In this MarketFoolery podcast, host Chris Hill gets an Earningspalooza visit from Hidden Gems' Abi Malin, who joins him to discuss a trio of interesting items for investors. They lead off with Twitter's (NYSE:TWTR) quarterly earnings report -- and for the second time in a row, there were earnings to report. But the stock dipped a bit anyway.
Then, they try to put Costco's (NASDAQ:COST) 14% dividend boost into broader context. And finally, they dig into the complexities of Comcast's (NASDAQ:CMCSA) $31 billion bid to buy U.K. broadcaster Sky, which has thrown a spanner into the works for Fox's earlier bid.
A full transcript follows the video.
This video was recorded on April 25, 2018.
Chris Hill: It's Wednesday, April 25th. Welcome to MarketFoolery. I'm Chris Hill. Joining me in studio, it's Abi Malin. Thanks for being here!
Abi Malin: Thanks for asking me!
Hill: It's Earningspalooza, and I know this is a busy time for analysts like you. I always appreciate when you come in the studio, but I extra appreciate it when it's Earningspalooza.
Malin: You're welcome! I always have time for you.
Hill: [laughs] We have some interesting dividend news, and we'll get to that in a second, but let's start with Twitter. First quarter profits for Twitter were just that, they were profits, and this is the second quarter in a row that Twitter was profitable. Their international growth is up. Why is this stock down today? It's not falling off a cliff, but it's down a little bit. This was a good quarter. They're growing. What's going on here?
Malin: I think there were really three bright spots of this quarter. The first was that revenue growth. Total revenue was up 21%. The second was, audience and engagement continued to increase. These are things we look at with social media platforms generally. This was moving in the right direction. That hasn't always been the case for Twitter. The last point that was good for them this quarter was that there was meaningful progress in safety and information quality work. Historically, Twitter has had a little bit of a reputation for being argumentative, for lack of a better term.
Hill: Is that because the people on Twitter can be argumentative?
Malin: All of the above. But I think right now, there's a few questions or some lack of clarity around the whole ad revenue model anyway. Just generally speaking, we saw the Facebook trials, I think people are just sort of apprehensive in this space.
Hill: Although, it does seem like advertisers as a group have essentially moved Twitter further up their priority list. There was a pretty decent stretch there where, if you were a major advertiser -- look, you always have plenty of options, but in terms of social media, Twitter wasn't growing in such a way or performing in such a way that it made as compelling a case for advertisers as it appears to be making today.
Malin: Definitely. Strong ad engagements this quarter. They had improved return on investments, better sales execution. Total ad engagements, generally speaking, were up 69% year over year. A lot of this is due to improved video ads and higher click-through rates. Cost per engagements were actually down 28%, and that's just because video ads generally have a lower CPE than others.
I think Twitter has maybe been disregarded for an extended period, and maybe there's sort of a twist in things. I also think Jack Dorsey was really strategic in this call. He kept making a lot of comments regarding privacy. I pulled one quote. He actually said, "So, we believe that privacy is the fundamental right for everyone we serve on our service. Our data business is something we continue to feel really good about. We are different from our peers in that Twitter is public. We serve the public conversations, so all of our data is out in the public, out in the open." So, I think he's really just trying to draw the distinction between Twitter and the unnamed Facebook here.
Hill: I was just going to say, and who do we think that's directed at? [laughs]
Malin: [laughs] Yes, definitely.
Hill: First of all, that's great that he said that, so thank you for going through that call, because I hadn't gone through the call. And it does speak to something I have been wondering about, particularly since Mark Zuckerberg made his trip to Capitol Hill, because as I was watching that play out, I did think to myself, "Someone has to be enjoying this. Maybe it's Jack Dorsey. Someone has to be watching Zuckerberg under the lights," and he handled himself better than I thought he would.
Malin: I thought he was very commendable.
Hill: Yeah, he really was. But I thought, "Boy, someone really has to be enjoying this." And maybe that's an overstatement about Dorsey. But, good for him for throwing a couple of elbows on the conference call.
Malin: Definitely a couple elbows.
Hill: I'm curious why you personally are not on Twitter. Just because, you're engaged in social media, but for whatever reason, you're like, "You know what? I don't need that."
Malin: I think I use really limited social media. I have a Facebook, I have a Snapchat, reluctantly. I don't use Instagram, actually, and I don't ever even consider using Twitter, just because I think it's just not a positive space. I see people around here use it for news, but I just don't know that I ...
Hill: It's not working for you.
Malin: Yeah, it's not that I need it.
Hill: One last thing on the stock, it's down a little bit today. This thing has basically doubled in the past year. Is it safe to assume that what we're seeing in terms of the pullback of the stock has to do with that, has to do with the fact that, look, this thing has had a great run over the past 12 months, and maybe it's not moved into the position where they needed a perfect quarter to move the stock higher, but you've had a pretty good 12 months.
Malin: Yeah, I mean, I think it could be that. Again, I just think it's general sentiment. I don't think we've necessarily seen peak Twitter. I think this is a business that continues to reinvent itself. I think management here is really open and being very adaptable. I think it's probably more interesting than it's ever been to me as an investment idea, but I don't necessarily think that this was priced for perfection and that was the pullback.
Hill: Let's move on to Costco, which does not report earnings for another month. Costco did announce a 14% increase in the quarterly dividend. That's nice.
Malin: That is nice.
Hill: That's really nice. And maybe not a shock that Costco or any large company that has money is raising their dividend. We've talked before about how one of the ripple effects of the cutting corporate taxes is, we're going to see more share buyback plans and we're going to see more dividends. As a general rule of thumb, where do dividends sit in the investing universe for you? Just, as someone who analyzes stocks and invests in stocks, is that something you're looking for? And if so, how high up the list is that?
Malin: It's not something I dislike, per say, but just given my personal interests, I'd rather look at a growth story, and I think dividends usually signify a pretty mature company that, it's not always a bad thing, but maybe they don't have somewhere to reinvest those funds to further growth, so it's less interesting to me than other options, but not necessarily unappealing.
Hill: Where is Costco as a retailer for you? Because I know that retail is an industry that you're interested in.
Malin: Yeah. I've looked at this industry a lot, I've never spent too much time on Costco. I tend to stay in the smaller-cap area. I still think it's interesting. When you look at the numbers, I think it's really easy to forget that some of these big box stores are still very relevant and still doing very well. I think a lot of times, we get caught up in the Amazon of the world, but I think Costco is still very interesting.
Hill: Before we move on to Comcast and their massive quarterly report, quick shout-out to our friend and colleague in Australia, Uncle Joe Magyer. It's a girl! Uncle Joe is a dad for the second time. Congrats to Joe and his lovely wife on the arrival of their baby girl. Closer to home, here in Fool global headquarters, shout-out to our friend and colleague Amber Knutson. DCFemTech, which is a coalition of women leaders in the tech industry here in the greater Washington D.C. area, their annual awards dinner is next month, and they just announced this year's list of Power Women in Code, Design, and Data, and Amber Knutson, on the list. Congrats to Amber! That's fantastic!
Comcast. Some pretty nice numbers in the first quarter for Comcast. Profits and revenue came in higher than expected. They had the Super Bowl, they had the Winter Olympics. It seems like both of those paid off in a big way.
Malin: Yeah, adding $1.6 billion in revenue for the quarter.
Hill: That's a lot of zeroes.
Malin: It's a lot of zeros.
Hill: This is an interesting company to me because they had this great quarter, and this actually takes a backseat to the other headline from Comcast, which is that Comcast has made a $31 billion bid -- I think I have that number right -- for Sky, the U.K.-based broadcaster. As a result of that bid, Sky has withdrawn its recommendation of a takeover bid from 21st Century Fox. So, interesting to see the chess moves that Comcast is making, because Disney had made the bid for Fox's movie studio assets, and Comcast had made a competing bid for that. But, it seems like once we got the details on that bid, it really didn't seem as compelling as Disney's. What do you make of this move to take over Sky?
Malin: I think it's interesting. I've talked with Mike Olsen a lot, who follows Comcast pretty closely here. We've both been confused by this. I think that's a talented management team, and I think they're playing three steps ahead. But I do, a little bit, question the move, especially at that price.
Hill: So, it's not so much the move, it's the price. Or, is it both? Is it the move and the price tag?
Malin: It's both. I think Comcast is a little bit of a misunderstood business. I think people like to think that its fate is ultimately tied up with the media broadcasting. But, in my head, I think it's a little bit more of a utility company. Their advantage is really that they own that final mile stuff of the internet transmission, think, like, pipes, for lack of a better term, cable and fiber, the fastest networks, things like that. So, as long as people continue to increase consumption of data, which they have been historically, I don't think Comcast's business is necessarily at risk, and I think it's sort of tangential to what I think their future opportunities are.
Hill: It's interesting, because you go back a few years, you mentioned Comcast to the average person, and you were probably going to get a negative response because for a good stretch of time, it had one of the worst customer service ratings of any consumer-facing business.
Malin: It's the ultimate sign of utility and/or monopoly, when you can have terrible ratings and continue to be so prominent.
Hill: Yes, so prominent and a good stock. Like, for all the hating on Comcast from a customer standpoint, that was a stock that continued to do well for shareholders. But, they started to make these moves to compete more with the Walt Disney Company in terms of, not just broadening their broadcast and cable offerings, but also studios as well and theme parks and that sort of thing. And I have to say, they were more successful in that endeavor than I thought they were going to be.
Malin: I think that goes back to that being a very talented management team. I acknowledge that they are thinking three steps ahead. I can't tell what the steps in between are, but I acknowledge that it's probably something strategic. And like you said, they have done a really good job with what they've attempted to do so far, so I have to give them credit for that.
Hill: I'm just thinking out loud here, but maybe they are looking, in part, at what Costco did with their dividend and thinking, "We have the money, and we don't want to do that. The attempt to outbid Disney, that didn't work, so we have to throw money at something. If we have to pay more than we want to, maybe it's still worth it."
Malin: I think, also, a demand for programming isn't going away, it's just the medium in which it's being consumed. NBCUniversal has the scale, the resources and the brand to deliver. So, I can see why expanding that sort of section of the business could be opportunistic.
Hill: I don't know why, but it always makes me smile any time I'm watching CNBC and they are talking about Comcast. And of course, they have to give the disclosure, "This is our parent company." And to their credit, they're not fawning, necessarily, over Comcast as a business just because it happens to be the parent company.
Hill: Abi Malin, thanks for being here!
Malin: Thanks for having me!
Hill: I'll let you get back to work. 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 stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow!