The Semiconductor Stories of TSMC & ASML

In this podcast, Motley Fool analysts Jason Moser and Matt Argersinger and host Dylan Leiws discuss:

• The totally different outlooks for chipmaker Taiwan Semiconductor Manufacturing Company and equipment provider ASML, and what they say about demand in the semiconductor market.

• Netflix‘s ad-supported offering, and why live sports might keep pushing the company to new all-time highs.

• Uber eying Expedia and air travel.

• Amazon reaffirming it wants employees back in the office.

• Two stocks worth watching: SEMRush and JP Morgan.

What does CEO tenure have to do with shareholder returns? Bob Stark heads up the succession practice for Spencer Stuart — a leadership consulting firm — he’s also the author of The Life Cycle of a CEO. He and his team looked at performance of all chief executives at S&P 500 companies this century and noticed trends in company performance.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our beginner’s guide to investing in stocks. A full transcript follows the video.

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This video was recorded on Oct. 18, 2024.

Dylan Lewis: The future will be ad-supported, with Uber getting you from door to door. Motley Fool Money, starts now.

From Fool Global headquarters. This is Motley Fool Money. It’s the Motley Fool Money Radio show. I’m Dylan Lewis. Joining me over the airwaves, Motley Fool, Senior Analyst Jason Moser, and Matt Argersinger. Fools, great to have you both here. We’ve got research on what CEO tenure has to say about stock performance, stocks on our radar, and updates from two of the biggest names in the chip supply chain. That’s where we’re going to kick things off this week.

Story continues

A huge week for big chip. Fresh earnings from Taiwan Semi, the world’s most important chipmaker and ASML. The company behind the machines most of the industry uses to make chips. Jason, together, they give us a chance to check in on two crucial parts of the chip supply chain. What’s the read?

Jason Moser: Well, let’s start with ASML. I think you said it perfectly. They are a crucial link, and perhaps, I think it’s one of the most complex supply chains out there. But as a reminder, ASML is the company that makes the equipment. It makes the machines that make the semiconductor chips to power all of our devices and all of these data centers that are going up everywhere. And what really differentiates this company is the actual equipment side of it. It’s the extreme ultraviolet lithography systems. That is the EUV. Those systems, that’s what makes the high-end chips that are used for AI and other cutting edge tech. It was a big week for this company. Obviously, a heavy earnings reaction to the downside there. It wasn’t a bad report. Revenue and earnings per share grew versus a quarter ago. They did see a slight increase in the number of systems sold. I think up 3.6% from the quarter ago. But what really set this thing on fire, was the bookings number. The net bookings came in at around 2.6 billion euros. That was up from a year ago, but it was way below what estimates were out there. I think estimates were close to $5.5 billion. That’s a very significant discrepancy there.

It all boils down to just what we’ve seen this playing out is the cautious consumer, and in this case, ASML’s customers are these big chip companies. That’s how they make their money. What they’re seeing is that their customers, and they noted this in the call. They said the relatively low order intake is a reflection of the slow recovery in the traditional end markets as consumers or as customers remain cautious in the current environment. That rhymes with a lot of what we’ve been seeing over the last several quarters with a lot of enterprise customers. Not a terrible surprise. We know that investing is all about the future. In this case, it’s just right now, the future isn’t looking as bright as it once did. I think the good news here is probably really just a timing thing. I think these are orders that will ultimately be fulfilled. It’s just going to be a little bit further down the line. Ultimately, that might just be creating an opportunity for investors.

Dylan Lewis: Interesting to pair up what we’re hearing from ASML with what we’re also getting from Taiwan Semi because they are out there trumpeting. We are seeing extremely robust AI related demand. The market reaction. Do their earnings report much more favorable. Is this really just a matter of where they are and who their customers are?

Jason Moser: I think that’s part of it. These are two very different businesses. I think with Taiwan Semi, they did see very strong performance. They’re the high performance computing sector of the business, made up 51% of revenue that was up from 42% a year ago, and then smartphone chips continue to see increased demand as well. It’s been a good five years for this company. But I think the big question for them, is this pace of AI investments? When is that going to start slowing down if it does? We’re all assuming it will at some point or another, and when it does, how is that going to impact this business? But we just don’t really have any clarity as to when that’s going to happen because right now it’s the topic du jour.

Dylan Lewis: This week, we also got to read on the state of streaming. Everyone’s favorite streamer Netflix out with earnings, and Matt, boy, did the market like them. Shares up 10%, the company at fresh all time highs after the report.

Matthew Argersinger: Yeah. Incredible. Ron Gross should be sitting here where I am [Laughs] because he’d say, of course, Netflix is firing on all cylinders. It really is. Five million new subscribers in the quarter, that was almost 500,000 more than expectations. They’re now at almost 283 million subscribers around the world. Interesting, though, was that ad base membership, that’s the big story here, grew 35% quarter over quarter and accounted for more than half of the new sign ups where ads are available. That’s really where Netflix, the business has gone, and it’s showing a lot of progress there. Just looking at the numbers, revenue up 15%, operating income grew 52%. Operating margin was up again, earnings per share of 45%. Members are watching an average of around two hours a day. That seems high to me.

Not sure what that says about our society, but awesome for Netflix [laughs] that I watch two hours a day. We were talking about it before taping guys. They’re really getting into more live sports, live events. They’ve got two NFL games on Christmas Day, the WWE deal kicks in next year, and speaking of next year, targeting revenue growth between 11 and 13%. Very strong quarter, strong guidance. According to one of the smartest analysts on the street, “This was a good quarter. Netflix remains a dominant force in the entertainment space.”

Dylan Lewis: Sounds familiar. [laughs] Who said, Matty, that two hours per day? I think this remote work for you. This remote work in a nutshell, I bet.

Jason Moser: Good point.

Dylan Lewis: More on that in a bit. We’ll be talking about remote work later on the show. I want to zoom in on Netflix, where it is right now, at all time highs, still fairly richly valued, having now fully retraced that 70% drop in 2022 that was originally tied to slowing subscriber growth. Now back at this level, Jason, we’re looking at a very different Netflix, one that has a little bit more built out membership offering, something for people who maybe don’t want to be spending as much as they increase prices for membership. Do you feel like the company continues to have growth levers to justify where it’s at valuation wise?

Jason Moser: I think it does. This is not the Netflix that we grew up with. In the early days, it was a very simple straightforward business, but I think they realized over time, as the entertainment space was changing that they would need to pivot at some point in order to find some new levers of growth. The fact that this company is in such a good financial position now, generating meaningful cash flow. $2.9 billion in operating income this quarter alone, it’s enabling them to really start making these investments into things like live sports. You’ve got two NFL games coming up on Christmas Day, for example. We talked about the ad supported model. They’re going to continue rolling that out. This is a new Netflix, but you got to give them credit for really seeing where the puck was headed.

Dylan Lewis: Matty.

Matthew Argersinger: I will just say, you mentioned valuation, Dylan. Let’s step back and reflect for a moment on the evolution of this industry. If you just go back five years ago, we were starting to see so much more competition in the space. You had Hulu, of course, Disney+ was the new giant in the market. You had Paramount+, Apple TV+, all these pluses. [laughs] Of course, we had Max. I think it was called HBO something back then. But even Roku was getting into original content. Here we are in the fall of 2024, and the OG, the original, the pioneer, the one service everyone was trying to catch up to, I think the one company that had the blueprint for success is the winner. I think we can almost definitively say that now with Netflix. But my question is, I think this is $1,000 stock in probably less than a couple of years. But looking at the stock just today, should Netflix market capitalization be 2x that of The Walt Disney Company? Yes, the almost 100 plus year old Walt Disney Company. That to me is remarkable, and I don’t know what to make of it.

Dylan Lewis: It doesn’t make sense to me. I got to be honest.

Jason Moser: I’ll push back on a little bit. I think it makes a little sense. I think we know investing is all about the future. I think in this case, what we’re seeing with that disparity, with that gap. The market is telling us. They’re saying, look, this is obviously, the company that really set us on this new path, this new streaming future. There were a lot of questions early on as to whether it will work and how profitable it can be. Those questions have been answered, but then going back to my point now that this business is such a strong financial position. It’s a much different position now because not only do they bring in these massive amounts of cash, it’s reliable. It’s consistent. The market is looking at that saying, this is a company that’s going to keep on generating that meaningful cash flow for quarters in years to come, and it’s going to enable them to continue investing in things like bringing those NFL games on Christmas Day and rolling out more live sports offerings and becoming that different version of Netflix that ultimately will allow them to pull those new growth levers. I think the ad supported model is just the icing on the cake.

Dylan Lewis: If you’re keeping score at home and wondering when that ad supported model is going to start showing up their financials, got to wait a little bit, but management’s excited about the initiative and where it’s heading so far, we’ll be keeping tabs, of course, here on the show as that develops. We’re going to head to a quick break. But after, Uber wants more than just your airport drop off, they want to help you book your flights. Stay right here. This is a Motley Fool Money.

Welcome back to Motley Fool Money. I’m Dylan Lewis, here on air with Jason Moser and Matt Argersinger. Banks and chips get a lot of the attention early in earning season. One of our favorite bellwethers also reported this week. I want to make sure we’re spending some time looking at those results. Matt, we got an update from Prologis and the industrial real estate segment. What’s going on there?

Matthew Argersinger: Well, it was an interesting quarter for Prologis. They’re still seeing some demand weakness, some excess capacity in some of their markets, including Southern California, which is a big one for them. This really all just stems from the heavy amount of new development in the aftermath of COVID. A lot of companies who got into inventory problems, supply chain problems, they leased a lot of new capacity in those years. Turns out, some of that space is just not being used or needed, and that’s of weighing on the market overall, but not so much Prologis. If you look at their results, occupancy across the portfolio was almost 96%, cash shame store net operating income up 7.1%, that’s a key figure, and core funds from operations per share up 10%. Those are great numbers for REIT. They’re also seeing about a 68% bump in the rents on new or renewing leases. That’s pretty impressive. I think what stood out to be most from the result in the conference call was the fact that you had CFO Timothy Arndt come out on the conference call and say that they’re seeing a lot of attractive acquisition opportunities. Prologis has got a great balance sheet.

They’re now upping that guidance for full year acquisitions. This is the second straight quarter they’ve done that. They entered the year thinking they’re going to do between 500 billion and a billion in acquisitions. That number is now approaching two billion at the midpoint for acquisitions this year. They’re seeing opportunities, taking advantage. I think maybe not in the next several quarters, but by the end of next year or early 2026, those moves are really going to literally, Dylan, pay dividends.

Jason Moser: Matty, just one quick point I wanted to make out. I own this company thanks to you, and so thank you for that.

Matthew Argersinger: Right on.

Jason Moser: I intend to keep on adding to it in my retirement portfolio. One thing that really excites me about this guy. I love the warehouse and distribution side of it. But every earnings call now, I go through, and I search the term data center because I think that is an underestimated opportunity that this company is capitalizing on.

Matthew Argersinger: Absolutely. We’ve got a $40 billion land bank that they want to develop. It seems from what I can read, I’m sure you are, too, Jason, is that the lion’s share of that new development is going to data centers, which is pretty interesting.

Dylan Lewis: Speaking of acquisitions. We had some fun scuttle butt to wade through this week. Uber already owns the world of micromobility, and last mile with ride hailing, food and package delivery, and two wheel rides. Word out this week on the street that Uber is interested in acquiring travel booking site Expedia. Jason, why do you think Uber might be interested in longer trips?

Jason Moser: Dylan, I am a big fan of Uber as a customer and as an analyst. We recommended this stock in our next gen Supercycle Service several years back. It’s been a winning investment. When I saw this news, I really had to step back and think for a minute, like, is this something I really want to see happen? This would not be a simple deal. Expedia today, around $20 billion market capitalization, and so for Uber to make this acquisition somewhere in the neighborhood of six billion dollars on the balance sheet right now, they would have to resort to some borrowing and issuing of shares to do it. As a reminder, CEO Dara Khosrowshahi, he was CEO of Expedia before moving to Uber.

He actually still sits on the board at Expedia as well. He has plenty of familiarity with the business, and on the one hand, I can certainly see a merger could create a more seamless travel experience. You combine ride sharing with travel booking, it expands the customer base, creates a more personalized experience with data integration. I see those benefits there, but this would be a whopper of an acquisition that we will require a ton of work in incorporating two cultures, obviously, eliminating redundancies. We know acquisitions are tough. Acquisitions of this scale are really tough. I don’t know that Uber necessarily needs to do it. I know they had these aspirations to be this everything app. But I think on the flip side of that, we’ve seen a lot of companies that had those aspirations, PayPal for one stands out. They’ve started to pull back on that, realizing that maybe they don’t have to necessarily do everything. They just need to do one or two things really well, and Uber obviously does ride sharing really, really well.

Dylan Lewis: It isn’t often that a CEO is weighing an acquisition of a business that it knows this well. It’s rare for that to happen. While I do see this as a relatively high degree of difficulty acquisition, the familiarity with the business gives me some sense that maybe there’s something there. It really looks like, to me, this is Uber saying, OK, we are in $165 billion company right now. How do we get to a 200 billion plus, $250 billion plus company, by expanding our term and really creating other use cases for our customers?

Jason Moser: It absolutely would expand that term. We know how large the travel industry is from a global perspective. We’re talking about a lot of money, billions, trillions even. We’re talking about a lot of money. So I get it. The good thing is, Expedia is, and its established business, it is profitable. They generate healthy cash. It’s not like they’re buying some speculation play here. But the integration, it just would not be easy.

Dylan Lewis: Bringing us home here for the segment. Amazon continues to double down on its return to work program. In September, they announced that they’re expecting employees in the office five days a week beginning in January 2025. This week, the company’s head of AWS, Matt Garman, telling employees, if there are people who just don’t want to work in that environment and don’t want to, that’s OK. There are other companies around. Matt, I can’t help but look at this. Also, some of the news we are seeing from Meta this week related to layoffs at Instagram, WhatsApp, and Facebook, and say, I think Big Tech is trying to get a little bit smaller with their head counts.

Matthew Argersinger: That’s my maybe cynical view of it, which is this is just a very convenient way to reduce headcount, knowing that a lot of these companies did a ton of hiring in those post coded years, and especially with Meta, we’ve seen a series of layoffs, and Amazon’s gone through some layoffs as well. But I think Amazon knows its business, and I do think there is some credence to the idea that they see better collaboration, more productivity, more innovation when they get employees together in the same office. What’s interesting is this announcement is from the head of AWS, and it was made in Arlington, Virginia, which is right in our neck of the woods here in the DC area. This is not just a Silicon Valley thing going on. This is across the board for Amazon and other companies. It’s a mix to me, but I do think the momentum is that for most corporations and these tech companies seem to be leading the charge, we are heading back to the office.

Dylan Lewis: Jason, Matt mentioned the normalization there post COVID. These companies heavily invested in a lot of more far afield growth initiatives, a lot of head count as a part of that. We saw the year of efficiency focus for a company like Meta, and for a lot of Big Tech. It does feel a little bit like we’re entering a next wave or next chapter of that, where maybe some of these businesses have right sized, but also started to realize that there could be some efficiencies coming by way of AI?

Jason Moser: Yeah. Well, I don’t even think it’s terribly cynical to think that this is a way to call the workforce a little bit. I think this really serves two purposes. It obviously will result in some people leaving, and I think they’ll be OK with that. It’s also a business that relies heavily on collaboration, collaboration begets innovation. Remote work just isn’t the most collaborative environment for most people.

You top that off with, yes, bloated workforces and plenty of efficiencies coming down the pipe here. This is just another way to work toward that efficiency. Honestly, as investors, we should always strive to get our businesses, our holdings to be as efficient as possible.

Dylan Lewis: Matt and Jason, we’re going to come back to you guys for rate our stocks a little bit later in the show. Up next, we’ve got a sweeping survey of every S&P500 CEO over the last 24 years and the connection between their time and the seat and your investment returns. Stay right here. You’re listening to Motley Fool Money. [MUSIC] Welcome back to Motley Fool Money. I’m Dylan Lewis. CEOs get the Big Bucks. But what does the data have to say about their performance? Bob Stark heads up succession practice for Spencer Stuart, a leadership consulting firm. He’s also the author of the life cycle of a CEO. He and his team looked at the performance of all chief executives at S&P500 companies this century, and they noticed some trends. This week, Bob walked me through the misconceptions around the C suite, the life cycle of a CEO and what it means for total shareholder returns. The cover of the book that I have here lays out a subtitle, the myths and truths of how leaders succeed. Why don’t we start out there? What are some of the common things that people get wrong or maybe don’t quite understand when it comes to the CEO role and what success looks like.

Bob Stark: Well, the book, I think, touches about six myths. But let’s start with the myth of linearity. So when CEOs get into the role, we have certain expectations about how they’ll perform over time. In fact, we surveyed directors. I think this is about six years ago on their views of how CEOs perform over time. The picture they painted, was effectively an inverted U, where the CEO starts as a newbie, they’re learning fast, and they keep learning every year and so their performance goes up every year as they reach mastery and then around year eight or nine, their energy wanes, and the performance starts to dip and it’s time for a new CEO. That’s conventional wisdom. I had that perspective, I think most people did. We can talk more about the specific research that we did and how we got to these conclusions, but when you look at the data on TSR by tenure year, it looks nothing like that. It looks absolutely nothing like that.

I think it’s a good lesson because in life, too, there’s a we want to assume things are linear, even when they’re not, it’s a simplifying tool. But the reality is that life is more complex. Life is much more complex for CEOs. Just to put this in a slightly different way is that when we think about the stories of CEOs that are the heroes, we usually talk about Hubert Jolie started best buy at three dollars a share, and he finished at 94, whatever the number is or 70. Just assume that he was amazing at every there were no steps. It was just a straight line from A-B. But when you talk to Hubert and I think you read most of the book, Dylan, so and here’s some of his story, there were lots of failures in there. There were a lot of moments when the stock really crashed and he had self doubt and other people doubted him and lost confidence in him. So it’s very much a story of ups and downs, not a story of A-B.

Dylan Lewis: It reminds me of this chart. It’s a visual. It’s not a true data point chart. I sing on the Internet a bunch. Is what do you think success looks like? It is that up into the right, 45 degree angle. What is success actually looks like? It looks like a kindergartner drew it. It’s all over the place, and then it finally winds up up into the right, but with quite a few bumps along the way.

Bob Stark: Yeah. It’s interesting I’d forgotten about that. But it almost looks like what do you call it seismic chart like when an earthquake hits that they’re so jagged along the way.

Dylan Lewis: For the book, you mentioned the research there. You and your Co-author, Claudius Hildebrand embarked on a deep dive into tenure in performance for every CEO in the S&P500 in the 21st century. Also did interviews with some leaders. Walk me through some of your process there.

Bob Stark: We had been researching CEO performance, and we had lots of data for like 20 years. The initial reason for doing that is we’d work with clients in, for example, CEO succession situations and clients would say things like, well, are insiders better than outsiders and we realized that the answers are knowable. If you actually have the data, you could analyze it. So we started doing that a long time ago. My Co-author, Claudius came into the picture about seven years ago, he had been at BCG in their CEO advisory practice. When he joined, we added him to the team that was doing the research and he just basically kicked out on the research team, inspired a lot of people, brought new people in and seriously up to our game and the breakthrough. It was a team effort, but the real brilliance that Claudius brought to it was. So if you take all that data, say 2000 CEOs, every CEO, the 21st century, S&P500, as you said, tons of performance data, all kinds of performance data, including TSR.

Dylan Lewis: Total shareholder return.

Bob Stark: That’s right. It’s not that there were some interesting results, but the breakthrough was rotating the data based on tenure year. So let me say more about that. So every CEO has effectively a birthday as CEO. So Dave Cody’s he was at Honeywell for 16 years. I think his was like February 20th, 2002, when he started. Then somebody else might have started in August of 2007 as the financial crisis was just heating up. But if you organize the data by tenure year and then normalize to what’s going on in the S&P generally for that year so that you take out or neutralize the effects of those head market headwinds and tailwinds. Then organize every Dave Cody and everybody started in 2007 around their tenure year, you have 2000 who started in year 1, a slightly smaller number get to year 2 and tenure and so on. You look at the data that way, that was the real breakthrough. That’s what allowed us to see that tenure year makes a huge difference. Performance varies significantly based on tenure year. I’ll pause there, but happy to talk about what we actually learned.

Dylan Lewis: Yeah. Let’s dig into some of the different phases of the CEO life cycle and what you guys found in terms of shareholder returns during those periods.

Bob Stark: The whole thing was quite remarkable. You’ve seen the chart in the book and others can see that too. The first thing is, we call it The Launch, the chapter is called The Launch, the first year in the book. The book is organized by tenure year, launch is year 1 and that first year is characterized by a honeymoon effect. So there’s a lot of excitement and we anticipated this, but we confirmed it through the interviews you talked about. So when we did this big data crunch, we then went to over 100 of the CEOs who are in that data set and said, what was happening? Talk about that first year. What we established is that there’s a honeymoon effect. Everyone has high expectations for the CEO in the first year and for good reason, the CEO is going to actually come in and pick some of the low hanging fruit. The incumbent might have been hesitant or blind to some things that needed to change. Change is going to happen and people who are excited about that. It gets built in to the stock price right away. So there’s a lift in the first year. First year is a great year for many CEOs.

When you look at the average of those 2000, it’s a fantastic year. The issue is that a lot of the things that you do in the first year may not pay off for a few years. So then you get into the second year and CEOs tell us, eventually, you’re going to run into a buzz saw sometime in year 2. When you do, all that excess value priced into your stock in year 1 just disappears instantly.. So just the emphasize this. I’ve worked with so many CEOs. At the time we were first doing the research, I was working with CEO of a huge healthcare organization, and she stock price was up 30% in year 1. We just happened to be doing this research at the time long before we’d published anything, and I got to talk to some of her directors and forewarn them that they should not expect that trend line to continue in year 2. They should expect a check back and it did. Now, fortunately, for her, she only lost half the value that she created in the first year, but 73% of CEOs have a worse year 2 than year 1 in terms of TSR.

Dylan Lewis: A bit of a cautionary tale there for some of the folks that are excited to see Brian Nikolet Starbucks.

Bob Stark: There you go. I haven’t looked at the stock lately, but there’s probably some of that price then. So then that gives us to the third stage. We call that second stage calibration, but you can also think of it as like a sophomore slump that applies to or the second album effect. Then we get to years 3-5. Years 3-5, we call reinvention. That is what CEOs should be doing, not always what they do. So in the reinvention phase, all of the good work you did in your first two years is starting to pay off. CEOs say things in this period like my team, I got the right people, the team is humming. I have the board’s confidence because we delivered on this and this. This is a moment of a fork in the road. Actually, there are three groups flight.

There are three groups at this point in time. There are those who’ve struggled through the first two stages that are going to about to leave the job or be pushed out in years 3-5 because they just couldn’t put runs on the board. Then you have the two other groups, the groups that were successful and they’re successful in years 3-5, but a group that is starting to get comfortable with where they are. Another group that’s thinking about, how do I stay on the front foot and imagine what’s next, a second chapter for this organization and what will I need to do to bend the curve going forward. When we first shared some of this research with CEOs about five years ago, big group of CEOs, I’ll never forget that somebody in the very front row put up their hand after we talked about this stages 3-5 and they said, I totally get this.

Every role I’ve been in on my way to be the CEO has been 3-5 years. I’ve never had to reinvent in place and that’s the challenge that I’m facing now. That is the challenge. Can you reinvent? Can you adjust? Can you act boldly when it doesn’t feel like you need to? There’s no burning platform and there’s no external stimulus to make you change? That then brings us to a really amazing finding, which is the complacency trap. So years 6-10 are generally lower performance for CEOs in our data set than years 1-5 and we call and complacency says it all. People get comfortable. So it might have started in the reinvention phase if you didn’t reinvent and then you just slide into the complacency trap. Also the boards are much less likely to push a CEO out based on repeat years of underperformance in the complacency trap than they were in the first five years. So the board gets more complacent, the CEO and the team might be complacent. So it’s a team effort in terms of not being willing to change things up or recognize the need for change. Lastly, another really big surprise is the legacy period. So for those about 20% survive beyond year 10 and for many, those are the biggest value creating years. I talked about Dave Cody earlier at Honeywell. He was one of the first CEOs I called when we had done the quantitative analysis because I knew Dave well. He talked about his 16 year tenure. If you cut the data on Dave around nine or 10, we would not talk about him as a successful CEO, but all the value that he created in those last five or six years made him worthy of our attention.

Dylan Lewis: You noted some of the different points where there’s some natural attrition in the group that you’re looking at here and studying. I think one of the stats that came out in the book was, I think it’s 25 or 30% of CEOs last less than three years. I’m guessing some of that is the trough after that launch period and that honeymoon period, you’re talking about. Do you feel like three years is a fair enough amount of time to be assessing CEO performance?

Bob Stark: Yeah. I think that back to the point I made earlier about the rate, the probability of a board pushing a CEO out, declining over time. I think they might be too inpatient early and too patient later. So I do think it’s important to break it down and really focus the time matters, but the time that matters is, what are the time horizons for the priorities or the CEO agenda items? So because I think boards are sometimes unrealistic about how long things take to unfold. So I think that there’s a risk that boards decide too fast and hopefully, we will disabuse them of a certain bias that they have, this bias that things should keep going up through the first three years. So because your point is well taken.

If a board is not fully aligned behind a new CEO, and the CEO starts OK, not amazing, so they’re not building a ton of confidence with stakeholders in the board, and then they have a sharp decline that should be expected in year 2, but maybe isn’t by most people today. Now the board is really worried and they’re looking for signs that the CEO is failing. I think that’s part of the psychology of all this. Later on, they’re looking for signs that the board the CEO is succeeding [LAUGHTER] and to confirm their hypothesis and also the want to avoid having another succession with a solid when they have a solid per se. I think it’s a little above. [MUSIC]

Dylan Lewis: Listeners, you can catch the life cycle of a CEO wherever you get your books this fall. Up next, we’ve got a recent FTC ruling that’ll make it a little easier for you to cancel your services. What does it mean for the subscription economy? Stay right here. You’re listening to Motley Fool Money. [MUSIC] As always people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against Snopi Sly thing based solely on what you hear. I’m Dylan Lewis, joined again by Jason Moser and Matt Argersinger. We’ve got stocks on our radar coming up in a minute. But first, we’ve got a new FTC ruling that might take a bite out of subscription businesses. This week, the Federal Trade Commission announced a new click to cancel rule that will require businesses to make it as easy for consumers to cancel a service as it is to sign up to begin with. Jason, the aim here, less hoop jumping, more transparency feels like a win for consumers.

Jason Moser: Yeah. I’ll be honest. I have zero problem with this. To me, it just seems like it makes perfect sense. It’s certainly very customer centric. I mean, on the one hand, businesses who want to be customer centric should be offering this in the first place. I mean, I remember just a personal experience from several years back, we were ready to cancel our serious sex subscription. We just weren’t using it anymore. I just really didn’t need it. I mean, talk about jumping through hoops it took me. There was no click to cancel. I actually had to call in and then I had to sit on wait for like an hour. I was on hold. Then I have to just suffer this barrage of offers just to get me to stay and I’m like, I don’t want it. Even if you gave it to me for free, I just don’t want it. Can you please just cancel. If this is something that goes through, I don’t have a problem with it, but ultimately, I feel like businesses should behaving this way anyway.

Dylan Lewis: Matt.

Matt Argersinger: Yes, I would say, there’s probably data that is against what I’m about to say here, but I find that the easier it is to cancel service, the more likely I’m going to come back probably at some point. Whereas, if you make it hard on me, guess what? I’m not coming back at all. So I just think this is a great thing.

Dylan Lewis: To both your points, I view that as a sign of quality business. If it’s easy enough to cancel something, it probably means that they trust that the product itself is going to be good enough for you to want to stick around [OVERLAPPING] and actually enjoy it all the time. Let’s get over to our stocks on our radar. Oh man behind the glass, Rick Engdahl is going to hit you with the question as he does every week. Matt, you’re up first. What are you looking at this week?

Matt Argersinger: So we have a show here at the full if you remember, it’s called the Dividend Show. It’s on our full live platform. This week, we introduced our Dividends 7, which is our dividend version of the Mag 7, looking at companies that pay dividends that grow dividends that are also very dominant in their space, big competitive advantages, head and shoulders above the competition. One of our inaugural DIV seven recommendations was JP Morgan and Chase, Ticker JPM.

Of course, the country’s largest bank, I think maybe also the world’s largest bank by market capitalization, totally global banking enterprise. Dividend growth of 213% over the last 10 years, 14 increases in the dividend since the end of the global financial crisis, of course, incredible financial strength, incredible brand strength, a major presence in so many areas, whether it’s consumer banking, business banking, IPOs, alternative assets, wealth management, they do it all on a global scale. Of course, Jamie Diamond, like him or not. He’s a very public figure and a very influential one. So sometimes with stocks, you just want to own the biggest and the best, and JP Morgan is definitely the biggest and best bank. If you’re looking for dividend growth, especially, it could be a great pick.

Dylan Lewis: Rick, Matt going for a little bit of branding and a radar stock this week, a question or a comment about Matt’s handiwork or JP Morgan.

Rick Engdahl: I’m just curious where you dug up this little gem. [LAUGHTER] I’ve never heard of it. It’s definitely it’s one of those companies you just doesn’t come across most people’s radar. We were happy to find it. Happy to find that hidden gem.

Dylan Lewis: Jason, you going deep this week, or are you doing a household name?

Jason Moser: Man, I love that dividends. I can’t believe I got to follow that. I couldn’t have gone first, stint she. I’m going with a new company this week. One, I just found out about this week, thanks to a member on our life platform for the morning show. Brought up Semrush Holdings, Tickers SEMR is in the digital marketing industry, ultimately helping its customers identify and reach the right audience. They do that through its set of tools and its SAS business, so they make money from monthly and annual subscription fees, and then they offer some ancillary add ons that can offer additional value. But it’s a founder led business. The two co-founders of the business. They own about 50% of the shares outstanding, and they control the company, I think, somewhere close to 90% of the voting power via a dual class share system. But it’s worth noting at the end of 2023, they had over one million free customers. They’ve kind of that freemium model, one million free customers and approximately 108,000 paying customers. That was up from 803,000 and 95,000 respectively a year ago. Balance sheet is healthy. It’s profitable, cash flow positive. That’s one I’m digging more into.

Dylan Lewis: Rick, a question about Semrush, Ticker SEMR.

Rick Engdahl: Just a quick question about SEO in general. I mean, I know it’s optimizing search results, whatever, but in the world of AI moving forward, does it even matter anymore?

Jason Moser: I think that is a question yet to be answered, but a good one.

Dylan Lewis: So sounds like there’s some existential risks there. Rick, which one’s going on your watch list this week?

Rick Engdahl: I like little companies. So I’m going to go with the JP Morgan.

Dylan Lewis: It’ll become a household name one day. Jason, Matt, appreciate you guys being here and bringing your radar socks. Rick, appreciate you weighing in. That is going to do it for this week’s Motley Fool Money Radio show. Show is mixed by Rick Engdahl. I’m Dylan Lewis. Thanks for listening. We’ll see you next time.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dylan Lewis has positions in Semrush. Jason Moser has positions in Amazon, Apple, PayPal, Prologis, Starbucks, and Walt Disney. Matthew Argersinger has positions in Amazon, Netflix, PayPal, Prologis, Roku, Starbucks, Uber Technologies, and Walt Disney and has the following options: short November 2024 $115 puts on Prologis and short November 2024 $145 calls on Prologis. Rick Engdahl has positions in ASML, Amazon, Apple, Meta Platforms, Netflix, PayPal, Roku, Starbucks, Taiwan Semiconductor Manufacturing, and Walt Disney. The Motley Fool has positions in and recommends ASML, Amazon, Apple, JPMorgan Chase, Meta Platforms, Netflix, PayPal, Prologis, Roku, Starbucks, Taiwan Semiconductor Manufacturing, Uber Technologies, and Walt Disney. The Motley Fool recommends the following options: long January 2026 $90 calls on Prologis and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.

The Semiconductor Stories of TSMC & ASML was originally published by The Motley Fool

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