In this podcast, Motley Fool host Ricky Mulvey and analyst Bill Barker discuss:

• Zoom‘s quarter, and if the company has a moat.
• AutoZone‘s international growth.
• Wendy’s plan to test surge pricing.
• If cereal is a part of a complete and nutritious dinner.

Plus, Motley Fool host Alison Southwick and personal finance expert Robert Brokamp answer listener questions about 403(b)s, UTMAs, and the safety of brokerage platforms.

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 Feb. 27, 2024.

Ricky Mulvey: Surge pricing for hamburgers? You’re listening to Motley Fool Money. I’m Ricky Mulvey, joined today by Bill Barker. Bill, thanks for being here.

Bill Barker: Thanks for having me.

Ricky Mulvey: Let’s start with Zoom earnings because the investors seem to be pleased by the latest quarter. Operating income and billings beat analyst forecasts. There’s a little bit of a dip in growth that they’re saying they’re going to make up for later in the year. Before we dive in, are there any headline takeaways for you from this beaten-up former growth stock?

Bill Barker: No. The thing that is most striking to me, I guess, is just the growth curve here, which, it did about eight times the business within two years of the beginning of the pandemic that it had done, and it was growing pretty rapidly going into the pandemic. In the last two years, it’s not quite flatline but not even really kept up with the level of inflation. They’re talking about, it’s a slow first half, but we’ll start making up the growth in the second half, and [inaudible] threw a couple of grains salt on to the second half. It looks so much better than the first-half guidance.

Ricky Mulvey: That’s not until the AI kicks in. The bull story for Zoom that CEO Eric Yuan is selling is about AI and in case you’ve missed the first mention of AI, there were five more additional mentions in the first five sentences. The story is that Zoom is more than video conferencing. You have generative AI that can help summarize meetings, make businesses more productive, and also become not just video but a full workplace solution, where you can reserve desks, see how your direct reports are doing. It will even have a messaging app that competes with Slack. Maybe that’s enough to restart the growth engine.

Bill Barker: Sure, maybe. I think that [laughs] no one’s expecting it, particularly. I think Zoom has done a phenomenal job of embedding itself into a lot of people’s work lives and even beyond work, social lives at times to meet with friends or family over Zoom, but it’s embedded a lot of that already, and the things that it points to to charge the future growth are more and more tangential to its central purpose and use to date. If AI adds some growth to it, it’ll be in a large category of stocks. It can make that claim, and it’s making that claim before the growth this year with the hopes that it’ll come true.

Ricky Mulvey: The part on Zoom being embedded is something I want to focus on. There’s a mention from the CEO I want to discuss. He said, “We became more disciplined and focused while continuing to prioritize growth opportunities. As a result, we are much better positioned than we were one year ago. Our platform moat is deeper, our contact center offering is more robust, and our go-to-market teams are primed with defined goals and sharpened expertise to drive growth and empower customers.” The part I’m focused on there is “our platform moat is deeper.” As people use Zoom, maybe the longer they use it, the less likely they are to leave, but one of the big bear cases is that Microsoft Teams has options, and so does [Alphabet‘s] Google. So I will ask you, does Zoom have a moat?

Bill Barker: Yes, Zoom has a moat, and it is not a particularly deep or wide moat for the reasons that you’ve just brought up, but it is in use. There are some switching costs for enterprises. There are some switching costs for individuals, even if they’re using it for free, their familiarity with it, and perhaps the growing familiarity with these new applications, such as the AI tools and the conference summaries and things like that. There are reasons why it becomes a little harder or even quite annoying to switch over an entire company’s work on the Teams or Google when they’ve already gotten used to Zoom, if it’s competitively priced. That switching cost, in terms of the hours and the learning curve, is enough to keep some business around, but we were originally going to record this on Zoom, and we have for one reason or another, it was my reason, it was on my side, we just switched to something else to do the same work.

Ricky Mulvey: We did. Although Bill, I am curious if this is a Zoom problem or a Bill problem.

Bill Barker: It’s not a Bill problem. It’s a Bill’s laptop problem, which is slightly different. As identified as we all are with our laptops these days, we are inseparable, and in this particular case, it is not my fault.

Ricky Mulvey: Okay.

Bill Barker: It’s a rare case where any technology that I’m unable to get to use is not my fault but the hardware’s fault, but this is such a case.

Ricky Mulvey: Let’s talk about the repurchase plan because that’s grabbing some headlines for Zoom. Zoom’s board authorized $1.5 billion in buybacks. That’s a lot of money. However, Zoom also spent 1.3 billion on stock-based comp over the past year according to YCharts. They’re starting this buyback. Is it meaningful? Does it signal anything?

Bill Barker: I think that you have accurately summed up how meaningful it is. If it’s a pretty fair fight between the buyback and the stock-based compensation, then it is not meaningful in the sense of reducing share count. It’s meaningful in the sense of preventing share count from continuing to be diluted, which it has been over the last four or five years. There’s about 20, 25% dilution on the increased use of shares to compensate employees and management. Maybe this slows or stops but it’s a very different kind of buyback than one that shareholders truly get excited about. Zoom’s got a lot of money. It’s got seven billion in cash, so this is easy to finance, no doubt. If they’re not going to show a lot of growth, this is one way to possibly grow earnings per share by reducing share count, but we’ll see over the next year whether it’s executed and whether it reduces the share count or keeps it steady as measured against all the shares that are still being used to compensate employees.

Ricky Mulvey: Let’s talk about another type of buybacks, and that’s with AutoZone, but first we’ll start with the new CEO. There’s a new guy in town, even though he’s been there for 30 years. It’s Philip Daniele. Bill Rhodes was at the helm of AutoZone for 18 years. This is the first quarter for Daniele. Any impressions of the new guy who’s been there for 30 years?

Bill Barker: I think it’s too early to make much of a call. As you say, he’s been there for 30 years. He’s been in a high position, so we don’t expect there to be a big departure from the winning formula that AutoZone has employed for the last couple of decades. Previous CEO is moving to Chair, so I think that it’s more of a steady-as-she-goes until we have reason to think otherwise.

Ricky Mulvey: Some highlights from the quarter to the extent there are highlights, AutoZone continued to decrease inventory, also pointed out higher merchandise margins, forgetting essentially flatish sales to a higher operating profit, domestic sales, same-store sales, essentially flat, but international same-store sales up 11% on a constant currency basis. Also 26 net new stores, but they have a total store count of more than 7,000. Anything really stand out to you?

Bill Barker: The thing to keep an eye on in terms of looking at the growth because the domestic growth is not likely to be that exciting is the international expansion. That is a possible thing to keep an eye on with the new CEO, or they’re going to be more aggressive in expanding internationally and could continue to be more aggressive expanding internationally as they have been in the last few years compared to the domestic operation which is not quite saturated. They’re in a fairly dominant position with O’Reilly continuing to take market share from Advance Auto and the continuing fragmentation of the industry for auto supplies, but I think that there’s not a lot that looks any different from this report than for most. They continue to reacquire their shares, and that’s probably the most exciting thing that this company does.

Ricky Mulvey: So let’s talk about those repurchases because they have two billion to go on a share repurchase authorization, bought back more than 220 million in the quarter. This is a similar tactic from two very different companies. So for a newer investor, we talked about how Zoom is using share buybacks. How does AutoZone use buybacks differently to increase shareholder return?

Bill Barker: In 2002, AutoZone had about 100 million shares out. That was down to about 80 million by 2005, about 60 million by 2009, about 40 million by 2012. They’re down below 20 million today. So if you just bought and held, 22 years ago, they’re 19 million shares out, you own about 6X of what you owned, almost, in terms of your percentage ownership of the company. They were relentless share repurchasers. They’ve done that by increasing debt during most of that 20 years where debt was extremely cheap and is not as cheap as it was, so the continuing use of debt to do this is not going to have the same returns that it has had, but it’s a phenomenal stock story and it could have used all that money to pay dividends, but it bought back stock and as I say there fewer than 20 million shares where once upon a time there were 100 million. So it’s just been a very big win for shareholders.

Ricky Mulvey: I want to wrap up with a story about Wendy’s where Wendy’s Bill appears to be taking a note from Uber. CEO Kirk Tanner said to analysts that quote, beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings, along with AI enabled menu changes in suggestive selling end quote, love it. This means that a burger price essentially could go up at lunch-rush, down during an afternoon low, backup at dinner. We’re going to surge price burgers. Is this a good idea? It works for Uber.

Bill Barker: I think it’s an, it’s an interesting idea and therefore good enough to test and it makes some sense. There’s a lot of downtime in the slower hours. Why not give people better prices during those hours to fill some seats and keep the employees busy during what otherwise are a lot of times. I think that for the most part, people have set times for breakfast, lunch, dinner, little bit variable. You can maybe make some more money during those slower times. That of course, the downside is this is interpreted as raising prices, which in fact might be the case when you start talking about surge prices, that’s what it feels like and we’ll see. This is a marketing challenge to, I guess, hit the cheaper prices at this lower times rather than let the story become, we are charging more for the same thing at different times.

Ricky Mulvey: I think it’s very funny that we’re going to use these AI tools and digital menu boards to just get back to happy hour. Where we’re going to spend tens of millions of dollars for all of this software to figure out what many bars and restaurants have already figured out, which is that between 03:00 and 05:00 P.M you can get some traffic by lowering prices on select menu items. To me, it’ll be a big mistake if someone shows up at the same time, multiple days and the prices are different even slightly. I know as a customer I would be completely annoyed by that. Maybe they’re listening to the data analytics folks a little bit more than the people buying burgers.

Bill Barker: Well, if you show up a little bit early and you get a better price than you were expecting, then you might be incentivized to repeat that. But yes, it is a challenge to bring this into reality in a way where people interpret their experiences better because of the different pricing.

Ricky Mulvey: At what point, so just a single Wendy’s cheeseburger, you’ve got into the drive-through and you’ve seen the menu price, what’s your break-even point? What’s the point at which you’re just going to go home and listen to Kellogg CEO Gary Pilnick’s advice and just make some cereal for dinner. Where are you turning around on that burger?

Bill Barker: For a Wendy’s Burger?

Ricky Mulvey: Yeah, single.

Bill Barker: When I add, it’s probably at a price that is already higher than what I’m willing to pay. Although I don’t have anything against the Wendy’s Burger, it’s been a while since I’ve had one and I think I would be shocked at what the price is, even at the best hour of the day. So boy, if they were charging for a single?

Ricky Mulvey: You can get a single for a few bucks, it’s not too bad.

Bill Barker: For a 485 maybe.

Ricky Mulvey: Forty five.

Bill Barker: I started like, maybe just some fries [laughs].

Ricky Mulvey: It’s been a tough look though with the dynamic pricing. Then you had Kellogg CEO, as I mentioned, Gary Pilnick touting you guys on CNBC. It basically says that we have a new marketing campaign which is cereal for dinner, because food is so expensive, people can just start eating cereal for dinner and a piece of fruit. It’s less than a buck per serving, so why don’t you all do that? We’re here for the consumer. It’s a tough thing to say in front of palm trees.

Bill Barker: I guess, the ability of people to draw a fast, why isn’t he creating a solution that is comprehensively addressing all food prices rather than cereal for dinner. It’s easy, it is cheap. I think I’ve been known to do that just because of not the price, but just I haven’t given dinner any thought and there is nothing here to eat [laughs] except some cereal.

Ricky Mulvey: No one’s eating cereal for dinner proudly and I think here’s why people took offense, it’s because you didn’t do cereal for lunch. No one would have cared if he said cereal for lunch, but because dinner it’s the big family meal. That’s why people got upset. I think that’s a key reason no one’s talking about.

Bill Barker: Well, I didn’t see the actual interview and as you say, it did get some attention. But it doesn’t take much to get attention for a story to blowup nationally anymore. Just have [laughs] the wrong background behind you while you’re making the case for something that is reasonable.

Bill Barker: I think that people have had cereal for dinner before this and we’ll have cereal for dinner again, whether Kellogg’s can use it in a way, and this is the bigger problem for them to get people to maintain their consumption of cereal. It’s declining item in the diet of Americans and has been for a while. Despite its being part and really only a part of a completely nutritious breakfast or completely nutrition dinner now, it’s becoming a smaller and smaller part.

Ricky Mulvey: Anyway. Bill Barker, as always, thank you for your time and your insight.

Bill Barker: Thank you.

Ricky Mulvey: Got a question for the show, maybe some feedback or a guest idea. Send us an email at [email protected] that is, podcasts with an s @fool.com. Up next to Alison Southwick and Robert Brokamp are tackling some of the questions that you emailed in about 403(b)’s, pensions and saving for kids.

Alison Southwick: Our first question comes from Jim, I have been contributing to my 403(b) plan every year with an employer match. For the first 10 years, I contributed to a traditional 403(b), and in the past six years I have switched my contributions to a Roth 403(b). I am nowhere near retirement, but I just want to learn and understand how will the money be characterized when I take it out. Will it be confusing at the time of distribution since it is mixed and this one account also, do I have the choice of rolling it over, maybe converting it all into a Roth at my retirement? Thank you for always bringing great content daily. I really appreciate the work that everyone at the Fool is doing to make the world smarter, happier, and richer. Oh, thank you.

Robert Brokamp: Yes, it’s very kind of you, Jim. You have a mix of pre-tax, traditional, and Roth money in your account and this would also be the case if you had been contributing to a Roth the whole time because the employer match always goes into a traditional account. The secured 2.0 Act passed at the end of 2022, was supposed to allow employer contributions to go into a Roth accounts, but that has had trouble getting off the ground because the IRS needs to clarify a few things, so that option will eventually be available.

But for now, match money goes into traditional accounts. What happens when you take a withdrawal from an account that has both traditional and Roth money? While each withdrawal is partially taxable and partially tax-free, proportionate to how much each type of the money is in your account. For example, if 75% of your account is in traditional pre-tax money, then 75% of each withdrawal will be taxable. The other 25% will be tax-free from the Roth, assuming by the way, of course, you’re following the rules, which is you have to be 59 and a half and the account has been opened for five years. Now, what you can do though, when you leave your employer, maybe because you’ve retired, you can roll the money over to two separate IRAs, a traditional IRA for the traditional money, and a Roth IRA for the Roth money. Then you can choose which account to take withdraws from in any given year of your retirement, depending on which makes the most sense for your tax situation at the time.

Quick note about the five-year rules with the Roth by the way, if you roll your 403(b) over to a new Roth IRA, and that is your very first Roth IRA, that starts the whole five-year clock over. You want to open up a Roth IRA at least five years before you retire so you can roll money over to that account. Finally you asked if you could convert all your money into a Roth when you roll it over, the answer is yes, you can convert your traditional money into the Roth, but the amount that you convert will be added to your taxable income in that year, which could lead to a pretty hefty tax bill. It’s not a free lunch.

Alison Southwick: Our next question comes from TMF frugal. If a large bank, say Charles Schwab fails and they house your brokerage and IRA accounts. Are your investments safe? Is there a dollar limit on how much would be protected like the FDIC protects up to $250,000? I have over $800,000 in investments in Charles Schwab brokerage in IRA accounts, and curious if I need to start splitting things up.

Robert Brokamp: Well, yeah, just as the FDIC insures bank accounts, the Securities Investor Protection Corporation, also sometimes called the SIPC, sometimes called SIPC. It ensures brokerage accounts up to $500,000 per account, including up to $250,000 in cash. Keep in mind that this is just ensuring against the brokerage failing and in some cases of fraud, but it doesn’t ensure against your stocks dropping in value. Also, the coverage doesn’t extend to all investments. It doesn’t cover things like commodity futures contracts, limited partnerships in currencies, including cryptocurrencies, but it does cover most standard stocks, bonds, mutual funds, stuff like that.

The coverage is per account type. For example, if you have both a traditional IRA and a Roth IRA with a single broker, you get $500,000 for each of them. However, if he had to Roth IRAs with a broker to them the compound coverage is just that $500,000. You just visit the SIPC website to see the different account types that qualify for separate coverage. By the way, this is the same with the FDIC, you can have more than $250,000 coverage with a single bank depending on how those accounts are titled. Also, you should know that in most situations, brokerage firms are required to segregate accounts and prevent the comingling of client assets and company assets and most brokerages actually have a third-party custodian that holds to the accounts and holds the assets, so that’s an extra layer of protection. Most have additional insurance on top of the SIPC insurance.

But frankly, it’s likely not sufficient to cover if one of these big brokerages fails. What happens when the brokerage fails? Well in most cases, investors will receive any stocks or bonds that they own in-kind, rather than having to just accept their cash value. What usually happens, frankly, is that the accounts are transferred to another brokerage that buys the failing brokerage. Then you have the option of just staying with that brokerage or transferring the account to someone else. If you’re still unsure about whether your brokerage account or your particular investments are covered, check out the SIPC website.

Alison Southwick: It feels like though in practicality, if someone like Schwab, were to go under, then there’d have to be a whole lot going wrong in our financial system for that to happen, right?

Robert Brokamp: Right. I mean, the last time this happened was with Bear Stearns and Lehman Brothers, and that definitely presaged the Great Recession. It would be a bad sign.

Alison Southwick: Our next question comes from Jet, new Fool here, I’m 24 years old and really getting into personal finance and long-term investment strategies. That’s awesome news Jet. Currently, an MBA student who is finishing up this spring. Three months ago, I transferred an UTMA into my name. The money is currently in an actively managed mutual fund that has a 0.25% expense ratio and underperformed the market. The money has been in that mutual fund untouched for almost a decade. I want to sell and transfer the money into an S&P 500 index fund. If I do this, will the capital gains be considered short-term because it has been less than a year since it was officially transferred over to me or since it has been held untouched for over a year, under the UTMA. Are the capital gains considered long-term?

Robert Brokamp: Well, congrats on getting into personal finance and investing at such a young age. It’s great news and definitely an outstanding way to launch into adulthood.

Alison Southwick: Future Jet is going to be very thankful.

Robert Brokamp: Yes, absolutely. Just so we’re all on the same page an UTMA is a custodial account that allows some well-meaning adult to create an investment portfolio for a minor. As soon as the money is contributed, the money irrevocably becomes the property of that minor and the adult access custodian for the account making investment decisions and maybe making decisions about withdrawals until the minor reaches the age of maturity, and that varies from state to state. At that point, the kid takes over the account and it sounds like this is what has happened with Jet and her or his account. The key here is that the mutual fund in this account always belong to Jet. The cost basis of the holding period didn’t change when Jet took over the account. The sale would be taxed as a long-term capital gain, except for any gains made on dividends or distributions that were reinvested over the past 12 months.

Alison Southwick: Our next question comes from Sad Dad in Illinois. My 32-year-old son passed away in 2023. Oh sad dad, we’re very sad to hear about that. That’s probably one of the most tragic things I can imagine is losing a child.

Robert Brokamp: Absolutely.

Alison Southwick: He has no will, no wife, and no children. I’m his father and the court-appointed administrator of his estate. Here’s my question. His three siblings ages 30, 31, and 34 will receive a fair amount in 401K, IRA, and Roth money. According to the 10-year rule in the SECURE 2.0 Act, my three surviving adult children will have to do the required RMDs starting at the end of 2024, pending IRS changes could alter that. I believe that the two younger siblings would be considered, “Eligible, designated beneficiaries” and could use their life expectancy to calculate their RMD. My question is about the 34-year-old. Most articles I’ve read, say 10 years younger, some say within 10 years of the account owners age. The IRS website is difficult to interpret this difference. Oh, you don’t say. I want to give them accurate advice. What do you think? Thank you and love your podcast for many years makes my drives much more enjoyable, glad to hear it. All right, bro.

Robert Brokamp: I’ll just repeat, I’m so sorry to hear about your loss Sad Dad. My oldest daughter is 32 and I can only imagine what you and your family have gone through losing someone so young. You have my sincere condolences. After that loss, you now have to settle your son’s estate, which I know isn’t easy. As you’re finding, the rules that govern the inheritance of retirement accounts are surprisingly and maddeningly complicated. Partially because they’re not even yet set in stone due to some changes in the laws over the last few years.

The main questions surround how soon a beneficiary has to drain the account. It could be five years or 10 years or the rest of the beneficiaries lifetime, depending on several factors. The people who have the most flexibility are these, “Eligible, designated beneficiaries.” Let’s start with the designated part. It means that the decedent had filled out the forms that name specific people to inherit their retirement accounts and everyone should fill out these forms. In most situations, it takes only a few minutes and you can do on online. You will be doing your heirs a huge favor by filling these out. Besides giving your heirs more flexibility with the withdrawals, the account will also bypass probate, which is the time-consuming and sometimes expensive process of settling an estate, so do everything you can to have as much of your property as possible bypass probate, which starts with filling out these beneficiary forms.

Alison Southwick: It’s also that when we usually remind people, also make sure that it’s up-to-date because you don’t want your ex-husband to get all your money.

Robert Brokamp: Yes, exactly, absolutely. Something else may have happened, you might have had other kids and things like that. Very important to update it. That’s the important part of the designated. Now let’s get into the eligible part. This is a group of people that includes spouses and people who are no more than 10 years younger than the person who passed away. They can spread withdrawals out over much longer periods, in most cases over the course of their lives. Which means that most of the money could stay in the account growing on a tax-advantaged basis.

The dad here is wondering whether the 34-year-old is considered an eligible, designated beneficiary by not being more than 10 years older than the son who passed away. I looked through the IRS code for clarification, and unfortunately, it seems to me that the 34-year-old is not eligible. The code clearly states that the person has to be within 10 years younger than the person who passed away. But this is truly a complicated and changing topics, so you or your 34-year-old should really check with an expert, a CPA, someone like that, once he or she has taken possession of the account.

Alison Southwick: Our last question today comes from Tony. My wife is a teacher and her retirement is through a state-run pension. As such, she does not contribute to social security. It is our understanding that for this reason, she would not be able to collect my social security if and when something happens to me, this brings about a lot of questions. Are there any loopholes that would allow her to collect my social security in the advent of my passing? For example, what if she worked another job for say, five years and contributed to social security throughout that job? If she can’t collect it, can I make my two sons the beneficiaries? I would like to think my benefits would continue to my family as permissible by the rules upon my passing. What are my options and are there any actions I can or should take now? I’m 54 and she is 50. I appreciate any information you can provide. Bro, provide some information.

Robert Brokamp: Well Tony this is known as the government pension offset or GPO. The thought behind it is that Congress intended for social security spousal and survivor benefits to support non-working spouses who are raising a family and are financially dependent on a working spouse, at least according to the Social Security Administration website. If you or your spouse have your own career, earning a pension then you don’t need spousal and widow’s benefits quite as much. Again, this isn’t in my opinion, this is just the rationale behind the rule.

By the way, the same thing happens with social security to some degree. A worker won’t receive a spousal benefit if her or his own benefit is higher than what her spousal benefit would be. As for the GPO, it reduces spouse widow and widower benefits by at least two-thirds of the person’s own monthly government pension based on that work that was not covered by social security. If two-thirds of that pension is more than your social security benefit, you’ll get zero. It’s possible that Tony’s wife could still receive some spousal or widow benefit, and there’s a GPO calculator on the social security website, you can use to figure it out.

But because it’s reduced by the amount that his wife will receive from our pension, that’s really what will determine the amount of the reduction, so if she were to work for another job that was covered by social security, that really wouldn’t directly change the offset. Finally, some good news, this just affects the spouse’s benefit, so Tony’s kids would still be eligible for their survival benefits.

Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don’t buy or sell anything based solely on what you hear. I’m Ricky Mulvey. Thanks for listening. We’ll be back tomorrow.