Chips, Games, and Shoes. A Look at Micron, Take-Two Interactive, and Allbirds

In this podcast, Motley Fool senior analyst Bill Mann discusses:

• Micron Technology cutting guidance while also announcing a $40 billion investment in the U.S.
• How Micron's current picture is similar to Nvidia's.
• Take-Two Interactive continuing its rough year by lowering guidance.
• Shares of footwear company Allbirds are falling as the young company learns some harsh lessons about business and growth.

Motley Fool host Alison Southwick and Motley Fool personal finance expert Robert Brokamp look to "The Great Resignation" to find examples of what job-seekers should consider if they think we're heading for a recession.

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

This video was recorded on August 9, 2022.

Chris Hill: Lower demand for chips means that those companies in the chips business are taking a hit. Details next. Motley Fool Money starts now. I'm Chris Hill, joining me today, Motley Fool Senior Analyst, Bill Mann. Good to see you.

Bill Mann: Hey Chris, how are you doing?

Chris Hill: I'm doing better than the stocks we're about to talk about. Just a signpost for the dozens of listeners, it's one of those days.

Bill Mann: You're bringing me in as the color guy to try and keep things moving on, a little bit of a hard day for some of these companies.

Chris Hill: A little bit of a hard day. I don't want to paint it as being dire out there. Let's start with Micron Technology, which is making some news today. The chip maker says it plans to invest $40 billion over the next eight years to manufacture chips here in the US, which is great. But shares of Micron are down about five percent because the company also lowered guidance, said it expects negative free cash flow in the current quarter. Similar to the story that we're getting from Nvidia in terms of lower demand, particularly when it comes to gaming.

Bill Mann: They've been pointing out gaming, I think, in the case of Nvidia and probably Micron as well. I think crypto mining has a much bigger part playing in the weakness that they're seeing. What's interesting about the announcement coming from Micron is that they have announced that they're reducing their capital expenditures for fiscal year '23 around their wafer fab equipment. But at the same time, they're announcing a $40 billion capital expenditure ramp-up to produce chips in the United States. They are suggesting by deed, at least, that what they're actually seeing is, I guess, you could best describe it as a bit of a dislocation of demand. They're seeing plenty of healthiness in the market going forward. They're seeing reason to hoard their supply chain by bringing more of their manufacturing back into the United States. You've got the Chips Act, which is going to have an impact regardless of how it is manifested in terms of the environment around how microchips are made in the US and around the world.

Chris Hill: Do you think part of it in terms of the announcement in the same way that we see companies come out, particularly if they report a quarter that isn't that great and part of the announcement is hey, we're buying back some stock. They're trying to send a little bit of, but we still have confidence in the future signal. It seems like whether they mean to send that signal or not, they are.

Bill Mann: It's funny, and I love that you went straight cynic on me. You went right there because you really did do the thing that, like, don't look at that ball, look at this one. Look at this ball, this is the one that we're talking about. But there really is, in this case, I think, reason to believe that they're playing it straight, they are projecting. You can't just stand a microchip manufacturing facility up in a couple of days. They're talking about increasing the amount of production for memory for the US to go up from two percent now to more than 10 percent by the end of the decade, and that does require a really long investment path, it requires a huge amount of capital expenditure. I suspect despite your attempt to color them as trying to gild the lily, I think they're probably playing it straight.

Chris Hill: I also think they're playing straight. I didn't mean to make it.

Bill Mann: No, Chris, it's fine. Don't worry. They're not mad at you or anything.

Chris Hill: I was just going to say, this is a $65 billion company. For anyone who's looking at this and asking the question like, how much trouble are these guys in, it's really not that much trouble.

Bill Mann: Not that much trouble, but that does in fact color just how huge this investment program is. A $40 billion investment program, that is massive. I would describe that as a retrenchment as much as anything else. That's a huge, huge move for them. Despite your insinuations, I think they're in pretty good shape.

Chris Hill: Along the same lines at least when it comes to video gaming, Take-Two Interactive also lowered its revenue guidance. Shares of the video game company down three percent. Not huge, but it does continue the downward trend for shares of Take-Two this year, which at this point are down about 30 percent year-to-date.

Bill Mann: It hasn't been great for them. They are operating in the same exact environment that everybody else is who on some levels had to at least think about the possibility that we wouldn't be going outside for a very long time during the pandemic. During the call, CEO Strauss Zelnick did talk about the fact that video games are in fact sensitive to economic cycles, they're not recession-proof. This is in fact a purchase that is optional for people. It is a luxury purchase. The other thing going on with Take-Two Interactive is that one of its primary titles, which is Grand Theft Auto and Grand Theft Auto V is a little bit long in the tooth at this point.

There's a lot of talk and there's a little bit of, I don't know, the Germans got to have a good word for this, but English does not like hope worry, because Grand Theft Auto, as we know, is all about this hedonistic adventure, and Take-Two has said that they are not going to do that anymore. It will not be as sexist as it has been in the past. It will not be as openly antisocial as it has in the past. I guess we're going to find out in some ways whether gamers are willing to play the same game and be decent human beings at the same time. I guess now I need to give my email address for the hate mail that's coming back to us, but it is definitely the case.

Chris Hill: It absolutely is the case. In the same way that the movie business is driven by hate, so is the video game business.

Bill Mann: Absolutely, maybe even more so.

Chris Hill: For all of the artistic effort that goes into different video games, make no mistake. When it comes to the business. What drives this business are major franchises, and Grand Theft Auto is among the biggest, if not the biggest.

Bill Mann: It is a Triple A game, and Triple A is a way of basically formulating how much the developers are spending to develop these games. Really, that limit is going to be somewhere above $70 million. That is a massive budget for these games. It is absolutely driven by hits. The way that Take-Two Interactive practices has strayed. They've bought Zynga, which is much more of a singles and doubles type of franchise. But the Take-Two Interactive, they're big titles are absolutely built around these massive releases. One going badly could hit it very hard. There are some risks in execution and in understanding its audience that Take-Two Interactive has in front of it.

Chris Hill: The stock of the day is Allbirds. Shares of the footwear company are down 23 percent, it's the stock of the day for that reason. Allbirds cut their full-year guidance and in less than one year Bill, this stock has gone from 32 to four before. As far as I'm concerned, this is the poster child for the idea that you should not buy a stock simply because you like the product.

Bill Mann: Not at any price, for sure. The Allbirds arc to me has been incredibly fast. I remember that my first Allbirds that I bought were in its store in San Francisco. It was the only store that they had their only physical presence and their corporate headquarters were upstairs, and that was it. Everything else was done online, and they have gone and built massively, and it just hasn't really paid off. Now, some of this, I mean, I think that there's a little bit of a better discussion around Allbirds because Allbirds came public through a SPAC. It merged with a SPAC and as we talked about back in 2020, when SPACs were the hottest thing, we actually made the warning and went out and said, when there's a really hot thing out there in the market, you should be a little bit careful because the people who market stocks and have no mistake when companies are going through an IPO, it is a marketing process, know that they can bring out things at any price and people will buy it. Allbirds has grown massively in terms of its footprint, has grown massively in terms of its employee base. Now they have to retrench.

Chris Hill: I love this product.

Bill Mann: I'm wearing some right now.

Chris Hill: [inaudible 00:10:33] before the show that by far the most comfortable shoes, I am a repeat customer. I will continue to be a repeat customer. But the business, as you said, the way that they expanded. Maybe, who knows? Maybe the temptation to go public at the time was just too great. We've talked about this, one of the reasons we are wary of SPACs is because companies going public via SPAC do not have to go through the full reveal of filing an S1 and laying out all of their numbers for everyone to see.

Bill Mann: They get to go through something called an S4. I understand that this is probably horrific podcasting to talk about the different forms from the SEC, but it is important because in the S1, they really can't promise anything. They've got to tell you that is, in the S4 they can say, well, we're going to do this, and we're going to do that. By the way, I'm not accusing Allbirds of anything other than being a fairly immature company at the time that it went public when money was thrown at it. When you see a company that is this young, that's already retrenching, and it's already doing cost-cutting. You have to ask yourself if the management learned all of the wrong lessons during the period of time in which money was cheap because they actually have wasted a fair amount of money chasing something that didn't exist.

Chris Hill: Now, with the market cap at a much more reasonable $650 million, you have to wonder how much longer is this company is going to be a stand-alone public company. Because it's not going to shock me if someone comes in and offers them just a little bit more than their market cap right now for a quality product and customers like you and me.

Bill Mann: Absolutely. It is a dynamite product, which means that Allbirds doesn't have the same problem that a lot of other companies do like. They absolutely positively have fanatical Lululemon level addicted buyers of their products. That's good news for them. I happen to think that this is a high-quality company, but they are on the wrong part of the learning curve right now. Unfortunately, they've done it with shareholder money and not as a private company. I think that has a lot to do with having been rushed out as part of the big SPAC hype machine in 2020 and 2021.

Chris Hill: Bill Mann, always great talking to you. Thanks for being here.

Bill Mann: Hey, thanks Chris.

Chris Hill: If we are closing in on a recession, then the labor market hasn't gotten the message. Allison Southwick and Robert Brokamp take a look at the great resignation and what those looking for a job should consider if they think we're headed for a downturn.

Allison Southwick: Last week, we looked at recession indicators, and there's one part of the economy that gets a gold star, employment. All other indicators seem to point to a recession, but the job market, it's just so stubborn, it wants to keep the party going. Low unemployment is creating a real buyer's market, or is it a seller's market? A market that is largely in the favor of the employee and those looking for jobs, but is now the right time to be making a move, especially if so many people are worried about a recession. All right, well, let's look at the current state of the jobs market because the numbers just came out. At 3.46 percent, unemployment hasn't been this low since Woodstock and the first moon-landing.

Robert Brokamp: Yes, 1969, it was a great year because it saw the creation of Sesame Street, Monty Python and me, though, I don't remember much about the job market back then. But as for today's jobs market, well, it's quite remarkable. The Labor Department last week announced that more than 500,000 jobs are created in July, bringing this year's total to over three million. Now, let me remind you that the GDP has declined in both of the first two quarters of this year. According to the Wall Street Journal, payrolls have grown faster than during any other post-World War II period that also featured the start of an economic contraction. But a contraction doesn't necessarily mean an official recession. According to Ryan Detrick of the Carson group, there have been only 17 other times when the US economy created 3.3 million jobs during the year, and never once has it gone into a recession during that calendar year and only once out of the 17 did it go into a recession the following year, and that was in 1973.

What are employers doing to retain and attract employees? Well, it starts with pay wage growth came in at 5.2 percent over the year. Employers are increasingly offering hiring and retention bonuses, even the military has recently boosted bonuses for people who are willing to enlist. But it turns out that employees don't want just money. They also want flexibility in terms of hours and where they work. Employers are rethinking how they can offer more part-time positions and hybrid work arrangements. Work at home part of the time, office part of time, maybe.

For example, survey from Mercer of HR, executives found that 38 percent now offer phased retirement up from 17 percent before the pandemic. Phase retirement basically allows someone to ease into retirement by working part-time or part year which in my opinion is like the quintessential win-win. The employer retains talent, stops a bit of the brain drain that happens when experienced workers leave and the employee gets more leisure time, a little taste of retirement while also getting that paycheck and perhaps some benefits. Finally, workers also want professional development, so employers are offering more training and education benefits. It's just a couple of examples. Mcdonald's and Walmart have recently boosted their tuition assistance programs.

Allison Southwick: Well, let's take a trip in the not so way back machine, to 2021, when all of this started. Because that was the great resignation. It became a thing. According to the US Bureau of Labor Statistics, over 47 million Americans voluntarily quit their jobs as part of the great resignation. It was an unprecedented mass exit from the workforce. Maybe they wanted more money, maybe they wanted to keep working remotely, maybe they were just ready to retire?

Robert Brokamp: When it comes to the great resignation, I think there are really two things to keep in mind. First, it actually had begun well before the pandemic panic. An article in the Harvard Business Review by Joseph Fuller and William Kirk pointed out that every year since 2009, quit rates, which is what the government calls these, quit rates have been climbing. Now they certainly spiked during the pandemic, but now they're dropping down to what was the trend line. Which brings me to my second point which is people are unresigning. Some folks are returning to work for all kinds of reasons. Inflation is one. Others due to the drop in their portfolio.

They're also basically feeling less concerned about COVID and they're being lured back by higher pay and more flexibility. Some say they're just bored and a survey from jobless.com, 60 percent of the formerly retired are returning to work primarily because they are "looking for something to do." I really think this could be a trend for a segment of the population, especially for those who are older, maybe have saved some money. The kids have flown the nest and instead of retiring for good, they float in and out of the workforce as they feel necessary and as conditions warrant. But we shall see.

Allison Southwick: Maybe the great resignation wasn't just a blip, but a long-term trend. Maybe people are returning back to work, who knows? But even now, McKinsey estimates at 40 percent of workers are considering quitting their jobs in the next few months. Pew Center puts it closer to 22 percent because I mean, why not? After all, it's a workers' market. People get new jobs, while they earn more money. We've got all these signing bonuses and better benefits and remote work to attract people. Why not skip town and go to another lily pad and mix all the metaphors that you [laughs] possibly could come up with? Well, but on the other economist hand, while inflation means that everyone feels the pain to a lesser degree through higher prices when a recession comes, people lose their jobs, which means catastrophic pain on the individual level, and the experts will tell you as long as you keep your job, you're likely going to weather a recession and come out the other side OK. A job is even more precious when a recession hits.

Robert Brokamp: While the party is raging in the labor market, like right now, we feel like things are going well. But if you look at individual industries or even individual companies, things are not looking quite so good. The companies like Robinhood, Shopify, Microsoft, Tesla, Oracle, Walmart. They're making headlines because of layoffs or hiring freezes. Like we talked about last week, other big economic indicators like GDP, the inverted yield curve, and housing starts are putting away the snacks and taking the solo cups from the people's hands while saying, wow, look at the time.

Allison Southwick: Some indicators want the party to end, but not the labor market. If it's possible that there is a recession on the horizon, is now really a good time to be making moves, especially if you risk being one of those last-in, first-out employees if there are layoffs?

Robert Brokamp: That's a really good question and it depends a lot on your current industry and employer and where you would go if you switch jobs. If you are in one of these industries or one of these companies that's struggling, or you could look out ahead by year and say, you know what, layoffs or pay reductions are on the horizon. Now might be the time to look at switching. Because if the economy slows down further and the lay-offs hit later, that's not when you want to be looking. You want to be looking now when employers are eager to hire people offering goods signing bonuses and things like that. On the other hand, if you do have a pretty secure job, your employer is doing fine, the industry is doing fine and you're generally happy with the job.

I'm not sure I would necessarily leave right now for the next fintech start-up or something like that. That said, if one of your main goals is to make more money, you might have to switch jobs because research from the Pew Research Center found that the people who are getting the biggest bumps to their income are the people who switch jobs. People who stay in their jobs are getting raises, but they're not keeping up with inflation. You have to put all that in mind and then I'll also just point out that some recent surveys indicate that about 25 percent to 40 percent of the people who do leave or switch jobs regret this decision. Of course, that means the majority of people are happy with the move.

But it is important to evaluate all the aspects of a potential new job from the commute to the company culture. I'm sure we have all seen many of the stories of what happens to people when they have taken a new job, but then they get laid off. I think of seeing something on Twitter where a guy moved his family to Canada, bought a house to take a job with Shopify, and then very soon thereafter was laid off. You don't want that to happen to you. The bottom line is, now might be a good time to switch jobs. But think it through very carefully.

Chris Hill: 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, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.