Twitter's Comeback Is Just Getting Started

In this episode of MarketFoolery, host Mac Greer and analysts Jason Moser and Taylor Muckerman take a look at some of the biggest questions buzzing around the market today.

• Is Twitter's (TWTR) success for real? And does President Trump significantly impact its popularity?
• Will Facebook's (META -0.52%) privacy concerns eventually catch up to its stock? And with fewer young users joining the ranks, what does the future hold for the slowly aging social media juggernaut?
• How worried should Match Group (MTCH) be about Facebook's entry into online dating?
• Which megacap company is best positioned for growth in the next five years?

Tune in to hear their answers to these questions and more.

A full transcript follows the video.

This video was recorded on June 11, 2018. 

Mac Greer: It's Monday, June 11th. Welcome to Market Foolery! I'm Mac Greer, and joining me in studio, we have Motley Fool analysts Taylor Muckerman and Jason Moser. Gentleman, welcome!

Jason Moser: Hey-o!

Taylor Muckerman: Happy to have you!

Greer: It's good to be here. How are you feeling?

Muckerman: Excellent!

Greer: Good. I'm looking at you, Taylor, and you have a real beard, and I have this ... I just feel like a pretender right now.

Muckerman: I don't know, man, it's pretty strong.

Greer: No, it's not. It's not. You're nice to say that.

Muckerman: I feel like you could grab that with your fingers pretty well, I don't know.

Moser: Well, I have a cleanly shaven face. Well, I guess, I shaved yesterday, I didn't shave this morning. But, the Harry's razors -- the very Harry's razors that we advertise -- I'll tell you, that's the greatest thing ever. You can just set it and forget it. I'll never not be a Harry's member again, I don't think.

Muckerman: One of our first advertisers.

Greer: I love it. And nothing makes for great audio like discussing beards.

Moser: You put it in the mind's eye, right?

Muckerman: You could shave into the microphone.

Greer: We're all very handsome, that's all you need to know. Guys, let's do something a little different. It's a Monday. We were looking at the day's business news, and nothing really jumped at us, nothing really grabbed us. So, I want to kick around some questions. It's a bit like a listener email, but in this case, the mail is coming from me, the questions are coming from me, or, in some cases, we cooked up a few questions here. I want to get right to it.

I want to begin, Jason, with one of your favorite companies. It's one of my favorite services, but not necessarily my favorite company: Twitter. Twitter has been on quite the roll lately in terms of the stock. My question for you, is Twitter's recent success for real?

Moser: The short answer is yes, I think it is. For a long time, Twitter was a favorite service of mine, and the business was leaving me a little bit disenchanted. But recently, we've seen Twitter turn a corner. I think that's primarily due to management, I think it was primarily due to Jack Dorsey stepping back in to that CEO role. It was unfortunate that, when he stepped in, a lot of people expected changes immediately. You can't change something like that overnight. There were a lot of problems the company had, from lack of a vision, lack of leadership, really no forward thinking in the business model, the financials were a mess in regard to stock-based compensation. So, he had a lot of stuff that he had to fix.

But, hats off to him, because I think he's done that. He's done a really good job. We're seeing a lot of changes to the platform now that are creating a lot of engagement. I think they've done a very good job in shifting the discussion from monthly users to daily users. And I think, for a platform like Twitter, that's what matters more, because it's focused on what's going on in the world now. On the day-to-day basis, that changes. So, when you're stoking that daily engagement, that gives you a lot more to work with.

Greer: You mentioned the business. How do they make money, and how do they make more money than that?

Moser: They're making money via advertising primarily. This is an advertising play. And I don't know that that changes really any time in the near future. But, I think what they did to make themselves a more credible advertising play was pivot more toward video. Whether it's short-form content or even live streaming something like Bonnaroo, like they did over this past weekend, they're figuring out ways to get lots of different eyeballs onto the platform for any period of time. It's not like you're going to go sit there and look at Twitter for an hour. But, if you have five minutes to spare, you're on the train or something, it creates engagement, which is ultimately what they're going for. 

We're seeing a lot of data out there via channel checks within the industry, and I'll call out Empirical Capital here as one firm that has seen this shift, it's indicating that brands and agencies are looking to diversify, spending away from the bigs in Facebook and Alphabet and more toward other options, and Twitter is now being seen as a more viable option. That's where we're looking for the money to come from here in the coming years, is advertising, growing out that video offering. So far, is seems like they're doing some pretty good stuff.

Muckerman: I think in the last quarter, it was a little over 50% of ad revenue coming from video, over a thousand live-streamed events. You're talking about a new deal with Disney, covering a host of their platforms, MLB, a weekly game there, MLS, they have a three-year agreement with them. So, sports, music, news with Bloomberg, and entertainment with Disney. A lot of big-name partners there.

Moser: The World Cup, I think, is going to be a big opportunity because that's such a global event, and that'll be another way to garner a lot of eyeballs all over the world. And, Mac, I'd be remiss to not mention the fact that I called out Twitter as my top stop in InvestorPlace's Top Stock of 2018 contest.

Greer: You did.

Moser: I mean, I'm not trying to toot my own horn.

Greer: How has that worked out?

Moser: I don't want to jinx it, but right now, Twitter shares are up 71% for the year. I am in a firm and controlling 11% lead over the second-placeholder there. So, hey, I send my thanks to management. Guys, just keep doing what you're doing. Let's ring this thing home.

Greer: OK, should you also send your thanks to President Trump, who I think is one of the higher-profile Twitter users? There's a serious question here. Overall, is it just me, or has Trump been good for the business of Twitter?

Moser: I think that, regardless of Trump --

Greer: That's a dodge.

Moser: -- that the world net wins from Twitter. But, I do think he creates more engagement.

Greer: Makes it more relevant, right?

Moser: He does. When he is out of office, I don't think that changes the value proposition there. I hate political Twitter, to be honest with you. I'm much more of a finance Twitter and sports Twitter kind of guy. But I think that just goes to show the opportunities that the company has in all of these different verticals. Whether it's entertainment or finance or politics, Twitter has a place in all of it. It's not going to be beholden to one specific celebrity or politician. Kind of like Snap, we've seen recently, with Snapchat's fumbles, they're a bit more beholden to those celebrities at this point. That's not to say they will be forever. But, Twitter, I think, is beyond that at this point.

Muckerman: Interestingly enough, the court said that Trump can't block anybody on Twitter, since he's such a high-profile public figure. 

Moser: Yeah. As a public dissemination service, I get that. I can block anybody I want, but I'm not tweeting out public policy. [laughs] You know?

Greer: Nor am I. Our second big question, let's stay on the subject of social media. This time, let's talk Facebook. Facebook, of course, over the last few months, over the past year or so, a number of privacy issues cropping up, a number of concerns. The question is, will Facebook's privacy issues catch up with the stock performance? Because the stock, over the last year, has still been a great stock, the stock is up.

Muckerman: Personally, for me, it's impacted my usage of Facebook. I've basically been off of it for the last six to 12 months almost entirely now. Maybe I'm an outlier. But, I think, certainly, this could certainly start to catch up, especially with some of their new initiatives. Interesting they launched their dating service right after all these privacy breaches.

Moser: [laughs] Because everybody wants those two worlds to collide, right?

Greer: What could possibly go wrong!

Muckerman: They say they're walled off, but they've said that about other things, too, and you come to find out that your data is being shared across services within Facebook, and even with access that they've given to special partners for your data. So, I would be wary, if I was a Facebook shareholder, that if a few more big things like that come out, that you're going to see this start to catch up to them. And maybe we see it over the next couple of quarters, when they start to release more data about the user base and see if that curtails anything there. Because, I certainly have less faith in the business, personally.

Moser: Should it suffer? Absolutely. Will it? I'm not as convinced that it will. Time will only tell. But, this is also coming from the perspective of someone who just recently deleted his entire Facebook account. I just came to the conclusion that I never use it. I don't get really anything out of it. I don't even want to have a presence there. So, I just erased it all. Not that there was that much to erase. But, whether it's Messenger or Facebook or Instagram or WhatsApp, I don't use those platforms, so for me, I think I'm probably the outlier there. It's a big world, and a lot of people use at least one of those platforms and like using it, privacy issues be damned. 

I think, ultimately, they're going to be OK, because when you have a user base that big --

Muckerman: That big, yeah.

Moser: -- it's really difficult to make a meaningful ding in that user base. Whether you're reaching one and a half billion people or two billion people, or let's just think about it from the perspective that more and more of the world is going to become more and more connected as time goes on. Facebook is going to play a role in that. 

I think it definitely hinders their ability to make meaningful acquisitions going forward, and that's probably where the growth questions come into play. But, for the foreseeable future, I think Google and Facebook really are the two bigs in the advertising space, and I don't know that these fumbles necessarily change that.

Muckerman: They're trying other things. The dating, expanding the marketplace internationally. Jobs are now a part of the Facebook platform. So, other ways to maybe get some revenue there, outside of ads. Not nearly as big, but still.

Greer: Taylor, you mentioned the dating. When Facebook announced their dating initiative plans, Match Group sold off pretty sharply. Do you think that was an overreaction?

Muckerman: Personally, yeah. They have a stranglehold on online dating with Tinder, OkCupid, Match, obviously, and a few others. I think they're pretty well ingrained in terms of the user base. Maybe Facebook attracts new users in the dating pool, but I think, if you're already on those platforms, you're pretty much there to stay.

Moser: Yeah. I felt like that was a big overreaction. I feel like so many people are using Match and its properties already. The last thing I would imagine you want to do is try to start transferring all of that data to another platform, so to speak. Speaking of new users, that's going to be the big problem here. Mac, you and I have kids that are around the same age, and I don't know about you, but neither of my girls have any interest whatsoever in establishing a Facebook profile. Now, we're teaching them how to use Instagram -- or, my wife is teaching them, I don't know how to use it, but I can't imagine it's much different than any of the others. But, I think it's just a matter of, as far as new users, that's where the Facebook platform really comes into question. It doesn't seem like anybody younger than 20 really even cares about it.

Greer: They need to buy for Fortnite, because that appears to be the primary communications device for kids these days.

Moser: It goes back to, Mark Zuckerberg made the effort to acquire Snapchat, he made the effort to acquire Twitter, he acquired Instagram, he acquired WhatsApp. There's a reason. I think he even knows that these things have finite lives, and you have to have something else, somewhere where people are going to go next. And that's been a part of his strategy all along, trying to acquire those places where people are going next. I think that's just going to be a lot more difficult going forward.

Greer: OK, guys, let's attempt something never before attempted. Let's try to make the transition from Facebook and Match and Tinder to inside ownership.

Moser: Ooh, sexy time!

Greer: Jason, at times, you can be kind of an eat-your-spinach guy. We were kicking around topics, and I'm thinking, "Let's talk Facebook." And you're like, "You know what? I've got inside stock-buying on my mind."

Moser: I like spinach.

Muckerman: I had some this morning.

Greer: It's great, it's good. And you need spinach and kale. I mean that in all the best ways, because we need to eat a bit of spinach here. So, here's the question: what does insider buying and selling mean for investors? Because we're hearing a lot about this lately.

Moser: I have very strong feelings on this one, actually. I think that, insider selling, you'll see a lot of people make a big deal about insider selling. "Oh, my God, these insiders are selling shares, I can't believe it! That's a total bear signal if I've ever seen one!" From my perspective, it's a non-event. One of the main reasons why is because, a lot of times, insider selling is based on Rule 10b5-1.

Greer: Sorry, (unclear 12:25).

Muckerman: Huh?

Moser: It may sound like I'm going all rules of golf on you, Mac. This is a trading plan that's adopted by an insider well in advance so that they can stagger out sales programmatically, essentially, so that they don't have that opportunity to be accused of taking advantage of a situation or selling on inside information. They set these plans well in advance. In most cases, that's what's being used. Evan Williams, one of the co-founders of Twitter, who still owns a ton of shares, has been selling a lot of those shares over the past couple of years. But, if you go through and you look at those filings, most if not all of those sales are based on that very rule that I just mentioned. 

So, for me, insider selling is a non-event. I don't really care about it. Insider buying, to me, is much more compelling, because typically you're buying stock for one reason. Whether you're an insider or an outsider, you're buying it for one reason. So, I give that a little bit more sway. But when I'm looking at companies, insider ownership is an interesting data point; it's not one that I base a buy decision on, though.

Muckerman: I have to agree. You sell for any number of reasons. A lot of times, these folks, if they're founders or early investors, they have a significant amount of their wealth tied up in these companies. Maybe a life event happens, or you just want to diversify yourself a little bit. Obviously, at The Fool, we really like insider ownership. Our Partnership portfolio that we just launched in the U.S. here, concentrating on founder-led companies with high insider ownership. I like to look at that. It's one of the first things I look for. It's not the most important thing, but it's certainly something that we keep on our radar up in Stock Advisor Canada and elsewhere when examining companies.

Greer: OK, guys, final question, and this is one of my favorite questions. We're not going to ask if the first company to $1 trillion. We know that Apple is all around it.

Muckerman: Beating down the door.

Greer: Yeah, Apple is very close. What I am going to ask is, of all the large-cap companies, let's say $500 billion plus -- how many do we have in that group?

Muckerman: I think there are seven, if my screen turned up, and that includes Alibaba and Tencent overseas.

Greer: OK. Looking at those megacap companies, which company is best-positioned over the next five years for investors?

Moser: Personally, I would go with Amazon (AMZN -1.64%) because it's based on the consumer and a lot of repeat sales, and a business model that's well-diversified beyond just e-commerce. Yeah, I'd go with Amazon.

Muckerman: Same, I've been a fan of it ever since I first joined Prime, I don't know, almost ten years ago. Hard to beat it. I've never had a bad experience.

Moser: And that's not to take anything away from these other businesses. We're not talking about the first one to $1 trillion. We're talking about the best investment returns, what's the best one? You could probably argue against Apple just because it's already so big anyway. Then, you have, what, Facebook, Microsoft --

Muckerman: Alphabet, Tencent, Alibaba.

Moser: So, yeah. Throw Microsoft in there as sort of a dark horse.

Muckerman: Yeah.

Greer: Interesting. I want you, now, to argue against Amazon. There seems to be some agreement here, Amazon over the next five years. What's the biggest threat to Amazon? Maybe it's something obvious, maybe it's something that people aren't really talking about.

Muckerman: In terms of growth, I think that international expansion is going to play a big part over the next five years. So, I think, if there are some stumbling blocks there. I don't know if that necessarily hurts the business as it is today. But, if you're looking out the next five years, you want the business to be growing. I think that could be a threat to its growth prospects, if there are any stumbling blocks in Europe, I know they're trying to get into South America a little bit. They just announced that Australia can only access Australian vendors on Amazon Prime, so I'm wondering, is something going on there, maybe the shipping costs are a little too high for getting goods from the U.S. or Europe all the way to Australia for free. But, I think international expansion is a big, big opportunity, and so therefore one of the biggest threats if there's any stumbling there.

Moser: Yeah, they're making a lot of investments internationally, India in particular.

Muckerman: India too, yeah.

Moser: I think that Amazon's biggest threat right now is probably itself. What I mean by that is that, when you get really big like they are, they have 100 million Prime users, which is a lot, that's not one billion, so you're going to feel churn a little bit more than something like a Facebook if people decide to leave and go elsewhere. But, the bigger Amazon gets, and the value proposition that Prime really plays into, that two-day free shipping, if all of the sudden, people start seeing that it's taking their shipping three, four, five days, if you see more of that type of behavior, then the potential is there for people to say, "You know what? I'm not getting the same value out of Prime that I feel like I once got. I used to feel special, and now I don't feel as special anymore," because the membership's gotten so big and potentially more difficult to manage.

So, I feel like that could be the biggest challenge for them in the near-term, at least. When you start losing that value proposition -- they just raised prices on the Prime membership, which is a big deal. If you take that away, they don't have that ability to do that. And if you have Prime members leaving, their financials look a lot different. And that, to me, is going to be a big challenge. They just need to keep on the logistics side.

Muckerman: And I think they're doing that. I drove up to Philly for a wedding this weekend, and I can't even count how many Prime trucks I saw.

Moser: [laughs] I saw your Tweet.

Muckerman: It was amazing, every time I looked up from the speedometer or my rearview mirror, I felt like I was seeing a Prime truck on I-95.

Moser: I noticed that, as well. And they're leveraging a lot of that other infrastructure out there, whether it's Uber or Lyft or people looking to make a quick buck. They're figuring out ways to get those goods to your house on time. I have no complaints personally, and I have a lot of stuff shipped to our house. But it's a risk that's out there.

Muckerman: And all the drone patents they have out there, who knows what that holds in store?

Greer: Do we have any concerns that Bezos may step down at some point? The guy's a huge space enthusiast, he has more money than he needs, he has more money than anyone else has money. Do you think that's an issue at all? Or not an issue?

Muckerman: I don't know. You look at Musk, what he's doing with space and Tesla and SolarCity and all that. I think Bezos wants to be right up there with Elon Musk, with being this playboy that has ambitions to move to Mars one day. That's certainly not something that I think, unless a health setback, or maybe Blue Origin takes a huge leap forward, and then for humanity's sake, he needs to concentrate on that more. But I think that he's pretty well ingrained in Amazon.

Moser: Yeah. I think in the near-term, that's his baby. That's what he really wants to grow out. The other stuff is playtime.

Greer: Guys, I want to ask you my desert island question, but I think I know the answer. We've talked Amazon, we've talked Facebook, we've talked Twitter, we've kicked around a few different companies like Match Group. You're on a desert island over the next five years. Is it Amazon? Is it all about Amazon?

Moser: See, you think I would go with Amazon.

Greer: Oh, that's what I thought! OK!

Moser: I'm actually going to go with Twitter. I think there's more opportunity. It's amazing to me, actually, that Twitter is only a $30 billion company. When we think about this now, it's a fully profitable business, it's cash flow positive with good management, and a platform that has proven very, very difficult to disrupt. And I think it's one that the world needs. There are just too many reasons I think, today, if they keep doing what they're doing, there's a lot of opportunities still there.

Greer: So, you're going Twitter. Taylor?

Muckerman: Yeah, that's a good choice. Amazon, I'm very comfortable holding my money in there for the next five years, but it's already so big, maybe it's not the biggest growth opportunity. Certainly among the $500 billion companies, it might be. But among all companies --

Greer: All companies we've talked about.

Muckerman: Oh, that we've talked about, oh. Then, yeah, Twitter. It's a fairly big holding for me, so I would have to ride that. And I don't own Facebook or Match, so, knock those right off the consideration.

Moser: Yeah, I don't own Facebook, I never will. To me, it's the biggest hold-your-nose investment out there. It just stinks. But you can't not own it. It's too big to fail, basically. But I just don't like it, so I'm not going to buy it.

Greer: We sound like grumpy old men. [laughs] 

Moser: [laughs] Old curmudgeons! We need to get Emily in here, stat!

Muckerman: That's right.

Greer: Kids these days! OK, guys, thanks for joining me!

Muckerman: Thanks, Mac!

Moser: Thanks!

Greer: As always, people on the show 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 it for this edition of Market Foolery. The show is mixed by Austin Morgan. I'm Mac Greer. Thanks for listening! We'll see you tomorrow!