Used Cars in China, PayPal, and the Future of Apple
Articles,  Blog

Used Cars in China, PayPal, and the Future of Apple

Mac Greer: It’s Monday, December 17th.
Welcome to MarketFoolery! I’m Mac Greer. Joining me in studio, we have Motley Fool analysts
Emily Flippen and Jason Moser. Welcome! How are we feeling this Monday?
Jason Moser: Feeling quite rested, and thankfully a little bit drier now. It was a wet weekend.
Greer: So much rain! Emily, can you make the rain stop? Emily Flippen: I’ll do my best, although come Thursday or Friday, I think my powers might
wear off. We’re expected to get even more rain. Greer: Unbelievable! Flippen: Hope nobody’s traveling.
Moser: We’ve already surpassed, this is the wettest year on record for
this area since something like 1890. Greer: It’s epic! It was just epic! What I
like about it is it gives me an excuse not to do any yard work.
Not that I needed an excuse. Today, we’re going to do something a bit different.
We’re stepping back from the headlines and we’re going to do something that
we haven’t done in a while. We call it “yes, no, maybe so.” Here’s how it works. Each of you is going
to be sharing three stocks. You’re going to have a yes stock, a stock that you think will
outperform the market over the next three to five years; you have a no stock, a stock
you think will probably lose to the market over the next three to five years; and then
the maybe stock, the stock your kind of conflicted over, a stock that could go either way.
On that note, let’s get going. Emily, what stock are you saying yes to?
Flippen: I’m saying yes to Uxin today. That might sound unfamiliar to a lot of listeners.
It’s an underfollowed stock. The pronunciation there might be a little different than people
are expecting. It’s the largest used car dealer in China. I think they’re positioned really well.
They have a relatively small market cap right now, given their business. This stock
was hammered earlier this year. It IPO-ed at $9 a share, went all the way down to something
like $3 a share. It’s back up close to $9 now. They have a great
partnership now with Taobao. They’re selling a lot of cars,
granted their losses are increasing. But I think, given the market size, given the fact that
they’re the largest player and this is definitely going to be an in-demand industry, when you
think about the development of the Chinese economy, Uxin is positioned
really well to succeed. Greer: OK, Jason Moser, when you hear “largest
used car dealer in China,” is there a question there? Is there a concern
as an investor? What do you think? Moser: I wonder at this
point in time, historically speaking, used cars have been
a huge market forever. Obviously, we’re making this transition
to electric vehicles, alternative energy vehicles. My question is — and it’s not just to Chinese
used car companies, it’s any of them is — what is the ability to incorporate those types
of vehicles into their model? What kind of a threat is that trend? I’m assuming that
most of their vehicles are traditional, fuel engine.
Flippen: They are. Moser: That’d be my one question.
I just don’t know enough about it. Flippen: I love that question because the
Chinese car market is so different than the car market that we have here in the U.S.
I think it might be a misconception, when you think about the development of
cars. In the U.S., we are moving towards clean energy electric vehicles. And that definitely is a worldwide trend.
But when you look at the Chinese market, it’s so heavily regulated. You couldn’t sell
used cars until this century. 15 years ago, you could not sell used cars across
the border of China into different provinces. So, there was a huge demand, especially in
lower-tier cities, to get access to used vehicles, but there were quite literally none available.
Uxin is completely online, and after these regulations passed that allowed sellers to
move a car from one city to the next and sell it between people, it make this huge market
opportunity. And there’s still such a large demand for lower income people in China,
people who are moving up to that middle class level, to get a good, cheap used car.
I think people who are paying top-tier for new cars, that market definitely is going
to go electric. And slowly, those electric cars, I imagine, will trickle down through
the stream. But the issue with the infrastructure in China is that it doesn’t have the support
that is needed for electric vehicles yet. Electricity is more expensive on an income
basis than in the United States, and people don’t have easy charging ports. In fact,
the very popular Chinese electric vehicle carmaker, NIO, is quite literally replacing batteries
instead of charging them, simply because it’s more cost effective for them.
There’s a huge difference in these types of car markets. While there is
a trend towards electric vehicles, I think Uxin, at least for the foreseeable future,
is relatively insulated. Greer: Have y’all noticed how, in the U.S., at least,
you don’t hear the term “used car” anymore. It’s all about “pre-owned vehicles.”
I like used car better. I don’t want someone to have owned it before me,
but I’m fine if they used it. Moser: White-glove certified, pre-owned…
you’re right. That’s marketing, it’s marketing 101, make people feel a little bit better
about what they’re getting, no matter what it is. To your point,
when we look at a lot of the businesses we cover, we look for competitive
advantages. One of those competitive advantages could be in the form of barriers to entry.
Clearly, it sounds like there was a tremendous barrier to entry for the used car market for
years and years in China. So, the company that has the head start in getting started
in that market, that first mover advantage, in many cases, can be all you need. And it sounds
like they’re pretty tech savvy already as it is. Flippen: Oh, fingers crossed! [laughs] Greer: OK, that’s Uxin. Jason,
which stocks are you saying yes to? Moser: Well, Mac, you know that I love the
payments space a lot. I would be remiss if I did not have one of those payments
companies here in the yes column this week. I’m going to go with PayPal.
Greer: I’ve heard of them. Moser: Yeah, you’ve heard of them. I think
we’ve all heard of them. It’s a company that has been a good recommendation here in the
Foolish universe. It’s one that I own personally and probably will continue
to add to for many years. There are a lot of reasons. I think ultimately,
when I’m looking for good long-term-style holdings, I’m looking for big market opportunities
with the opportunity, also, to grow. And payments is certainly one of those spaces. When you
look at it from just a domestic perspective, you consider here, 40% of payments
in the U.S. alone are still cash. Globally, that’s much, much more. We talk all the time about this
move away from cash and towards mobile payments, or just electronic payments, one form
or another. PayPal is helping facilitate that in a lot of ways.
It’s amazing to think about, PayPal is now a bigger company by market capitalization
than American Express. They have now surpassed MasterCard in annual revenue. PayPal’s trailing
12-month revenue is more than MasterCard’s, which is amazing for me to think about,
because MasterCard is essentially twice as big of a company as PayPal is, and Visa
is basically three times the size. I think that what you’ve got here is a
company with a lot of different ways to grow. Not only PayPal. We, of course, know Venmo.
While Venmo is not profitable, they are working on ways to monetize that business. I hope
they continue to do that methodically, and not try to do it all at once. We know that
PayPal also acquired Xoom a little while back, which is my favorite outgoing
remittance company. It was just gone too soon. Greer: [laughs] I just like that you have
a favorite outgoing remittance company. Moser: [laughs] Not everyone does.
Greer: [laughs] That’s a cry for help. Moser: [laughs] When you look at the amount
of money that’s going through PayPal’s networks on an annual basis,
it’s impressive. It continues to grow. The nicest thing, I think, about this market,
is you’re not trying to pick one winner. The payments space truly is a multi-winner space.
I think PayPal is poised to be one for some time to come. Greer: Emily, what’s your biggest question about PayPal? 
Flippen: I’ve never really taken the plunge on PayPal for two reasons. The first being
that it’s a highly competitive space. That’s not to say that as a consumer, you can’t
have numerous forms of payments. But I think, as the form of payment continues to grow, I have
lots of options in what I choose to pay with. I’ve never needed to make a PayPal. I’ve never
been compelled to. So, as an investment, I’ve never taken the plunge. That’s not to say
that I don’t agree it’ll be a great investment over the next year or two or three.
But I do think that it’s a very competitive space, and that always has given me pause.
The other thing is big security concerns in the industry. PayPal has fallen victim to
that in the past. From a consumer perspective, there’s a lot of heat right now in that space.
If they’re not able to at least keep up the perception of great security, then that’s
going to maybe cause some confidence loss in their core consumer.
Moser: Yeah, there’s no question. Security is always going to be top of mind for
most people, particularly, I think, older folks these days — Greer: Why are you looking at me? Moser: Well, I mean, I really shouldn’t necessarily
because we’re closer to the same age than Emily and I are. But, I do understand.
Taking that leap to paying with your phone… for a lot of people, there’s a comfort level in
knowing what they’re doing, and paying with cash sometimes is the ultimate form of
understanding there. So, security, I think, is always going to be top of mind. It’s interesting,
your point there in using PayPal, and not having used it before.
That was one of my bigger hang-ups with it for a long time. I haven’t owned PayPal
for five years. This is a position I’ve held for just a couple of years, maybe. I maybe would use
it once a year to settle up in a fantasy football league, because it was just easy. But what
we’ve seen quickly here with the proliferation of mobile technology is more and more companies,
merchants, small businesses, particularly, are using PayPal and Square and
others as a way to settle payments. The one thing that really opened my eyes to
this was we took a trip to the Bahamas this past spring break. We took the girls,
went for a week, hung out, and really lived on the local economy. We weren’t at a resort.
Consequently, we were going to restaurants and local businesses where your option was
essentially to pay with cash or, in many cases, now, what these merchants were doing,
they would set up e-mail addresses and use PayPal as a form of payment. So, I found myself using
PayPal a lot just on that trip alone. It opened my eyes to, maybe it’s more than just what
I was seeing initially. When you look at it from a global perspective, and the amount
of money that is always moving around the globe on a daily basis, it started to make
a bit more of an impression on me. I think that’s going to continue to grow, and that’s
why we’re seeing companies like Square and Stripe and others continue
to invest so much in the space. Greer: The addressable market, bigger than
Jason’s fantasy football. OK, that’s my takeaway. Emily, let’s go to our no stocks here.
What are you saying no to? Flippen: I’m going to say no
to JCPenney over the next three to five years. Greer: You and everyone.
Flippen: It must be really shocking. I won’t harp on it. With $4 billion in net debt,
it’s not an acquisition candidate. It’s obviously been struggling in the retail space. A lot
of people think that it won’t exist in three to five years, but I fall on the side of the
fence that it will exist. I think JCPenney, as a company, will exist in three to five years.
I don’t think it’s turning into Sears necessarily. I will say that if they’re able to work out their inventory issues, it’s a strong free
cash flow business, so they could theoretically downsize enough to keep operating at a level
that would allow them to do so sustainably if they worked out some of these
organizational issues. And with the new CEO, that could be a real possibility.
Do I think it’s going to be a market-beater? Of course not. That’s why I’m choosing it
for my no category. But I do think it will be here. Greer: Jason? Moser: If we’ve seen anything, Sears has
defied all logic. I mean, if Sears is still around, I think JCPenney absolutely could
still be around. And honestly, while I don’t know that the brand carries as much with folks
today as it did perhaps when we were growing up, I can’t help but wonder if maybe there’s
not some kind of partnership opportunity out there. Whether it’s with Amazon trying to
get more into the clothing space, or whatever concept is out there, perhaps there
is some value in that geographical footprint, that real estate where they have those physical
locations. If anything, one of the stories of 2018 has certainly been that physical retail
isn’t exactly dead right. It’s still alive and doing very well, in some cases. I just wonder if
there’s some partnership opportunities out there. Greer: How about
Target acquiring JCPenney? Moser: Who knows?
Greer: More and more, you’re seeing Targets in malls, as well.
Flippen: I would love that, if Target acquired JCPenney and just replaced
JCPenneys with more Targets. Greer: Yes, I think that’s right. I like that.
OK, Jason, what are you saying no to? Moser: I’m going to say no to Zillow.
I really used to think a lot of this business. I felt like there was more potential than
what they’ve exploited to date. When we talk about large and growing market opportunities,
obviously, the real estate market here domestically alone is tremendous.
Greer: Do you have a Zestimate for that? Moser: [laughs] Well, let me see here!
Let me get back to you on that. I do think they’ve not done a very good job of taking this business
beyond what it ultimately still is today, which is basically just real estate advertising.
To me, hands down — this is coming from someone who’s done some house searching here recently
— I think they do have the best experience out there, as far as going on to an app on
your phone and looking at different properties. The problem is taking the relationship from
that point forward. What we ultimately did when we were selling a home and buying a home
was connecting with a real estate agent that we already knew. Then, we would get our
information from their internal platform, which was based on the MLS and didn’t
really mess with Zillow at all. I was reading Zillow’s most recent quarterly report,
and this statement really took me back. They noted that they are getting ready
to enter a period of transformational disruption. It’s something to the extent where they feel
like they’re in the middle of this transformation for the business. To me, the business was
founded on this disruption to begin with. So, now that they’re having to disrupt again,
I can’t help but wonder if they feel like maybe they were not investing their dollars
in the wisest fashion up to this point. Greer: Is that a euphemism? When you say,
“transformational disruption,” that can be exciting. Like, wow! Or, that can be a, [whispering]
“Wink, our business model’s not very good.” Moser: To your point there on the latter,
it’s reasonable to at least wonder. It’s still not profitable. It’s not like they’re out
there lighting the world on fire with profits. The stock price today is taking a very big
leap of faith that they’re going to make these wise bets in the future. If you look at their
balance sheet today, half of their total assets consist of goodwill, which essentially means
that they’ve been relying on this acquisition strategy to date in order to grow.
They’re going to have to make acquisitions in the future to grow. And this latest foray into
the instant offers thing, where they’re ultimately basically just trying to flip homes, I don’t
think they have any competitive advantage in doing that. As a matter of fact, they may
not even be that good at it. That’s not like a new market. There are people
out there doing that all the time. I feel like they don’t have their eye on
the ball. And to me, the stock price today still doesn’t make any sense for a business that
has not yet demonstrated any meaningful path to profitability.
Greer: Emily? Flippen: And this is a stock that’s dependent
on the housing market. We’ve had a great run-up the past four or five years in our housing
market. And the company’s still not profitable. If you can’t succeed in conditions where the
housing market is expanding like it has been, it begs the question of, what makes this stock,
what makes this company, a winning company in the future? And to me, the concern is that
any downturn would make an already unprofitable company that much more concerning
from an investing perspective. Moser: Yeah. I feel like we were asking that
question five years ago when this company was on the radar. The statement that they
opened that letter with says, “Zillow Group has entered a period of transformational innovation.”
That’s what I thought they were doing five years ago! Greer: I like that. I’m going to start using that phrase.
Moser: And they’re just doing it now? It brings up more questions than
I feel like there are answers for. I don’t think this is a bad company. I just
don’t know that they’re necessarily focusing on what really matters. And I’m very suspect
as to the actual opportunity that they’re trying to capitalize on.
Greer: OK, so, you’re lowering your Zestimate for Zillow. Moser: That is a fair assumption. Greer: Let’s move on to our maybe stocks.
I think this may be my favorite part of this show. These are stocks that we’re conflicted over.
We don’t quite know. We may be ambivalent about them. Emily, how about
a stock that you can’t quite decide? Flippen: This might take some listeners as
a surprise, because I have been quite the bear on this stock for a while,
but Stitch Fix. For a long time, Stitch Fix, in my opinion, was priced for the idea that the entire market
was going towards boxed clothes delivery. And I was just convinced, there’s no way that
this many people have this much disposable income and willingness to spend this much
on their clothes and get this amount every single month. It just
didn’t make sense to me. But we’ve seen recently, thanks to slower
than expected customer acquisition growth, that the stock’s been really destroyed.
I don’t have an answer for this, but it left me wondering, at what price is Stitch Fix
a good buy to me? In my opinion, they don’t have to take over the market like some people
expect they do. They don’t have to be Blue Apron, like some people expect they do. They
can have a small but loyal base of customers that spend a lot on their clothes and continue
to be profitable in that direction over the long-term. I’m still not pushing myself to buy any of this stock because I find myself so conflicted.
It feels like it’s either going to succeed or fail. But at some point,
I guess the price could be right. Greer: You mentioned their loyal base of customers.
I know this will shock you. I’m not one of them. Greer: I think it’s fair
to say I’m probably not known … Flippen: Me neither.
Greer: … for my fashion. Is that fair, Jason? You’ve known me for a while.
Moser: I would say that you and I together probably have about the
fashion sense of my dog. Greer: OK, good. That’s probably not fair
to your dog. But, you mentioned loyal base. And we were talking with our very own Dan Boyd
before the show. Dan is a Stitch Fix customer. Dan, sell me on Stitch Fix.
Dan Boyd: Oh, man! It’s really easy! It’s really easy! When you sign up for Stitch Fix,
you don’t have to go shopping anymore. I don’t know about you, Mac, but I hate going
clothes shopping. I would rather spend my time doing just about anything else. So, for me,
Stitch Fix is a great opportunity to avoid having to go into a store, deal with a parking lot,
deal with other drivers on the road, deal with trying on clothes in one of those little
booths, the changing rooms, all that stuff, I hate all of it. Stitch Fix comes to your house,
you try on the clothes in your house. Greer: Hold on, they come to your house?
How does this work? Do I have to take measurements? That seems like a lot of work.
Boyd: Well, you probably know what size clothes you wear normally, right? 
Greer: Eh… Boyd: You have a general idea?
Greer: I know the Costco sizes. Moser: [laughs] Depending on that.
Boyd: Well, if you have the general idea, when you sign up, you fill out a questionnaire
on their website of what sizes you are. Greer: Handsome? Very handsome?
Boyd: Very handsome is where you want to go, certainly. But, they send you stuff,
and you can fine-tune it as you get more stuff. They send me a box a month, five items a month.
Last month, I didn’t pick any because I didn’t like any of them. But the month before,
I think I picked four out of the five. Greer: That’s so impressive! Do you get comments?
Do people say, “Wow, that’s a really nice shirt?” Boyd: Well, my fiancée is a huge fan of this because it means that once a month, there’s
a little Dan Boyd fashion show going on in our apartment.
Moser: Hey, now! Boyd: Again, I don’t really like going clothes
shopping So, if this is the only source of new clothes, then it’s the only fun she gets,
as far as picking out clothes and stuff for me. Moser: But here’s the
question. Does Stitch Fix allow you to exploit your sartorial nature?
Or are you really just fitting your wardrobe to whatever Stitch Fix sends you? If you’re
like me, you probably don’t care a whole heck of a lot at this point about what you’re wearing.
I don’t profess to have any real style whatsoever. Greer: Is it transformational?
Boyd: I don’t know what sartorial means. I’m going to take
it as disrespect — no, no. Moser: It basically just means that you have
good style, you’re into fashion, you’ve got good taste. Boyd: Well, let’s not
talk me up too much. I’m wearing a T-shirt and jeans at work
right now. To me, it’s more of a convenience thing, this is the whole thing. I just don’t like
going shopping. If I can avoid it, it’s great. And the prices aren’t wild for Stitch Fix.
You go to Joseph A. Bank or Nordstrom or anything Greer: They’re having a sale this weekend.
Boyd: Joseph A. Bank does a crazy amount of sales. But a lot of the times, their shirts
are going to be $100. And that’s just way too much for me, especially
with these name brands. Flippen: You’re getting a name brand,
though. If you pay $100 for a shirt, you’re getting a name brand. For me, the hang-up with
Stitch Fix is, there’s somebody out there who’s paying $60 for a shirt that has no name brand.
You don’t know the quality of it, and you’re doing it repeatedly over the months? The great thing
about Nordstrom and Joseph A. Bank is, yeah, they’re expensive, but you
know what you’re getting. Boyd: I mean, that’s a good point. But for
me, personally, I don’t really care about the brand. If the shirt looks nice,
I’ll buy the shirt if it’s not unreasonably priced. Greer: I think that’s pretty compelling.
I’m intrigued. I don’t know if I’m going to do Stitch Fix because I had a bad experience
with Blue Apron. As you mentioned earlier, Emily, I lump them together.
It’s not fair. I know, food, apparel. Moser: Honey, I don’t
think these pants are quite done. Greer: OK, Jason, it’s your
maybe stock. What are you going with? Moser: I’m going to probably respond to an
e-mail or to in regard to this one. I’m maybe opening myself up. Apple. I know people will
probably say, “What?! Blasphemy!” I’ve been sitting here all year, trying to figure it out.
Apple is not a stock I personally own. It’s one that I’ve always wished I did,
but I never bought it. And now, this year, it’s starting to strike me that perhaps,
there’s an opportunity opening up. But, is it an opportunity really, Mac?
I don’t know! And that’s why it’s my maybe. When you look at the way the company has gotten
to where it is today, clearly, the iPhone has really led the way. I think they have,
more or less, hit a wall with what they can do with phones. I say this
with a new iPhone XR in my pocket. Greer: Quit bragging.
Moser: Listen, I’m not bragging. I like it alright, but I’ll tell you, I made the leap from the
iPhone 6 to the XR, and by far and away, the best thing about it is the fact
that I have a phone that can now make it through the entire day on one charge. Everything else
is just incremental. And in some cases, the user experience actually is worse. I think
the Apple Pay experience is not as good. I’m not really the biggest fan of the face ID.
And I think that the bigger screen actually makes it a little bit more difficult to maneuver
because you have to get your thumb lower down on the screen there. And I’m not saying you
should be texting or searching your phone while you’re driving. No matter where
you are, if you’re trying to one-hand it, it’s a little bit different than it used to be.
Greer: So, what’s the opportunity? That all sounds very negative.
Moser: I’m glad you asked that question, because this is where you have to weigh the two.
I think that Apple is making a good move in trying to become more of a services business.
Tim Cook on the most recent call was really talking more about that. While the market
wanted to focus on the fact that they’re not going to be reporting units sold anymore when
it comes to phones and iPads and computers, they’re going to tell us a little bit more
about how the Service business is growing. Not only the revenue that it’s bringing in,
but the cost of that revenue. We’re talking about services and all that stuff that’s going through the
App Store, and Music and Video and whatnot. I like Tim Cook as a leader. I appreciate his belief and focus on privacy and really
on the consumer. I trust him. I think the move to service, like I said, is good. I agree
with their wearables strategy, and not trying to bet it all on one thing like the Watch,
but rather have a portfolio of wearables, like the earpods and the Watch
and whatever else they come up with. But to me, is it enough to make up for what
is going to be now this slowing down and almost stagnant iPhone? I don’t know that they’re
going to be able to witness the same kind of pricing power that they did in the past.
You’ve got one thing playing against the other. It’s clearly a business that’s not going anywhere.
I love the company. I love my iPhone. I’m just wondering, is this a market-beater over
the next three to five years? My daughters have owned this stock since 2013. It’s about
a 150% winner for them, outpacing the market a little bit. I don’t know if the next five
years hold that same good fortune. I’m still noodling over it.
Flippen: I’ll just add that in my experience, a lot of time, consumer preference and consumer
experience doesn’t correlate with consumer actions. A great example of that is EA.
When they started adding micro-transactions to a lot of their games, gamers were so upset.
“Boycott EA!” Then, what happens? Micro-transaction revenue goes through the roof. So, to an extent,
the negative things you were talking about with your new iPhone XR, yeah, maybe
consumers don’t like having to reach further down. Maybe they don’t necessarily
like all the functionality of it. But ultimately, you still bought one, right? ​Moser: ​ Sure! Flippen: When you get your next phone,
would you say that you’re probably going to buy an iPhone in the future, too? 
Moser: Yeah, most likely. They’ve got me in on the phone ecosystem probably until
the day I die. I’m just too lazy to try to learn a new one. Flippen: So, I would argue that, while I’m not sure they reached the peak of their ability
to develop the iPhone, they don’t need to. Moser: It’s not iPhone-specific. I think
the smartphone in general has probably hit a wall. Remembering globally that Android
is still the dominant operating system. You do have that to think about, as well. I like
the fact that Apple is reaching out and partnering with companies like Amazon to offer their
music platform over their devices and everything. That’s why it’s one that’s weighing on my mind.
I feel like the good outweighs the questions. But by the same token, is that money better
off somewhere else? I just don’t know yet. Greer: OK, we’ll see. Just to recap here,
Emily, your yes stock was Uxin. Your no stock was JCPenney. The maybe stock was Stitch Fix.
Jason, your yes stock was PayPal. Your no stock was Zillow. And your maybe
stock was a little company called Apple. Moser: That is correct!
Greer: Emily and Jason, thanks for joining me! Moser: Thank you! Flippen: Thank you!
Greer: As always, people on the show may have interest in the stocks they talk about, and
The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks
based solely on what you hear. That’s it for this edition of MarketFoolery.
This show is mixed by Dan Boyd. I’m Mac Greer. Thanks for listening!
We’ll see you tomorrow!

One Comment

  • RP G

    $UXIN tanked from $9 for $4 after this was made, but now is a good entry point. I'm just concerned about the difficulty and expense of getting a license plate in major Chinese cities and the new emissions tax to non-electric vehicles hurting the company.

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