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Changes Ahead: Google’s Market Share Decline & Domino’s Strong Position

Google, once the undisputed leader in digital advertising, is facing a significant shakeup. Currently, a substantial 75% of its revenue still comes from this sector, but signs suggest it is losing ground to competitors like TikTok and Amazon. Recent forecasts from E-Marketer predict that Google’s share of the US search ad market may dip below 50% by 2025— a milestone that hasn’t occurred in over a decade.

Lou Whiteman: The rise of AI tools like ChatGPT may change how people interact with search engines, allowing for more personalized responses based on individual queries.

Jason Moser: The search landscape is indeed shifting.

Ricky Mulvey: With the market showing promise this year, Google stands out as one of the cheapest stocks in the Majors, particularly when evaluating its price based on projected earnings. Comparison to firms like Apple and Meta shows that Google trades at around 22 times its forward earnings, aligning closely with the S&P 500 average. While it may be losing market share, this giant has a commanding presence on the Internet. Is Google truly undervalued?

Jason Moser: The notion of being “cheap” is subjective. Comparatively, Google’s price-to-earnings ratio is lower than its average over the last decade. However, ongoing questions about regulatory challenges from the DOJ and the evolving nature of search may contribute to the uncertainties reflected in its current stock price. Nonetheless, such situations often create favorable opportunities for investors in fundamentally strong companies like Alphabet.

Ricky Mulvey: Shifting gears to Domino’s, the world’s largest pizza chain by both stores and sales, which reported its latest financial results this morning. Notable highlights indicate a 3% rise in same-store sales, which, while below analysts’ expectations, surpasses competitors such as Yum Brands that reported declines. Domino’s plans to open 800-850 new locations globally this year— a slight reduction compared to previous targets. The CEO’s remarks highlighted ‘value’ eleven times, showcasing its importance in the current market.

Jason Moser: Value is indeed critical right now, not just for Domino’s but across the quick-service restaurant sector. Companies are innovating menus to appeal to cost-conscious consumers. Recent trends indicate a slowdown in restaurant traffic, further spotlighting the preference for cooking at home. While Domino’s reported decent numbers, a slight downgrade in global retail sales growth guidance stood out. However, they still aim for an 8% increase in operating income, reaffirming their operational efficiency.

Investors might overlook that Domino’s is a dividend-paying stock, and it’s recognized as one of Matty Argersinger’s “dividend knights.” These are companies that have consistently paid and grown dividends by at least 10% annually for ten years while outperforming the S&P 500. Domino’s fits this profile, proving to be a reliable long-term investment.

Ricky Mulvey: Unique in its approach, Argersinger’s criteria highlight market outperformance compared to just consistent payments. A standout quote from the Domino’s call was about creating their own tailwinds— a nod to their strategic innovations during inflationary times. While many quick-service chains struggled, Domino’s opened more stores from 2015 to 2023 than its competitors closed. What do you think is behind Domino’s success in such a challenging landscape?

Jason Moser: Their innovative campaigns, like the “More-flation” initiative, have clearly resonated. It offers menu options that creatively address current inflation concerns. Moreover, Domino’s has skillfully leveraged its size and tech investments. The company’s early adoption of an effective app and loyalty program has strengthened customer engagement. Their recent partnership with Uber, though not yet a major revenue driver, reflects their strategy to diversify channels, demonstrating a commitment to growth.

Ricky Mulvey: Interestingly, one recent innovation by Domino’s that missed media attention was the introduction of its first new pasta since 2009—a five-cheese mac and cheese. CEO Russell Wiener expressed excitement about this addition. But I must ask, is there a need for five types of cheese in mac and cheese?

Jason Moser: While I appreciate the enthusiasm, I’d argue that more isn’t always better. Unless the selected cheeses complement each other, having five might overwhelm the dish instead of enhancing it. Personally, I prefer a simpler approach, enjoying a two-cheese combination that works well in our household.

Space Investing Trends: Winners, Losers, and Rocket Lab’s Rising Potential

Exploring the Landscape of Space Stocks Amid Speculative Trends

Ricky Mulvey: In the ever-evolving world of mac and cheese, choosing the right cheeses is crucial. It’s less about quantity and more about quality cheese pairings. That’s my personal view.

Jason Moser: Based on insights from Reddit, the five cheeses featured in Domino’s mac and cheese are mozzarella, Asiago, Cheddar, American cheese, and Alfredo sauce. Together, they create what some might consider an unappealing cheese sauce mishmash in a tin bowl.

Ricky Mulvey: I’m surprised you didn’t focus more on the use of Alfredo sauce.

Jason Moser: I have strong opinions about that too, if you’re interested.

Ricky Mulvey: Absolutely! What are your key tips for making a great mac and cheese?

Jason Moser: Let’s start with the Alfredo. Traditionally, a good Alfredo uses plenty of Parmesan cheese and pasta water, eliminating the need for heavy cream. Its presence in mac and cheese puzzles me. Personally, I use sharp Cheddar paired with Fontina cheese—leave mozzarella out of it. When making pizza, I love adding mozzarella, but sprinkle a bit of Fontina on top for a creamy, smoky flavor.

Ricky Mulvey: We’ve covered stock picks and cooking advice! Thanks for joining us, Jason. Your insights are appreciated.

Jason Moser: Thank you!

Ricky Mulvey: As you can see, Jason is truly enthusiastic about food. We have a link to his mac and cheese recipe in today’s show notes. Moving ahead, I’ll be checking in with Motley Fool contributor Lou Whiteman about some space company stocks. We will also discuss strategies for investing in highly speculative firms.

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If you’re a speculative space company traded publicly, this year may have been favorable for you. Rocket Lab has surged about 77% year-to-date. Intuitive Machines, known for its upcoming Lunar Rover, has soared by 200%. AST Space Mobile, a satellite designer focusing on telecom gaps, is up 400%. Lou, aside from Virgin Galactic, it seems most companies are thriving. Are these just good advancements, or do we have a repeat of the speculative ramp-up we saw in 2019?

Lou Whiteman: I’d like to slightly contest that. Not every company is thriving. For instance, Virgin Galactic and Momentus, a firm working on space towing, are down 75%. Meanwhile, Terran Orbital was sold to Lockheed Martin at a staggering 95% below its 2022 high. There are distinctions between winners and losers. While years ago, low interest rates allowed for many bold ideas in space, we are now witnessing a market correction. The successful companies are starting to take flight while others falter.

Ricky Mulvey: I personally own shares in Rocket Lab. I’ve referred to it as my “idiot insurance policy” since I believe space technology is here to stay and will become a significant economic factor. Yet, the competition, including SpaceX, makes it hard to assess. You follow this sector closely—how do you evaluate companies without solid historical data?

Lou Whiteman: Full disclosure: I’m also a Rocket Lab investor. You’re right; it’s less about fundamental investing and more like buying a lottery ticket. Currently, companies are valued based on potential rather than historical performance. Rocket Lab has launched actual rockets, differentiating it from many start-ups still in the brainstorming phase. Investors recognize its proof of concept, but long-term value hinges on its goal to be a comprehensive service for companies wanting to enter the space sector.

A few years ago, Morgan Stanley estimated that the global space sector could reach $1 trillion by 2040. This figure seems ambitious. However, to achieve this potential, numerous non-space firms will need to join the fray and seek space solutions without hiring entire teams of specialists. Rocket Lab aims to be that go-to option, managing all aspects of launching and maintaining satellite operations, making it a central figure if this vision materializes.

Ricky Mulvey: Peter Beck, the founder, has an inspiring story. Originally from New Zealand, he built rockets after attaching engines to bikes, dropped out of college, and now has a NASA contract to bring Martian rock samples back to Earth. He has built a remarkable business from nothing.

Exploring the Cosmos: Insights on Space Ventures and Future of Rocket Lab

Lou Whiteman on Mars Life and SpaceX Contracts

Lou Whiteman: I’m firmly convinced that life, even in the microbial form, has existed on Mars and could possibly still be there. While the thought of intelligent aliens doesn’t appeal to me, these single-celled organisms are a discussion we’d love to see validated in future missions.

Ricky Mulvey: So we may not be seeing little green men, but we do have broader questions about the contracts with SpaceX. Why do you think NASA is opting to diversify their contracts among different companies?

Lou Whiteman: SpaceX indeed has a lot on their plate at the moment. They received several contracts, but historically, the government has preferred not to concentrate all their contracts with one provider. Rocket Lab, for instance, is following a successful path similar to SpaceX by tapping into government funding. This early support has been crucial for SpaceX’s growth, building their aspirations on a solid government contract base. It’s significant to note that, for all the talk about a $1 trillion launch market, the market has remained relatively stable for about fifty years. Although we hope for a surge in commercial demand, in today’s landscape, government contracts are essential for revenue stream stability for rocket companies like Rocket Lab, SpaceX, and others.

Ricky Mulvey: What commercial opportunities should we consider given this relatively static launch market?

Lou Whiteman: The competition focuses on refining efficiency in launch capacities. Peter Beck’s genius lies in Rocket Lab’s ability to create smaller, more efficient rockets. While larger rockets can be made with more power, it’s the smaller rockets that tend to optimize cost efficiency. Rocket Lab was built around this idea, focusing on lighter payloads. Reusable rockets are another aspect that can reduce expenses, and companies like SpaceX are creating demand by developing subsidiaries that require launch services. While there is room for coexistence among firms like SpaceX, Rocket Lab, and United Launch, it’s uncertain whether there’s enough demand for all of them without dramatic market growth. The short-term outlook is skeptical, but long-term possibilities are open.

Ricky Mulvey: Aside from Rocket Lab’s Mars mission, what other key storylines are you following for the future of the company?

Lou Whiteman: The success of the neutron rocket is crucial. It would enable larger missions at a more reasonable cost. Additionally, Rocket Lab’s one-stop-shop strategy could set them apart in the market. They emerged post-SPAC with a good influx of cash, facilitating acquisitions related to satellite design and monitoring. They must grow their launch capabilities while expanding complementary services to be the go-to option for customers, paving a promising path ahead.

Ricky Mulvey: We’ve seen some companies struggling, but some are thriving too—like AST Space Mobile with their telecom contracts and Intuitive Machines, focusing on lunar exploration. Any thoughts on these firms?

Lou Whiteman: AST Space Mobile is intriguing. They’re navigating a complex path, proving the concept thus far, but they need to manage expenditures effectively as they aim to deliver satellite service. Intuitive Machines has impressive talent and is engaging in remarkable projects, yet their long-term revenue plan will be pivotal. The challenges faced by startups create uncertainty, so while the prospects are thrilling, these investments require caution and should be a minor part of a diversified portfolio.

Ricky Mulvey: Before we conclude, I want to highlight that Motley Fool Money has been nominated for a Signal Award for Best Money and Finance Podcast. If you enjoy the show, we would appreciate your vote. I will provide the link in today’s show notes.

Always remember, participants in this program might have investments in the stocks discussed. The Motley Fool may have recommendations related to these stocks, so be cautious before making any investment decisions based solely on this podcast. I’m Ricky Mulvey, and thanks for joining us; we’ll see you tomorrow.

Notably, Randi Zuckerberg, a previous Facebook executive and sister of Meta Platforms CEO Mark Zuckerberg, is on The Motley Fool’s board. Suzanne Frey, an executive from Alphabet, also serves on the board. Jason Moser has investments in Alphabet and Apple. Lou Whiteman holds stock in Lockheed Martin and Rocket Lab USA. Ricky Mulvey’s investments include Meta Platforms and Rocket Lab USA. The Motley Fool has holdings in and recommends Alphabet, Apple, Domino’s Pizza, Meta Platforms, and Nvidia, while recommending Lockheed Martin and Rocket Lab USA. Please consult our disclosure policy for more details.

The views expressed here belong solely to the author and do not necessarily represent those of Nasdaq, Inc.