam, you took the time to suggest an improvement to the Market Cap Game Show, and we’re going to be using it for this new iteration going forward. You said it’s similar to the old card game, Acey Ducey, which by the way I haven’t played. But Adam said, “Why not have the guesser have the ability to state a range of market caps, and then the opponent, i.e. you and me and all of those planning at home, after hearing that range of market caps, we just say inside that range or outside that range.” That’s an end quote, because that’s a direct quote from the great man himself, Adam Nelson. Again, thank you, Adam. Speaking of great, I have two of our great performers in Market Cap Game Show history joining with me this month. I’ve tried to get them, they are so busy at The Fool today. I couldn’t get them in the last few, but darn it, Aaron Bush and Emily Flippen, if we didn’t all make it happen here near the end of June. I want to welcome you both.
Aaron Bush: Thank you, David. It’s fun to be back.
Emily Flippen: Hey. Thanks, David.
Gardner: Outstanding. Yes, it is. A delight to have you both back and you both have distinguished yourselves for outstanding scores on the Market Cap Game Show. Before I go into the brief mechanics of the game for all of our new players, Aaron and Emily will take it in that order. I feel compelled to ask you to introduce yourself. Now, I could ask you what you’re doing in and around The Fool and you certainly could speak to that, but I thought if you could also briefly include something different about you in 2021 than the year 2020. Aaron, welcome again, you’re up first.
Bush: Awesome. I think for the world, 2020 was very much a year of change. But for me, 2021 has been even more of a year of personal change. I’m living in a different state than I was last year. I’m in Texas now. I’m getting married in the next few months, bought a house, and am stepping into the role of co-advising Rule Breakers. Everywhere I look, I feel like something’s changing in my life this year.
Gardner: Thank you, Aaron. That’s a great recounting and boy, it is a whole new ballgame across a number of different ballparks for you. I’m really excited about 2021 for you and for all that you’re doing for Fools and congratulations ahead of time on getting married. Well, Emily Flippen, what is different about you in 2021 than the Emily Flippen we got to know and enjoyed in 2020?
Flippen: Oh, you should have asked me first, David, because mine’s not nearly as exciting or transformative as Aaron’s. But I will say, I think I’m a completely different person than I was a year-and-a-half ago. That might sound like an overstatement, but I don’t think it is. I lived a very regimented life pre-pandemic. Everything was scheduled. I’d wake up at 4:45 every morning, immediately go to the gym, and be at my desk for certain hours. I just lived this very uptight life and then the pandemic happened, and I will tell you what, it turned my schedule on its head. For instance, I slept until 9:30 today, and that was not an abnormal occurrence.
Bush: That is not the Emily that I know at all. I used to go into the office at 9:00 AM and our desks were together, and she has been there for like three hours and I’m just still in a slump at 9:00 AM and Emily is going hard. That’s wow to me.
Gardner: It makes us wonder where you are both going to be in 2022, but here we are just in 2021 and it is June, and we’re about to play the Market Cap Game Show. The market caps changed not just every year, a month, but every minute. But what I’ve done here on the afternoon of Tuesday, June 22nd is I’ve frozen all the capitalizations of all the stocks in the market for the purpose of our game. I was unable to shut down the markets themselves, but I was able just to freeze the numbers briefly and grab 10 of them. For our returning listeners, they already know where we’re heading, but we have a lot of new listeners so let’s talk briefly about this game we’re about to play. I have selected, at nearly random, 10 different companies, many of which Motley Fool members will recognize, they’re in our services, you might have them in your portfolios, maybe some not. For each of those, I’ve looked up the market capitalization, and that is a fixed number now, even though it’ll keep changing. Even by the time each of us hears this podcast, it’ll be slightly different.
What I’ve asked both Aaron and Emily to do is to do their best at calling what that market cap is. Now again, the market capitalization is basically the price tag on the company. If you take all the shares of a public company and you multiply it by that company’s share price, you end up with the simple math of the market capitalization. There are more complex ways of looking at this, but looked at very simply, this is the overall value. If you wanted to buy one of these companies, this is a good approximation of what you’d have to pay. I’ve always felt that a lot of people underrate market cap and overrate price per share. Aaron and Emily, how many people do we know, they want to buy low-priced stocks? They’d much rather buy a stock at $17 than at $170 because I don’t know. Emily, why?
Flippen: I don’t know. If I had $1 for every time somebody told me that we’ve recommended stocks that were too expensive, I’d probably be too expensive. People tend to associate valuation with price tag. But in reality, some of the cheapest companies in terms of valuation may seem to have the highest share price.
Gardner: That’s right. Aaron, one of the things we’ve used market cap for, as stock pickers over the course of time and analysts here at The Fool, is we like to know what it is and then imagine what it could grow to. So when you find out a company that you think has a lot of prospects, has a market cap of $10 billion, you might be slightly more excited than if it already had a market cap of $1 trillion because you start thinking, how much would it take to go up five times in value, and that first one, from $10 billion, it would take another $40 billion to get to $50 billion. But wow, $4 trillion more for your trillion-dollar stock to go up five times in value. Aaron, do you actively use market cap?
Bush: I do. To echo what Emily said, it’s far more useful to compare market caps than stock prices. You could find two companies that both have a stock price of $10, but one of them is worth $100 million in the market and the other one is worth $1 trillion, so yeah, just on average. I don’t know the prices of basically anything, but I try to focus all of my time on just figuring out the company as a whole. What is the price of the company more so than the price of any specific slice of that company?
Gardner: Thank you. It’s fair to say we are market cap junkies, not just on the podcast this week, but really across The Motley Fool, I hope you are too. I hope you’re becoming aware if you didn’t already know what that was, if you’re learning that term for the first time this week, or even if you did know it, do you really know your market caps? That’s what the Market Cap Game Show tests. Do you have a relative sense of how much bigger this market cap is that company than this other one? I really believe that the more we get to know our market caps, the better investors we will be. I think there’s nearly a one-to-one correlation, I will even say causation, between knowing your market caps and doing well as an investor. We’re here to make the world smarter, happier, and richer at The Motley Fool and I think this game show four times a year helps all of us.
Speaking of all of us before we start the game, Aaron and Emily, while you are competing against each other, the beauty of the Market Cap Game Show is that all of us are playing with you and/or against you. Because our new format where I ask one of you what is the market cap and you give a range, well, the other contestants and all of us at home jogging, driving the kids around, listening to this podcast whatever you do, you can play right along with this. You will just say inside that range or outside that range, and just like Aaron or Emily, you will be right or wrong and you get plus one point if you’re right. A perfect score is 10. That’s happened before on the Market Cap Game Show, Aaron Bush, and our listeners can do that at home as well. This is a game for all of us, and I think without further ado, we should get started.
Company No. 1. I’m going to turn to you first, Aaron. Aaron, let me just ask you. Have you ever been to China?
Bush: I have. I was in Shanghai for two days. That’s the extent of my China experience, unfortunately. Emily probably has an advantage on me on this one.
Gardner: Now, don’t tell me you flew halfway across the world to spend two days in Shanghai and then flew back.
Bush: It was more of a layover to go to Malaysia where I was at for a weekend. That was more of the core of my trip, but I was glad to make a shortstop in Shanghai while I could.
Gardner: It’s an amazing city. I have now spent about a week in China, not just a day, but I didn’t get to Shanghai, which I know is such a remarkable place. I do regret it. But it’s a big country. For us Americans, people say, yeah, go to America for a few days, where should I go? There’s just too many answers to questions like that. Because these are big countries with big cultures and geography. It’s almost like we’re all just seeing one part of the elephant for any one of our trips. Aaron, do you have some Chinese stocks in your portfolio or not?
Bush: I believe I own a couple. It’s not a core part of my portfolio, but China is certainly a massive country with a ton of people working hard to build incredible organizations. There definitely is opportunity there, and I try to not to just completely shun it out of principle or anything like that, but it’s not a huge piece for me.
Gardner: Understood. We’re going to get to Emily in a second, who spent a lot more time than we have in China, but I’m thinking in particular of a company who’s sticker symbol is J-O-B-S. This company is 51job (NASDAQ:JOBS). Now, 51job, not the best known of the Chinese Internet companies. I mean, I think about certainly things like, well, Baidu has been a wonderful long-term holding for Motley Fool members, especially through Rule Breakers. There are Tencent, there are all kinds of massive Chinese companies and yet this is a stock we first picked in July of 2010, and it’s gone up six times in value, and it only has this market cap except that I am not going to say what its market cap is, because Aaron, it’s now time for you to name the range of the market cap for 51job, ticker symbol J-O-B-S.
Bush: With high confidence, I am going to say that the market cap of 51job is between $5 billion and $6 billion.
Gardner: All right. Now, I’ll turn to Emily Flippen and of course, all of our many players at home and all of the different contexts of home and ask you, Emily and players at home, is the correct answer inside Aaron’s range or outside Aaron’s range?
Flippen: I know it’s close to that range, and I think Aaron was maybe trying to throw me off with his comment about high confidence.
Bush: Because I needed to, wasn’t it? It was gratuitous.
Flippen: It was gratuitous. It struck me as gratuitous. I don’t think Aaron is highly confident. I remember the last time I looked at 51job, I think it was around $4 billion, and I remember that this has been a great investment. I think they’ve made some changes to their business over the past year. I think it’s bigger than $6 billion. I’m going outside the range.
Gardner: Score 1 for Aaron Bush. Because indeed, the market cap of 51job is $5.14 billion, so really within that tight $1 billion range. Aaron, you nailed it. Players at home, if you said inside, give yourself a point. If you with Emily said outside, unfortunately you will stay at zero through question No. 1. This is a really interesting company, Aaron and Emily. We first picked it at $12.09 in July of 2010. It’s about $78 today. Now, the market by the way, the S&P 500 is up 377% over these nearly 11 years. While it’s up about 31%, six times your money, it’s actually not that much farther ahead than the market itself although it has been a market beater. This week, the company has announced its getting taken private. Some of it’s return, you’ll see it got a little bit of a bump here in June, because it is getting taken private. Now, I have to admit I did not select this stock for that reason. In fact, I had not realized that that was happening. But indeed, my random way of selecting stocks, this is the one that came up first and so we get to talk about it. Really interesting company that almost nobody ever talks about. Guess what, even fewer stock market investors will be talking about it going forward, because it’s about to go private and disappear from our markets. Emily, you spent a lot of time in China. I don’t think you were trying to get a job in China which is what 51job is for. Did you ever sign in to the site, go for a gig economy thing?
Flippen: I never did. I’m embarrassed that I missed the one that I should’ve gotten right. Aaron’s psychology games win again.
Bush: It’s all my games, Emily. Just got to listen to me next time. I told you it was high confidence.
Gardner: A remarkable reflection of that mind game, Aaron, is that you’re not just playing on Emily. There are maybe 100,000 people that just got mind-gamed by you, just in that minute alone. Think about the fun you are going to have in the 45 minutes ahead of us. Let’s move on to question No. 2. By the way, you can play mind games too, Emily, I know you can.
Flippen: Less effectively. The last time I tried it, I remember exactly what it was. It was Tesla with a market cap of, I think it was around $69 billion. I tried to bamboozle Aaron by going slightly above, if I remember, and he called me on it.
Gardner: Well, speaking of travel, let’s keep it in Asia. Emily, I know that you spent your four years of college, you were technically at New York University, but in fact you spent all four of those years in China. Did you get out and about and have a chance to travel through Asia outside of China?
Flippen: I did. There were a couple of places that I wish I had the opportunity to go to, Thailand being one of them, I still want to get there someday. But for the most part, I got around a little bit.
Gardner: Yeah. What a remarkable experience to have from age roughly 18 to roughly 22 to spend the amount of time you did in such an important country in the world and so different from our culture. Good on you, Emily. You didn’t get to Thailand, did you get to other places in Southeast Asia?
Flippen: I did. I got around to Vietnam and Singapore, for instance, and the Philippines. I think I know where this is going.
Gardner: Excellent. Yes. Southeast Asia is a really interesting part of the world, and I have spent very little time in it. I have once been to Singapore. Well, this company’s name is an acronym, it includes Southeast Asia within its name. I think you both know where we’re headed here. A lot of our listeners will be familiar with Sea Limited (NYSE:SE), because it’s been an outstanding Rule Breakers stock. It followed the tradition of Amazon.com in the U.S. and the globe of course, and MercadoLibre in Latin America. Southeast Asia has its own version of an e-commerce juggernaut. Although there’s a lot of video games mixed in there, a little bit different from the other creatures out there. Anyway, Sea Limited, ticker symbol S-E, is this company in question. Emily, I think it is now appropriate to turn to you and ask you, Emily Flippen, what is your range of market cap for Sea Limited?
Flippen: Well, first of all, I feel silly for not figuring out that Sea Limited stood for Southeast Asia. How silly of me as an investor.
Gardner: You know now.
Flippen: I’m also very confident, because I remember looking at this, and relating it to another competitor in Latin America, MercadoLibre. I was surprised by how big it was. I’m going to give you a range of $147.8-$149.2 billion.
Gardner: If I heard that right, I think I heard on the low end $147.82 billion, and on the high end $149.2 billion. Now, the reason I’m laughing a little bit and then Aaron’s laughing too, is because I think a lot of our listeners are surprised that you both are being so tight with your market cap ranges. But this is because you’re some of the greatest players as games ever known. You really have fairly pinpoint accuracy views of a lot of them, I hope not all of them because then it’s not as fun, but at least a lot of these companies. I have to chuckle. Aaron, you chuckled too. Is that what you are thinking as you chuckled?
Bush: I think, I’m not sure. I know it’s close. The number that came into my head was about $140 billion, which I think is about twice the size of MercadoLibre, which is just incredibly impressive anyways, but that’s specific. I think I’m going to go outside. Let’s go outside.
Gardner: If you agreed with Aaron, give yourself a point, because man, this is almost unfair to Emily, but this game is always a little unfair, because she made such a great call. But as I froze the market caps and stopped the market briefly earlier today, it was at $147.79 and literally, and he said $147.82 billion. It is outside Emily’s extremely specific, tight range, which means playing along at home, if you said outside the range, give yourself a point and if you have two points, you’re tied with Aaron. If you haven’t scored yet, you’re tied with Emily. That just doesn’t seem right.
Flippen: My very narrow range was aiming to give Aaron my false sense of confidence to make him stay inside. This is why you can’t play mind games against Aaron.
Bush: You definitely can. You’ll get me next time, I’m sure.
Gardner: I’m sure you’ll discover that in married life, it works both ways, Aaron, indeed. Well, I do want to point out that Motley Fool Rule Breakers recommended Sea Limited on February 27th of 2020. Not much more than a year ago, the stock was at $45 a share, today it’s $280. This stock is up 524% in not much more than a year, a COVID year at that. The market went up 45%, which ain’t too shabby by the way, from February of 2020 to today, a 45% gain for the S&P 500. But boy, if Sea Limited hasn’t been a star. It is so interesting to me, Aaron and Emily, that this company, which since it came to the public markets much later than MercadoLibre, a lot of us would think it’s an upstart. But in fact, MercadoLibre has rolled up to be 100-bagger for some of us because we’ve held for more than 10 years, yet it’s still like half the size of Sea Limited when you look at market cap. They’re starting to compete a little bit in Latin America. Turns out, Sea wasn’t just Southeast Asia, Emily, maybe it was about going overseas and doing its e-commerce business in other places too. Any thoughts from either of you about Sea Limited?
Flippen: Other than we’ve been debating it heavily between Aaron and I about Sea Limited’s ability to compete in Latin America, it is amazing how quickly they have matched and potentially even overtaken MercadoLibre in terms of active customers on their shopping platform. I don’t know what to make of it other than to say, I think I was wrong for not being a bull much earlier than I was.
Gardner: Well, thank you for that. I do want to caution all listeners to remember that so often in life and in business, but people don’t get this because they think about sports. Everyone can win. Just because Sea Limited is coming into Latin America doesn’t mean that it won’t win and MercadoLibre won’t win, because really still most of business today is being done offline. That even includes the United States of America. There is such a great growth on-ramp for e-commerce all throughout the world, and so don’t make the mistake of thinking it’s a showdown between MercadoLibre and Sea Limited in like, I don’t know, the universal fight championships. In the UFC, only one guy or girl can win. That is not the case here. They can all win and we as shareholders can win with them and boy, have we. Let’s move onto stock No. 3. Aaron, this is a little bit of a personal question, but I know you’re comfortable with that. I think most people would expect you to say yes, but then again, not everybody in Texas would say yes. I want you to be honest if you’re comfortable. Are you vaccinated?
Bush: I am.
Gardner: Excellent. I do think that that helps all of us. I realized it’s been politicized somewhat. Some people actually think it’s a sham. I was hearing from somebody, a friend here at the beach yesterday, who mentioned that she knows a couple, and the husband got COVID early and literally nearly died and he was maybe in his 40s like it would’ve been a tragic death. He did make it back. His wife is not vaccinated. Now, you’d think, my golly, my husband almost died, I would have, but no, there are different viewpoints and outcomes and we’re all human and we’re a crazy lot when you look across all of humanity. But Aaron, that’s all a long way of saying, I’m glad that you are vaccinated. Did you have a choice of which vaccine you would take?
Bush: I’m trying to think. I probably did, but it was more like pick your county, pick your location and what you’re going to get vaccinated. They would sort out the logistics of the specific doses that you get.
Gardner: Yeah. Was that in Virginia or Texas or somewhere else?
Bush: This was in Texas earlier this year.
Gardner: Excellent. Do you in fact remember which vaccine you got?
Bush: I got Moderna (NASDAQ:MRNA). Team Moderna.
Gardner: Interesting. I’m glad you mentioned Moderna, ticker symbol, MRNA. I have to believe Aaron and Emily have probably prepped this one. This is a really interesting company. I thought it was worthy to feature here in the June 2021 edition of the market cap game show. I’m expecting another potentially very tight range, we’ll see. But Moderna has been just a remarkable performer if you think about what that relatively young biotech company achieved in cranking out a vaccine as quickly as it did that was as successful as it has been. It really is pretty breathtaking. Speaking of the stock, wow, it’s been really interesting. It’s been a monster winner from a sleepy unknown company just a few years ago. I’m just looking back to last September. Basically six months ago, stock was around $60. Today it’s a lot higher than that. That’s just in six months. But boy, if this hasn’t been a monster performer, a reminder to all of us to never shy away from biotechnology. A lot of people write it off and figure they can’t figure it out, but when you find really relevant companies doing real-world stuff that you can relate to, like you’ve just had it injected into you, their product helps save you and maybe save the world. Yeah, I think that’s a stock worth looking at. I will admit that it took us a while to get to this one. Rule Breakers added it on January 28th of this year, it’s been pretty good since then too. Aaron Bush, what is your proposed market cap range for Moderna, ticker symbol MRNA?
Bush: I will go with a wider range this time. Let’s go from $0 billion-$79.9 billion.
Gardner: That is very wide. The most generous range we’ve seen by far, thus far on the Market Cap Game Show episode June 2021. Emily, we’re connected by video, of course this podcast is only audio, but I can see you shaking your head. That either means you can’t believe Aaron did that or you just think he’s crazy wrong?
Flippen: I didn’t know we were playing the prices right. It looks like confusion. You’re worried about going over there Aaron?
Bush: What do you got, Emily?
Flippen: Well, as our keen listeners may have presumed, this is one again that Aaron and I have talked about recently. I think we both generally know it’s somewhere around $80 billion. I’m going to have to say, and I hate Aaron’s smack as I’m saying this. I’m going to have to say outside the range, I think it’s bigger than $79.9 billion.
Gardner: I think a lot of us, as we listened to the show, we want each contestant to do pretty well. We want everybody to get their wins, we don’t want to have a 10-0 or even 8-2. I’m really happy to say, Emily, you were right. If you opted with Emily to say outside that range, it was a pretty good range as we have come to expect from Aaron. But Moderna, as I froze the market and market caps earlier this afternoon, $84.99 billion. Yeah, +1 to the outside. Well, this is a stock that since January 28th, the price of Moderna for our members is up 38%, market up 13%. Nothing like the 10-bagger that it’s been, but it’s also a reminder that you should never feel like you’ve missed it. I feel so strongly about that because I’m so often coming across people who just think this or that stock, Amazon, even still some of the others, Sea Limited. Everyone thinks it already made its move and they’re not going to buy it because it’s already gone up so much and yet we didn’t take that attitude with Moderna. We’ve never taken that attitude, we’ve been rewarded over and over again because usually, friends, winners win and the winners keep on winning. I don’t want to overstate the point, but I definitely want to make sure I put it out there because most people’s psychology, Aaron and Emily, are the reverse. They really do decide since it already jumped, they missed it, and/or they’re going to wait for a debt. Sometimes that just never comes up for great companies. Emily, I assume you’re vaccinated.
Flippen: I am, although I did get the Pfizer vaccine and I’m happy you didn’t ask about Pfizer’s market cap, for I would’ve been a lot less precise.
Gardner: Careful now, you never know what might be coming. Let’s move on to stock No. 4. Turning to Emily now. Emily, this is a crazy question, but why not? What’s your least favorite Software-as-a-Service stock? What is your least favorite SaaS stock? If you even have one, it seems like everybody loves their SaaS.
Flippen: I do have one, although it’s for personal reasons, not necessarily business reasons. Workday and I never really got along. I maybe applied for a couple of jobs at Workday, made far into their interview process, but they were unwilling to fly me from China to San Francisco to do the interviews. Therefore, I was dropped from their applicant pool and I’ve held that grudge for a while.
Gardner: Well, I’m glad you had an opportunity to air that out now on national podcasting. I hope somebody there hears that, but I hope they don’t comment, head-hunt you away from us, because I think their loss has been our gain. Emily, Software-as-a-Service has truly been all the rage the last, I’m going to say three years or so for investors. Some of these stocks we’ve held for eight, nine, 10 years, we didn’t know that all of a sudden somewhere around 2018 they would become the bomb. To your mind, what are a few factors that have made SaaS stocks so popular and so successful?
Flippen: Well, I can speak for 10 buyers when I say this, but I think it’s the move to the Cloud. It’s the realization that businesses, all of what they do, if not so much of what they do, happen digitally and using the Cloud. Therefore, as businesses have increasingly transformed away from doing everything in-person with hardware in their own offices to needing these software-as-a-service companies, most of which are Cloud-based to operate their businesses, that’s just created this big boom. Once they’re in their stocking, they can increase prices.
Gardner: It is remarkable in the same way that so much of the offline business went online over the last 30 years. So much of the traditional business for software companies, packaged goods or by the upgrade, all of a sudden became subscription-oriented. It’s that subscription business model that The Motley Fool uses that has been so successful for the software industry. This company, although a smaller player that many people have never heard of, has also been a beneficiary.
I’m turning to you now, Emily, with a company that you probably don’t know as well as Sea Limited or Moderna. I’m saying that to you too, dear listener at home. It’s a nice company. After all, the ticker symbol is NICE and the name of the company is NICE Ltd. This company started in Israel in the 1980s. It was founded by Israeli army officers who at the time were trying to get into the software security business, which is what you’d think army officers might be good at, things like cybersecurity. Yet the business quickly started to move outside of that niche and became a broader business. Today this is a company that helps you with your call centers. It helps you monitor and run from the Cloud with outstanding data and insights, the call centers part of your business. Now, NICE still does some work within financial crime detection using software to detect fraud for its customers. But really, most of the business these days is about call centers. The reason I asked you, Emily, what your least favorite SaaS company is, is because there are probably many of them and yet most of them are so much better known than NICE. I’m guessing you haven’t really studied up as much on this one, Aaron and Emily. Emily, what is your market cap range for NICE Limited, ticker symbol NICE?
Flippen: The worst part was that I didn’t even have a game plan coming into today’s show about what I would do if asked about a company that I quite literally had no clue over. Apparently, I’m showing all of my cards. I’d be a great person to play poker. Again, I’m going to give a big range here with the hope that Aaron is as equally ignorant as myself. But I’m going to say $5-10 billion.
Gardner: Aaron Bush and all of my players at home, Emily has proposed $5-10 billion as the market cap for NICE. Aaron, inside that range or outside that range?
Bush: I’m going to go outside, because basically every software company that I know is larger than that. I have a feeling Emily might be underestimating the size of what these companies might be trading at. That’s my guess, so outside.
Gardner: Well, your logic was good and so was your answer. If you said along with Aaron outside $5-10 billion, and I like your logic there, Aaron, that’s fun. I hadn’t thought of that, but you are right. The market capital of NICE is $13.6 billion. Emily wasn’t far off, but it is outside that range. This is a stock we first added to Stock Advisor in January of 2020. It was my monthly pick. It’s up 31% since then, the market up 31% since then. This is a company that’s been a market performer in its first year and a half or so as a Fool pick. By the way, friends, NICE is actually an acronym for Neptune Intelligence Computer Engineering. That was the name selected by the founders, the Israeli army officers in the 1980s. But NICE has become an important word in our world today. I counted, Aaron three, Emily one.
Let’s move on to stock No. 5. Turning now to Aaron. Stock No. 5, Aaron. I’m going to open this one. Who’s probably one of the best CEOs, Aaron?
Bush: Jeff Bezos is pretty great. I think Reed Hastings is pretty great. There are a couple for you.
Gardner: I agree. I will say like them, this is also a man, and like them, this is also a man in the world of technology who helped found his company that is a very well-known company today. Aaron, who are some others, probably some of the best CEOs?
Bush: Marc Benioff is another great CEO in tech.
Gardner: Interesting that you had mentioned Marc Benioff. He is the CEO of Salesforce (NYSE:CRM). Salesforce has the ticker symbol CRM, which stands, I guess, for Customer Relationship Management, which is an older school acronym that was used a lot years ago when there were a lot of companies competing successfully here. But in an almost winner takes all feeling move, which is never actually the case. Boy, if Salesforce and Marc Benioff haven’t just been dominant as a Cloud player in the world of managing your customers and using software and these days, of course, services to oversee your base of customers or your context if you’re a salesperson. Boy, Salesforce, which has also been buying out some other companies recently, if it hasn’t become a juggernaut. I’m not going to say where the stock is right now as I froze the market because that might help Aaron, I don’t know, his mathematical mind. I might give him a hint there. I will say that our cost basis, thanks to the aforementioned Tim Beyers, is $6.89 for the stock. It was picked in January of 2009. This has been a monster long-hold, and we tend to buy our stocks and not sell them. Boy, if we haven’t been rewarded for ticker symbol CRM, Salesforce. Aaron, what is your market cap range for Salesforce?
Bush: Let’s go with $230-235 billion.
Gardner: Again, a really impressively tight range $230-235 billion for Salesforce. Emily, I see your eyes almost looking like they’re popping out of your head. I’m not sure why.
Flippen: I guess in my mind, Salesforce was a much smaller business to the tune of something like $50 billion, smaller than the range that Aaron just mentioned, and I don’t know if Aaron is now playing a mind game with me, or if my gauge of the size of Salesforce is just been terribly wrong all this time.
Gardner: Well, that’s a really great rhetorical question, and yet, it’s not really rhetorical because in the end you’re going to have to commit along with all of our listeners at home to an answer. Emily, are you going to go inside Aaron’s range or outside?
Flippen: It’s a silly thing to bet against Aaron, but I have to trust my gut and go outside.
Gardner: Trust your gut, you did, and you’re rewarded for it. +1 for Emily. It was an outstanding guess, and I suspect between my two guest stars today, one of them had a much better sense of this company than the other and yet didn’t get the point. Because Aaron, you’re right. This is a massive company, and Emily, well more than $50 billion, although I myself am surprised to see Salesforce at a market cap of $227.93 billion as we do this podcast. Just an amazing performance. Again, that cost basis of $6.89 in 2009 that we’re still rocking, stock is now at $240 or so. That means it’s been a 35-bagger, the market is a 6-bagger over the course of that time. That’s why I started by asking Aaron, who is probably one of the best CEOs? He doesn’t come top-of-mind. A lot of us think, some people will say Elon Musk, or Jeff Bezos, or Reed Hastings is certainly one of my favorites, and yet Marc Benioff doesn’t come off as tripping off the tongue. Aaron, why do you think that is?
Bush: I think that probably part of it is that Salesforce isn’t consumer-facing, so most people in their day-to-day lives probably don’t interface with Salesforce as much as you would in Amazon or Netflix. People probably use Salesforce without knowing that they are using Salesforce all the time, because Salesforce has turned into be so much more through acquisitions of companies like MuleSoft, which most people don’t know of, and even Slack, which many people might use, but not even recognize that, that is soon going to be part of the Salesforce family too. But Marc Benioff has done an incredible job stitching together an ecosystem that makes Salesforce an even more powerful tool than if it were just on its own.
Gardner: Very well said. One thing I’ve always appreciated about Benioff as well, who wrote a book. I think it came out a couple of years ago, you can read it. It’s his story and the story of the company. I think probably a lot of us would benefit from reading it. But he started the company with a 1-1-1 mentality. I think you both know this already, but a lot of people outside conscious capitalism may not have heard this. This is a very consciously capitalistic company. In the case of Salesforce, 1-1-1 means that from day one, they gave away 1% of their revenues to charity. They just gave it away. The second one is that 1% of their product they give away to those who couldn’t afford it. This is, by the way, something any business could do, your local ice cream parlor could do this. Certainly, your travel company, anybody who’s making money at the top line of sales or the bottom-line of profits could do this. That second one was giving away it’s product for free, 1% of it to people who couldn’t afford it, and the third one was its employees’ time. If you’re an employee at Salesforce, and I’ve got a few friends who are, 1% of their time they can give away to any volunteer or charity experience that they want to have supported by their companies. So 1-1-1, 1% of revenues to charity, 1% of product to those who can’t afford it, 1% of their employees time to volunteer, such an impressive model. Again, they’ve run it from day one. You can imagine when their revenues weren’t much, they didn’t give away much. But now that their revenues are in the tens of billions, you can imagine this company is really doing a lot of good outside of its core business in the world. So, a plug for Marc Benioff, 1-1-1, conscious capitalism, and a plug for Emily Flippen going with her gut and nailing point two with the outside call.
Flippen: I feel like if anything we should be saying, don’t trust your gut. That was a great example. I might have gotten to the point horribly wrong on the market cap.
Gardner: It worked within our game, and that’s all that counts right now. Let’s move on to stock No. 6, sticking with Emily. Emily, what’s your favorite comfort food?
Flippen: That’s a hard question. My current favorite comfort food has been dark chocolate chips, of which I have a bag and my fridge at all times, and I might have had a few before I came on the show to take today.
Gardner: I’m delighted to know that. Since I think it’s fair to say, we all are either influencers or we would just die to be an influencer in social media. Would you like to name the brand of the dark chocolate chip that you enjoy the most on this podcast?
Flippen: Specifically Ghirardelli dark chocolate chips. Ghirardelli, reach out to me. I’ll do some sponsorships for you. You don’t have to pay me much.
Gardner: Boy, if I don’t love that San Francisco chocolatier’s work, it comes out in many different forms and that’s one of my favorites, and thank you for that, Emily, and thank you for sharing that. Now, that’s not a public company to my knowledge, and that’s certainly not stock No. 6. But a lot of people, I think take some comfort, it might be the food or it might be just the third place that it represents for a lot of people. Again, our first place is home, whatever that is, our second, our workplace and sometimes the first and the second, and last year have been the same. But then there’s that third place, that founding CEO, well, technically he didn’t found it, but really he did, Howard Schultz as he created Starbucks, ticker symbol SBUX, he was saying, ”We are going to be that third place that Americans need.” At that time it was just an American company. But if this brand has not gone global, and so Emily, I don’t think that they make dark chocolate chips, you might enjoy those at Starbucks which should be a very comforting feeling, your favorite comfort food in a comforting third place.
Flippen: I worked at a Starbucks in fact, when I was in high school.
Flippen: Yes I was, a very ill-qualified barista, if you will.
Gardner: Tell me about your experience there. What did you take away from it?
Flippen: It was enjoyable. I didn’t get most of the perks because I was at Starbucks within a grocery store. Technically, employed by the grocery store.
Gardner: Right, a fake ‘Bucks.
Flippen: A fake ‘Bucks, exactly. I will say my retirement plan may include going back to work for Starbucks part-time. I really enjoyed it. It kept me active, and it was just entertaining enough that I felt fulfilled, but not so to the point where I felt stressed.
Gardner: I love that statement. That is wonderful. Well, as you were still a young human being, Emily, that would be far-flung in the future, and I’m trying to picture what Starbucks might look like in about, I don’t know, 2060. I just imagine somehow it’s higher tech, but I’m not quite sure what that would look like. But forget about Starbucks in 2060, let’s talk about Starbucks in June of 2021, specifically the afternoon of June 22nd. Turning back to Emily, Emily, what is your range of market cap for Starbucks, ticker symbol SBUX?
Flippen: I’m going to give you a range of $120-130 billion.
Gardner: All right. Aaron and everybody playing at home, Emily has stated her range of market cap for Starbucks. A pretty gaudy number when you think of this as just like coffee houses. Back in the day when they launched in the ’80s, there wasn’t really an analog for this. There wasn’t an obvious other, I don’t know, Pepsi to their Coke. There was the local coffee shop, maybe the cool local place, some of us might hang out, but really there was no national chain and it looked like a fad. Aaron, $120-130 billion; inside that range or outside that range?
Bush: This is really difficult for me. Funny story, I went to Starbucks this morning. I was going through the drive-thru. I ordered myself a hot chocolate and a chocolate croissant, as one must do.
Bush: While in the drive-thru, I was with my fiance and I was thinking about the Market Cap Game Show and I’m like, I feel like Starbucks might be there. I asked, “Hey, can you look and see what the market cap of Starbucks is? My fiance goes, ”Oh, it’s around $130 billion.” The range that Emily just gave, it’s a coin flip for me whether it’s under or over. But the coin flip in my mind, I’m going to give Starbucks the benefit of the doubt. I gave them a little bit of business today. I’m going to go with the over not by much, but the over.
Gardner: All right. If you answered with Aaron, give yourself a +1 because indeed, Emily did a great job guessing the market cap of Starbucks. I don’t think I would be able to state such an accurate range, and yet it was just outside that range. Just a little bit more, $132.77 billion, the market cap of Starbucks. This is a stock we first brought to Stock Advisor members 15 years ago at $14.5. It’s about $110 today. The stock is up seven times in value, market up four times in value. It hasn’t been a monster winner. After all, I was just mentioning Sea Limited is almost up that much. We picked it just about a year ago. It’s been a slow, steady win, year after year, some dark times as well for Starbucks and for our world at large. Wow, a lot of Starbucks didn’t have to close down in 2020 at different points. But this is a company that’s very resilient. Clearly it’s a global brand, and with a market cap of $132.77 billion, yeah, that’s a pretty amazing achievement for Howard Schultz and everybody who worked there, including Emily in 2060. They are probably starting to try to sign you up.
Flippen: I can dare to dream.
Gardner: All right, so if my math is right, I have it at Aaron-4, Emily 2. Let’s move onto stock No. 7. Aaron, you’re mentioning a new house coming. Is that right? Along with the new wife, and a new job, and a new state, you’re going with the new house?
Bush: I am, that’s correct.
Gardner: Do you already know what the houses are or are you in the market right now?
Bush: We decided to lock down a new build earlier this year.
Bush: Every weekend, we drive by and see what has changed in the house. This past week, they’re starting to put up some sheet rock. It’s been a fun experience.
Gardner: Do you feel like they are on schedule?
Bush: The schedule has changed a lot. They’re on schedule over the first schedule that they’ve given us. But then they got our hopes up that it would be sooner, and then they faced delays, which is interesting right now because houses are extremely in demand around here, which is part of why we wanted to jump on things pretty soon when we got to Texas.
Gardner: It’s not just a Texas story.
Bush: It definitely isn’t just a Texas story but from talking to the builder, it’s been really interesting to hear about all the delays that have been going on because demand has been so high, and inventories keep on shrinking yet people still need more plumbers, people still need more electricians, and so it’s a good time to be in the homebuilding business. But it’s also just been a fun time for me to just see what it’s like.
Gardner: I’m so excited for you, and there have been so many headlines about the lack of building, the lack of supply in the market, and how that’s driving up prices. Everybody all of a sudden wants to live somewhere new or just have their first home, which I assume would be the case for you, Aaron. I’m so excited to think that you actually got in a little bit ahead of it and somebody is actually building new houses out there and you’re getting one of them.
Bush: Yeah, there is a ton of building going on where I am right now.
Gardner: Well, I’m glad to hear that, because America definitely needs a lot more building. There’s some economic reasons where that’s been hard. I also think of a lot of other businesses where they just can’t, like Danny Meyer was talking about this for New York City restaurants. Yes, everyone wants to go back out to the restaurants now, but they’re having a hard time finding enough people to staff the restaurants. That’s because some of us are still locked down, not everybody’s vaccinated, and so the supply of humans to do all the things we hope humans will do seems finite and not enough right now. Again, excited for you with this new house, and as you think about decorating your new house, do you think at least one of your rooms you might opt for something really crazy high end?
Bush: I would love to. I think maybe that will have to be a project that I get back to in a couple of years, but it sounds like the dream.
Gardner: Yes. Really splurging on just like a chandelier, or a set of chairs, like paying four times more than anyone would think you would for that table, maybe you should do that in one of your rooms.
Bush: Well, I think I might know where you’re going with this. As much as my fiancee would love to drag me to Restoration Hardware [RH], it’s not what I am immediately in the mood for at the moment.
Gardner: I can well understand it. Restoration Hardware, which is now known simply by the acronym RH, that’s both the ticker symbol, but it’s also the official company name these days, is a, I would almost say, ridiculously high end way to outfit any physical space that you own or even rent I suppose. It’s been a really fascinating company. After we cover the market cap, it’s going to tell a little bit of the back story of this stock, which is pretty remarkable. But that was then and this is now, and this company now continues to do so much of its business offline, it sends 800 page beautifully illustrated catalogs of all of the things that you can put in your home. E-commerce has started to become something. I did go to the site earlier today in preparation for this podcast, you can actually buy stuff on their website. They almost were going the other direction when we first recommended the stock in 2015, they were like the hardcore hard-line, offline retailer. It’s been really interesting to see this business evolve. Anyway, Aaron, what is your call for the market cap range of RH, ticker symbol RH?
Bush: Let’s go with $5 billion to $12 billion.
Gardner: All right, that is a surprisingly wide range based on Aaron’s play of the games so far and what we’ve come to expect from him. Emily, he’s either playing a game with us or he’s a little bit unsure where RH is these days. Emily and all of my players at home, inside or outside Aaron’s range of $5-12 billion?
Flippen: Aaron has no clue. I don’t buy that he’s trying to throw me off with this range, I genuinely believe Aaron’s not sure. Now, the problem is I’m also not sure, and I have a really hard time believing that there are enough people out there in the world buying $10,000 couches to justify more than $12 billion business. Although I guess it does correlate so strongly with new home builds that I’m almost tempted to say above, I’ll play it safe and I’ll say within Aaron’s range.
Gardner: Within Aaron’s range, in that case, Aaron, you get another point.
Bush: Mind games, Emily. I knew this the whole time.
Gardner: He’ll never have to admit either way. The market cap of RH is $14.38 billion, so a couple of billion over the top end of Aaron’s stated range. Aaron, I believe that takes you to 5:2 in our game, so we have some of our players at home are at 7 right now, some are probably at 0, but at least for my two contestants, Emily, that puts you in a do or die situation where you’re going to need to nail these last three, and I know you can.
Flippen: Well, it’s a good thing I’ve been holding out, really, I’ve been playing a fun game of I guess billiards here. I’ve really just pulled one over on all the listeners. Don’t worry, I will come back.
Gardner: Let’s go to boxing. That was the rope, a dope strategy of cash display. Muhammad Ali, he would just put his arms up in front of him and let you pound him silly for about seven rounds. Although you weren’t really because he was doing a good job blocking you, it looked like he had nothing in him and then he would explode, and that’s why in part he was such a great boxer. Maybe it’s the flip in rope a dope strategy that we’re about to watch for these next three. But before we get to the final three stocks, let’s talk briefly about what this company did. This is a stock we first recommended on March 20th of 2015. It was at $93.75 that day. From $93, one year later it dropped to $30. It was a heavily shorted stock. The somewhat outspoken CEO, Gary Friedman, really the founder of this company, he’d been there all the way through. He said, “We’ve been heavily shorted, and I don’t believe this is an appropriate level for our stock. I think we’re heavily undervalued.” Get this, in 2017, one year later, he bought back half of the company’s shares. The company bought back half of its own shares, outstanding 50% of all their shares, and they borrowed the money for two-thirds of that. They went to the bank, they borrowed a whole bunch of money and then they bought their own stock, and by the end of that year it had gone from $30 back to $100, it tripled.
You can check the articles back in 2017, you will see hedge funds that were shorted saying he’s misusing the capital, he should be using the gross company not play financial games. The stock tripled from $30 to $100 in 2017. Today it’s at $678. The stock is up seven times in value from our pick in 2015, the market just up 125%. This has waxed the market and boy Friedman looks really good these days. He’s got a pretty big ego, so he probably needs to feel like he looks really good as well, but more power to him. He’s done a remarkable job and his business has really flourished. That’s some of the back story of RH. A lot of us who may remember, I don’t know, Restoration Hardware, that brand maybe in malls, a lot of it has moved even higher-end out of malls. These days they’ll buy beautiful buildings and like restoring old train depots in a city and outfit it with all of their very expensive high-end stuff. It’s just a really interesting business. It feels like one that shouldn’t work, and yet boy has it been a monster especially for shareholders.
Bush: I’m curious, David, when you saw this company take on debt to buy back such an immense amount of stock, was this something that you’re excited about at the time? Did you think it was crazy? As an investor, what was going through your head when you saw Restoration Hardware make such a wild move?
Gardner: I think I pulled out my box of popcorn and just started popping into my mouth and watching, and just wondering what the heck is going to happen here. Aaron, it’s very true that some of my biggest winners have just surprised me for different reasons. Certainly Elon Musk, who’s also a big personality as a CEO, has very pleasantly surprised me to the upside. I’m not always a fan of all of Elon’s antiques, but I will say that he is a remarkable business person and I think a great human being. He has some very evident flaws. A lot of people are better at hiding their flaws, but he also just lives authentically, and boy if he hasn’t revolutionized the industries that he’s gone into. Gary Friedman is not nearly as well-known as Elon Musk, but he’s got that maverick personality. With those types, Aaron, I don’t know what’s going to happen. I don’t know if I’m going to watch a slow-motion train wreck, which it could’ve been, or if we’re going to see something remarkable, which in the case of both Tesla and RH, we have seen. It is interesting that both of those are higher end businesses that are appealing to the high-end of the market in terms of their pricing and their clientele. That’s maybe instructive because it takes a lot to convince higher net-worth people that you are for real with your electric car or your $10,000 sofa. Yet if you have, you have probably earned their trust and really carte blanche to sell them lots of other high-end stuff.
Again, it’s interesting to think about both those companies, neither one of them is trying to be a Walmart or a Southwest Airlines within its industry. They’re going at the high-end and they’re really nailing it. Thanks for asking that, I was neither pounding the table to buy more nor saying sell, I just sat there with my hands-off the wheel going, where are we going?
Bush: Love it.
Gardner: Emily, no pressure, but let’s move to you now for stock No. 8. I’m curious. I know you’ve had a lot of experiences in your couple of decades on this planet, Emily, but I’m guessing, have you ever been to a semiconductor plant?
Flippen: It hasn’t happened quite yet. It is on my bucket list though, David.
Gardner: Excellent. I haven’t either, I’m roughly twice your age and I’ve never done this. I just imagine lots of machines running really fast and cranking out. Chips that the world needs semiconductor chips are in short supply. We’re hearing about how reliant we are on Taiwan, and there still aren’t enough chips. Some of the cars being made today, they’re not getting them through the factory line because they don’t have the software to help the car run. It’s not that they lack metal or rubber for tires, it’s that they can’t find semiconductor chips. Boy, if we’re not chip crazy as human beings in terms of our needs today where we are in 2021. I don’t know if it will be interesting to visit that plant, Emily, but I think I should put it on my bucket list too, it’s an amazing industry.
While this company is not itself one of the semiconductor manufacturers, it has designed software and services that enable the automation of a lot of that industry. I’m happy to say for Motley Fool members, I’m not the only one who likes it. This is a recent pick by Seth Jason in our AI service as well. A company most of us don’t know much about the ticker symbol is SNPS. The company is Synopsys (NASDAQ:SNPS). That’s with y’s S-Y-N-O-P-S-Y-S, a really impressive company, I first found it in May of 2019. Of course, it was around long before that, but I took a liking to it at about $120. It’s done well since then. But I won’t say in case anybody knows some of the numbers, I’m not going to help anybody with the math here. But Emily, I am turning to you with a challenging ticker, a challenging company. Most of us are going to have no sense of what the market cap is, I think for Synopsys, what is your range?
Flippen: Well, I appreciate this synopsis of Synopsys and I do have a range for you. I’m going to give you a range of $15-20 billion.
Gardner: All right. $15-20 billion, Synopsys, thank you for the word play. Is spelled with a “y” but an i on the end. We’ll talk about a short summary of something. This company probably tried to get that, but maybe somebody else had trademark the name. They come up just like my sparkling water brand of choice today is Bubly, but they couldn’t get all the B’s. It’s B-U-B-L-Y by the way, rocking BlackBerry, liking this one a lot. But it’s not always possible to get the properly spelled word anymore because somebody owns the rights to it somehow. Anyway, Synopsys, all with y’s, is a public company. Aaron, I heard Emily say $15-20 billion Aaron and all my players at home inside that range or outside that range?
Bush: I think it’s bigger, so I’m going to go outside.
Gardner: Aaron-6, Emily 2.
Flippen: I had no clue, not the first clue in the world, David.
Gardner: Well, I totally understand. I would recommend not just to Emily who can’t follow all the stocks nor can Aaron or I, we’re all just operating off of how many stocks can I keep up with? That’s part of the fun even having my professional analysts on this show no one knows all the things including me. That’s why I always like to play the game show MC role because I don’t have to know them and especially I don’t have to know them anymore, but I really respect the efforts to know what they are and those who do have some clue. You weren’t that far off really Emily, but this is a company about twice that size. Synopsys has a market cap of $40.29 billion. If you are a Motley Fool, AI service member, you can find a lot more about it because Seth Jason is talking about it within the realm of AI and how Synopsys benefits from more artificial intelligence in this world in a couple of different ways. Of course, if you are a Stock Advisor member, you’re getting coverage on Synopsys because as I mentioned, I picked it May of 2019, $123, today it’s $267. So the stock has more than doubled, the market up 53% over that time. It is a very impressive company and it’s one of those companies that only stock market researchers find. I mean, unless you are in the industry, unless you’re hanging out in semi plants, not just on your bucket list you’re living in every day. You probably know nothing about Synopsys, but these are the companies that we as lovers of the stock market investors looking for winners will sometimes happen upon these companies and they can power your portfolio just like that. A little stock down the block that you took a shot into some years ago, that familiar name that you grew up with, that can be a winner too. But companies like Synopsys remind me of the benefits of doing stock research. You really start to figure out more about the world.
One thing we know about this market cap game show, Aaron’s going to win it. The only question is, how much might Aaron win it? Again, some of our listeners, we’ll be at eight right now, probably. You might be all of us, and I’d say if you are on social media, we use Twitter a lot. I think you should tweet that @rbipodcast is certainly our address on Twitter. Feel free to tell us how you score. Did you beat Aaron? Did you beat Emily? What was your score on this month’s market cap game show?
Let’s move on to stock No. 9. Turning to Aaron, Aaron what do you plan these days we’re talking to video games. This is something that recurs, this is part of our relationship. We talk about the games that we’ll be playing in part because I tend to bring these to the Market Cap Gaming Show. I’m thinking maybe, but what do you play these days?
Bush: Well, I got a PS5 pretty recently. I’ve been checking out some of the games there. I’ve played the new Spider-Man Miles Morales game recently.
Gardner: Solo game?
Bush: Which was really fun to fly through New York essentially. I’ve just been playing NBA 2K Mobile on my phone as the NBA playoffs have been going on, which has been fun. I play a wide variety of games. I try to, at least.
Gardner: That’s great, just to share back. Most recently I spent a very late night a few nights ago playing a game that came out in 2016 to a tremendous amount of hype and it couldn’t possibly deliver on that hype. The game is No Man’s Sky. The developer, I think his name is Sean Fitzgerald, he was on the Jay Leno Show. This broke out into the mainstream, and he’s talking about how the scale of the game is the entire universe. This boggles our minds because as soon as we hear that there are more than a billion galaxies the average galaxy has more than a billion stars. We start going, oh my golly, how many planets might that be them all? Nobody actually knows the answer to that question. It’s a really big deal out there. The scale of his game seemed so enticing. Once it actually launched in 2016, it was empty. There wasn’t a lot to do. You just were like, where is the game here? It was an amazing simulation but to his and his company, Hello Games, to their credit, they just kept iterating and adding. I found myself having bought it and played it briefly in 2016, being most enticed by it now here in 2021. I’m going to recommend that one on my PS5 as well. Aaron, you and I both have PS5’s. I’m pretty sure I knew where I got mine. Unfortunately, I had to work with the bots and go to eBay and pay somebody twice what it actually should be because that’s the way it seems to be if you want to get a PS5 these days. Did you also become part of the problem, not the solution with me or did you have some other way?
Bush: No, it was just constant refreshing for several days on end at multiple retailers. I think we eventually got a slot and that’s why I want to stay, but it took a lot of hard work and dedication. We played the game fairly, but eventually were able to land his bots.
Gardner: Good for you. I was part of the problem, overpaying somebody who uses bots to just grab up a whole bunch of them. You are part of the solution, a genuine transaction with the people at Best Buy. Thank you for that, Aaron. Now that we’ve gone past what we’re planning, Emily, I’m going to be including you in this after we cover the question so you need to share what video game you’ve played most recently. But first, Electronic Arts (NASDAQ:EA) is a company that makes a lot of these games. It’s a long time industry player, it’s one of the longest standing video game companies as a public company that I can think of. I’m not sure there’s been a longer standing public company in the entertainment software business than Electronic Arts. But some of its peers are some of our favorites. This is a stock and most recently picked in Rule Breakers in 2016, it was around $74.5 back then. It’s done pretty well. I won’t say how well yet, but Aaron Bush, what is your market cap range for Electronic Arts, ticker symbol EA?
Bush: Let’s go with $39.3 billion and $41.1 billion.
Gardner: Aaron, I saw him briefly pausing trying to think which digit should he put after the decimal in his tight market cap range. Emily, before you give your answer, give the video game answer. What do you play?
Flippen: Yes. Since the pandemic began, I’ve been doing a lot of co-op games with my friends that I can’t see in person. Even though we’re all vaccinated now, that’s just continued. A lot of phasmophobia, horror-based co-op games, some Valheim, so lots of friend-based games, which has really been nice and a deviation from my past self.
Gardner: Indeed. While I didn’t recognize any Electronic Arts brands in there, you are nevertheless sitting in judgment of Aaron’s market cap range. Now, this is rare for me, but it was so specific, and I didn’t mark it down. Aaron, I’m going to ask you to repeat your range one more time?
Bush: Without completely remembering, I think I said $39.3-41.1 billion.
Gardner: Well, whether or not you did, the table shows, I’m sure you’ve probably got it right. That’s what it is now. Emily and players at home, the range proposed, $39.3-$41.1 billion. Emily, players at home, inside or outside that range?
Flippen: I think asking Aaron to repeat his range has just shown Aaron’s cards, which was to say that was a somewhat arbitrary range. It is so narrow. I think it’s a bit bigger, so I’m going outside the range.
Gardner: I am pulling for you, Emily. Secretly, I wanted you to win today, I’ll tell you. But unfortunately, this is even more Aaron’s day because he did a great job with that. You rightly sauced it out, you’re like, “He is probably really close, but it was a coin flip.” But you should have said inside the range. Players at home, if you said inside the range, give yourself +1, because the market cap for Electronic Arts, $40.57 billion, is almost dead in the middle of Aaron’s range. A little high, but, boy, was that specific. Aaron, I know you know to prepare for this game, and Emily, I know you do the same thing, and there are some companies I seem to go back to from time to time, especially video games. I think we have incredibly accurate guesses at Mark Jeff’s video game stocks on this podcast. Aaron, any final thoughts on EA before we move onto the final?
Bush: I mean, EA is an awesome business. It’s been a really great business for a long time. I think that it still is positioning itself very well for the future. Recently, we’ve seen them make a pretty big acquisition of Glu Mobile. I think increasingly we are going to see EA try to become even more multi-platform and even more aggressive in their efforts to provide great gaming experiences to more players in more places, and as they’ve done in the past, generate a lot of cash doing that. A really great company that I think still has a very bright future.
Gardner: Thank you for that. This is not quite an oligopoly as an industry, but there are really fewer big, broad-shouldered players than lots of little guys in this industry. Companies like Microsoft have bought out a lot of studios over the years for the Xbox platform. But as you mentioned, Electronic Arts, certainly Activision Blizzard, while that’s the uniting of two great counters, Activision and Blizzard, but it does seem as if a lot of the smaller developers get snapped up. Take-Two Interactive, another example. You end up with five, six, seven, eight really big entertainment software companies. By the way, that’s just in the U.S. Of course, in China, Tencent and others play really big. If we thought our market was big for video games in this country, it ain’t nothing compared to the overall global market. That’s part of the reason we love this industry. Aaron-7, Emily 2. Emily, people often remember the start of something and the end of something; they very frequently forget the middle. You have an opportunity. You can have a moment right here with stock No. 10.
Flippen: Well, I’m not trying to deflect from my inevitable loss, I promise. but I hope what people remember is not that I lost, but rather what a machine Aaron is when it comes to market caps. There is no hope. If you beat Aaron, I would love to hear about it here. Definitely reach out to us because, at this point, I think it is an impossible task.
Gardner: What a humble gesture on the part of a wonderful competitor under herself. Maybe, Emily, I should have you back. Well, I know I will, but on some future show, maybe we should just exclude Aaron so we could see you in all of your glory, not always having to be just a planet to Aaron’s star.
Flippen: Here’s the problem then, David, then I would have no excuse.
Gardner: Very well said. Let’s turn to you now. Stock No. 10. Earlier we were talking about Aaron and his new house, and maybe not going for the $7,499 chandelier, at least in year one. Let’s talk about outfitting where you live, Emily, affordably. Now, I can’t remember whether you are in a house or an apartment?
Flippen: I am in probably the world’s smallest one-bedroom apartment. So I’m a couple stages of life behind Aaron here.
Gardner: Excellent. I understand. There’s some real charm to quaint and nearby, and small is beautiful. You have […] and a wonderful book that I enjoyed reading a few decades ago. I very much feel that. At the same time, I’ll admit, I also love big, open spaces. Just walking through the new Detroit airport, for anybody who hasn’t done that the last few years, it is just a stunning space. It is massive, so scale is really fun. But it can be a lot to manage, there’s no question about that. Now, when you are outfitting the world’s smallest apartment affordably, Emily, and let’s say you needed a couch, let’s say you wanted to get a new bed frame, what would be your tendency as an e-commerce buyer?
Flippen: Well, I think I know where this is going, and I think I know the business you’re going to ask about, but I don’t think I would go to this site. I have to admit, the first place I’d go is Craigslist. I go to the free sections, maybe even a Facebook marketplace. There’s a lot of good free stuff out there.
Gardner: Indeed there is, and it’s a reminder that, boy, the world of e-commerce is so large. I think a lot of us perceive Amazon to be dominant. It’s a small player. It is a minority of its own industry. It’s amazing what it does, and what it does, it does much bigger than anybody else. But yeah, craigslist, which I assume eBay still owns, or at least eBay was a significant owner back in the day. There are so many different options, and a lot of times, even though I asked you an e-commerce question for reasons that you’ve correctly intuited, at the same time, a lot of us don’t go to e-commerce first. A lot of us ask about the guy down the hall, the dorm room, and “Hey, I know you’re moving out as a senior, could I have your couch?” I mean, there are a lot of ways to buy furniture for the spaces in which we live. Yet, Wayfair (NYSE:W), ticker symbol W, if memory serves, Aaron brought this to Motley Fool Rule Breakers back in the day. Wayfair has been an increasingly popular click for people who are looking for furniture. I would say good furniture. I wouldn’t say gaudy or amazing over-the-top furniture, I’m sure Wayfair has some of its higher priced stuff, but this is a foil to our earlier conversation about our age. Now, let me turn to you with that prologue. The past is but prologue, Emily Flippen, and ask you, what is your market cap range for Wayfair, ticker symbol W?
Flippen: This one is harder because it’s had such an amazing past year.
Gardner: You bet.
Flippen: It’s an understatement really to say that. I think my inclination would be to go smaller than it is. For that reason, and for reasons that I probably shouldn’t be verbally expressing but yet already have, I’m going to go slightly larger than my expectations. I’m going to say $30-35 billion.
Gardner: $30 billion to $35 billion. Now, I did randomize the stocks we’re going to go over, and I even randomized their orders. There was no intent here to throw Aaron what might be a softball with the final stock, stock number 10, since he brought this very company to Motley Fool Rule Breakers. The date was August 26th of 2015. The cost basis for Rule Breakers members, hope you’re still holding out there, our bears, $43.05. We’re going to talk right at the end about the crazy year this company has had, Emily, but first, let me turn to Aaron and all of our players at home. Emily specified $30-35 billion. Aaron, inside or outside that range?
Bush: I think Emily knows what she’s talking about here, and she’s playing coy. She’s saying no, I think she’s still trying to psych me out, but the reason why I say this is even though I brought Wayfair to Rule Breakers, I guess 2016, I think it was.
Bush: 2015. Oh, man. Last year, Emily pitched it for Blast Off, and I passed on it, and I think it might have been the worst mistake that we’ve made in Blast Off, passing on Wayfair, which is up something like 500%, 600% since Emily picked it in March or April of 2020.
Bush: I think Emily knows what she’s talking about, and she’s acting like she’s not, so I’m going to say in the range.
Gardner: In the range it has. If you said inside Emily’s range, she made a great call. It’s $32.31 billion. Unfortunately, it was a wide enough range that Aaron said inside and scored eight points in this Market Cap Game Show. Let’s talk briefly before closing here, friends, about this company. Aaron, the pick was in 2015, August around $50. It was at $43.05, as I mentioned. By four years later, it had gone from $50 to $150, it had tripled, and then March of 2020 showed up. March of last year, a lot of us were watching this, some of us were owning it all the way down. All of a sudden, it went from $150 to below our costs, so what was more than a triple for us, all of a sudden we were in the red, and yet by the end of 2020, as the smoke cleared, it basically had gone from its low, around $40 to around $400. It was at 10-bagger, if you played it perfectly in 2020 alone. These days, it settled down around $304.5, so it’s up 7-bagger for Rule Breakers members against the market’s 144%. Wow, has this ever been volatile. Aaron, what was it that first caught your eye about Wayfair some years ago?
Bush: Well, I think, first of all, the idea of the company just made sense to me. People are going to buy more furniture online, and there should be a leading website for this. It’s probably not going to be Amazon, it’s going to be someone who specializes at this, and Wayfair was that company. But also, at the time, I don’t know if you remember this, David, but choosing Wayfair was actually controversial because when we recommended the stock, it was in the middle of a bunch of short attacks from notable hedge funds, Citron, I think at the time, too. Everyone at the time was saying Wayfair is the worst business model in the world. It’s a company that will spend $1 to lose $1.10. I looked at that, and it didn’t make sense to me because this is a company that was cash flow-positive. Even though it was burning a lot of money, it looked like it was burning a lot of money on its GAAP profits. It actually had, to get slightly technical, a very negative cash conversion cycle, which similar to Amazon and a lot of other great e-commerce players, basically means that it gets paid before it has to deliver the service, and this is a company that didn’t hold inventory at the time. In fact, I saw all these people making these claims about how it was the worst business model in the world, and it actually looked like a great business model to me, and maybe I was wrong, but I think for our purposes in Rule Breakers.
Gardner: I don’t think you were since we made seven times our money and that is outstanding analysis. Emily, you took a liking to the stock, Aaron regrets it. Maybe the worst moment for him in 2020 as an investor saying no. What were you seeing in 2020, or maybe more importantly, what do you see forward from here, Emily, in 2021 for Wayfair?
Flippen: Well, Aaron is really overstating the conversation. I will say it was easy to find cheap companies in the time period in which I was looking, March, April 2020. But Wayfair, in particular, is an interesting turnaround story because for anybody who’s familiar with the business, they had a very rough February, what they called a Black Valentine’s Day, where they laid off a ton of their corporate staff because they said, “Look, we’re a mature business, we should be getting 10% profit margins by this point, and we simply aren’t. We haven’t been conscious enough with our capital allocation.” Looking forward that in March 2020, there were some clear tailwinds with the pandemic and everybody is staying at home, but more importantly, the long-term play there, and I think what investors should be looking for in 2021 is not only engaging and retaining those customers they got over the last year, but also making sure they’re getting some semblance of that 10% profit margin that management set out those expectations all the way back in February 2020.
Gardner: Well, part of the beauty of the Market Cap Game Show is not just that we play a game together, but that we learn together, and Aaron and Emily, whether you scored points or not for any given question, you each helped us learn, and we had a lot of fun. It’s always great catching up with you both. I haven’t seen you in an office for more than a year, so maybe we’ll spend a little bit more time, my choice, hearing just how life is out there for each of us, and as the world comes back together, and maybe some companies like Moderna don’t have quite as much business next year as they did, even though we love the stocks, we still vote for that. I’m looking forward to spending time in the future. In the meantime, thank you so much for gracing us with your presence on this week’s Rule Breaker Investing. Aaron-8. Emily 2. We’ll do this again. Emily, I feel like you’re going to come in with your incredibly positive attitude, but still a realistic sense that you can’t beat Aaron, but you can beat Aaron, can’t you?
Flippen: Well, I think where I’m losing is the psychological component here. Aaron not only knows his market caps like the back of his hand, but he can apparently also read me like a book, so maybe I need to work on the latter.
Gardner: Aaron, I feel as if Emily has been so kind and humble to you, and maybe that’s part of her mind game, but would you like to make a closing comment, maybe something that you like about Emily, or your seven best tips on how to win a mind game?
Bush: I don’t have any great tips on how to win mind games. This was a bunch of fine. I think about market caps a lot, so don’t take it personally if your market cap guesses were not as on-point as mine. But I will say, to Emily’s credit, there’s more to investing than just thinking about market caps. Market caps are one factor of many that we think about. Emily definitely has shown her value as we just talked about with Wayfair. Still being able to pick stocks, and without even sometimes knowing the specific market cap, but also bailing sometimes too. Lots more to investing than market caps, but always a fun game to play.
Gardner: Well said, well said. Well, thank you, Aaron and Emily, for making it fun for all of us. Next week’s show, it’s going to be your mailbag. The June 2021 mailbag. email@example.com is our email address. You can also tweet us @RBIPodcast. Quite a remarkable month for this podcast. In fact, the week that started it telling their stories volume three had Aaron Bush telling his story, so I hope you enjoyed getting to know Aaron. If you didn’t, you have a chance to listen back to that one on June 2nd along with Tim Beyers as well, two great Rule Breakers. I had Morgan Housel on to share five greatest quotes thus far. We talked that through on Great Quotes, Volume 13. Of course, my final five stocks sampler, Five Stocks Pursued By A Bear last week, and the Market Cap Game Show. Brimming with delight, we should have a fun mailbag next week. In the meantime, for Aaron and Emily and our wonderful producer, Rick Engdahl, we all say to you in your week ahead, Fool on.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.