More than 83 million Americans were born between 1982 and 2000. This generation will make up 75% of the workforce by 2025 and dominate consumer spending for years to come. That's why it's critical for investors to understand their habits.
In this weeks episode of Industry Focus: Technology, host Dylan Lewis and fool.com contributor Brian Feroldi discuss why Match Group (MTCH), Upwork (UPWK -3.76%), and Eventbrite (EB 2.24%) are perfectly positioned to ride the millennial wave.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
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This video was recorded on April 26, 2019.
Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Friday, April 26, and we're talking millennials. I'm your host, Dylan Lewis, and I've got fool.com's Brian Feroldi with me in the studio. Brian, what's going on?
Brian Feroldi: Hey, Dylan! What's going on? I'm feeling the pressure here. I got the lights on. I can actually see the person that's recording in the studio. I'm talking to you face to face. This is intense!
Lewis: There is some extra pressure today because it's not just Austin behind the glass watching us. We have some extra attendees in the studio.
Feroldi: Yeah, we are on family break. It's April vacation for us up in Rhode Island. So I brought the family down with us. They're in the studio. They're going to come on later. We're here on April break, and we're of course going to come visit The Fool in D.C.
Lewis: Yeah, this is one of those moments where you need to prove to your children that you have a job.
Feroldi: [laughs] Correct, yes! I don't just sit at home and stare at a computer all day. There actually is a company behind the website.
Lewis: I swear, kids, dad has a real job! We are talking millennials today. Actually, you being remote is a perfect example of one of the things that we're going to be talking about. But really, what we want to do with this show is give a breakdown of what people might want to expect with the millennial generation becoming a larger part of the workforce in the United States, a couple of different ways to play it in terms of stocks. I'm thinking about this the same way that Jason Moser has his war on cash.
Feroldi: Yeah, totally. Millennials are an incredibly important generation. Their purchasing power is going up. They have certain preferences that are different from other generations. So getting to know them, getting to understand them, is critical for investors.
Lewis: Yeah. And you know what? We're both millennials, too.
Feroldi: Yeah. I just barely qualify, but I am a millennial, technically.
Lewis: You qualify. And for the purposes of the show, we're going to generally define it as people that are between 22 and roughly 37. We both fall in that range, Brian. We can enjoy that.
Feroldi: We're on different spectrums of the range, but, correct. We are both millennials.
Lewis: I think that gives us good perspective for the conversation. Some of the main stuff that you'll hear when people are talking about millennials, and some of this stuff that gets most of the headlines, is that you have this mentality of experiences are far more important than items. A little bit less consumer-oriented in what they're using to spend their discretionary income on. A little bit more experiential.
Feroldi: Yeah, totally. Millennials were graduating college and coming of age in the middle of the 2008 crisis. So their experience and their economic opportunities are just vastly different than a lot of other generations. And you see that in the numbers that are coming out. To pile on top of that, there's also this massive, trillions of dollars of student loan debt that the millennials as a group are saddled with. So they are facing some unique economic experiences that other generations are not.
Lewis: Yeah, that student loan debt comes with them being the most educated of recent generations, at least in U.S. history. A higher portion of that group has a bachelor's degree than any other of the previous generations. But, that education has not necessarily meant higher wages. So, what we've seen is a lot of very deliberate spending on behalf of millennials. Most of it is going toward things they really care about, either experiences they want or brands that they're very aligned with. You see that there's much more of a focus on, what's this company's impact, if I'm going to be giving them my money? There's more of a sense of voting with dollars there.
Feroldi: Yeah, totally. A lot of millennials do want to have some kind of positive social impact on the world when they are spending, with who they want to work for, with who they want to vote for. That is definitely something that companies today are going to have to keep in mind. You brought up the economics. One stat that I found really eye-opening was that the average millennial is earning about 20% less than their parents were at the same age. And at the same time, they also have this huge student loan debt hanging over their head. When you add that together, it's not surprising to me millennials get a rep of living with their parents for a long time, being the boomerang generation and having a delayed life.
Lewis: Yeah. That delayed life also comes with marriage and settling down and having kids. One of the other major tropes that you see with the millennial generation is that they are not getting serious with partners nearly as quickly. I guess I kind of fall into that group. I'm 28 and I have a very serious girlfriend, but we're delaying things for a little while. But that's certainly the reputation of this group. Because of all the financial hardship that they came of age during, I think that they're focusing a little bit more on some of those major life decisions, not necessarily just following the path because the path is there.
Feroldi: Completely! These things are obviously great to know as investors because when you understand what they're facing, the decisions they're making, you can pick and choose companies that play directly into their hand. I think we have a good list today that's going to do exactly that.
Lewis: Yes. A lot of these businesses, as you might expect, digital first. The first one that I want to talk about is Match Group. Most people that are out there in the millennial dating scene are very familiar with this one.
Feroldi: Yeah, this is a leading provider of online dating apps and products. They have more than 40 in their portfolio. Their crown jewel is, of course, Tinder, but they also have Match, OkCupid, and dozens of smaller brands. The big benefit for this company is, the network effect is super critical here. If you're dating, you naturally want to be on the site that has the most participants that can fit your specific needs and preferences. Being the top dog is a big deal here, and Match Group is definitely the top dog.
Lewis: The pre-digital parallel, there would be, you wouldn't go to a bar that no one else was at if you were looking to meet people. With all these platforms that they have, they have a critical mass, a lot of people, in all of these various geographies that are looking to meet other people. That really strengthens the offering. It brings more people to the platform. They've been immensely successful in either growing or acquiring all these businesses that fall into the dating space.
Feroldi: Yeah, completely. I think you brought up a good word there, which is acquiring. This is a company that is very acquisitive. If they see a niche coming up, they're very happy to go up there and make an offer, because again, they want to be the biggest. They want to have the most. They clearly do. When you look at their results, the numbers have been just great out of this company for a long time. This stock has actually smashed the market since it came public. More recently, they're reporting revenue growth above 20%. They're nicely profitable. This is a company that is really working out for investors.
Lewis: Yeah. I think there was a hiccup there at one point where Facebook had said, "We might get into this dating thing, there might be something interesting going on there." And the market took a deep breath, wondering what was going to happen with Match. They have since rallied, and I think a lot of the concerns broadly with Facebook having access to people's data, and maybe not being so judicious in their privacy efforts, have maybe made all of these designed dating apps that are all under one specific umbrella much more appealing. I think the market has looked at all that and said, "You know what, it doesn't seem like Facebook is as much of a competitor as maybe we thought they were."
Feroldi: I mean, the key takeaway for me is, don't bet against Tinder. Right?
Lewis: [laughs] Yeah.
Feroldi: There's something special about that platform that millennials just love. Even though this company is big, is the top dog, there's reason to believe that there's still ample room for this company to grow. I think 50% of millennials currently do not use any sort of online dating product. I don't know about you, I've been to numerous weddings among friends. How did the couple meet? Online dating. It's becoming totally socially normal for couples to get together on dating platforms.
When you look internationally, the numbers are even more stark. I think it's 75% of international millennials have not used a dating product. So even though this company has come a long way, there's still plenty of opportunity here.
Lewis: Yeah, that's certainly been my experience. In my pre-girlfriend D.C. days, where I was single, getting to know the city a little bit, I found that they were a really great way to meet people, either as friends, or for dates and stuff like that. I think a lot of people share that experience. I, too, have been at weddings where Tinder was the linchpin. That's what caused the relationship. I think that the stigma of online dating has really gone away. People are really leaning into it, because they realize, if I'm new to a city and I don't know anyone, it's a great way to get to know folks.
Feroldi: Completely! Not only that, but you can, of course, match up by a whole bunch of preferences that you can't necessarily get when you're randomly bumping into strangers that you hope to marry one day. I completely get the appeal of this company.
Lewis: All right, Brian, our stock No. 2 is a slightly different tailwind. Also digital, but we're looking a little bit more at the workspace here. This is one that you and I know quite well -- Upwork. We've talked about it before on the show. We've also both used this company before.
Feroldi: Yeah. Upwork, for those that don't know, is the online matchmaker of freelancers. Companies go there if they want to hire somebody for a specific gig or a specific job. Individuals that have skills to sell can go there and find work. This is another market where network effect is critical. Being the top dog, having the most employers and employees to connect together, is critical. They have acquired their way to become the top dog in the space.
Lewis: You hear very often that the millennial generation is the digital native generation. You have people that grew up online and really lean into that with their work. I think that this is a company that really benefits from that. There's so much work out there, especially in the creative fields, but even in the work that we do for fool.com, where you don't necessarily need to be sharing an office with someone to get something done. If you're submitting articles, if you're doing video production work, what have you, there are a lot of ways where that can be done remotely. Increasingly, companies are catching onto the fact that they can get people for distinct periods to work on projects, and it's better to have that arrangement. This is a company that really benefits from that.
Feroldi: Yeah. You see it's positive for both sides. For employers, if they have one specific job and they want to hire one specific skill and don't necessarily want to take on a full-time employee to have that, this is a great site to go to, to get just that one specific task done. Upwork has thousands of skills that they can go out there and promote and sell, which is huge. And then for employees, well, a lot of people can do this whenever they want. They can choose when they want to work, they can do it on the side. This is one of the best plays that I see out there for the rise of the gig economy.
Lewis: The gig economy has gotten so many headlines over the last couple of years, often associated with Lyft and with Uber, Airbnb as well. I think this is one that maybe people don't realize quite as much plays into that. Some people are doing this for their full-time jobs because they work in the creative fields and they can do that. It's very easy now to arbitrage the cost of living. You can charge roughly what you would to live in a major urban area for your work, but live somewhere totally different, and be able to enjoy quite a bit of difference there.
With this business, I love the fact that they're able to do the matchmaking. I've used it firsthand and seen, in looking for some video production work for The Fool, we found some super qualified people. We were able to augment some of our multimedia work. It was seamless. They were able to hook us up with great qualified folks, and it didn't really cost us much to make it happen. They were happy to be the matchmaker. That's a pretty good business model, too. They're doing I think 20% year over year revenue growth. One of their early earnings reports were a little disappointing, but broad strokes, I like where this company's going because it seems like so many macro trends are pushing it along.
Feroldi: Yeah, completely. The nice thing here is, if you are a believer in the gig economy rising and millennials picking and choosing when they want to work, where they want to work, this company plays right into that hand. The potential market here is just massive. The global payout for freelancers was $560 billion. Upwork's revenue, by contrast, is just a tiny portion of that. This company has had a tremendous growth runway ahead of it, if it can remain the top dog.
Lewis: And they have what I think is hard to quantify, but super important when you're looking at a platform or a software-as-a-service company. That's that they are the de facto name in that space. I don't know of anyone else that has the standing that they do in this community. That's a testament to the network effect. That's the first place that freelancers are going to go. It's the first place that employers are going to go. You can't underestimate that strength.
Feroldi: Yeah, completely. Speaking to the stock, this is a company that came public and had a lot going for it, and so far has not been a great performer out of the gate, which to me is a great showcase of, even if everything looks good on paper, you still want to give the company some time to make the shift to a public mentality. It's so different from the private markets. I think Upwork is down quite a bit from its IPO. But the company itself still looks good, still growing. It's just that it hasn't worked out yet for investors.
Lewis: A testament to why you need to nibble on the first 12 months when a company has gone public. All right, Brian, we have talked about how millennials date. We've talked about how millennials work. Why don't we talk about where millennials are spending their money? We queued up experiences earlier. Our last business for this basket is a company that capitalizes on that.
Feroldi: Yeah. This is another company that me and you have talked in detail before. It's Eventbrite. Eventbrite is a leader in middle-market entertainment. They like to say that basically, they do any type of gathering, they help to organize it, that's bigger than a birthday party but smaller than Beyoncé. Anything that's in the middle market there. The very high end, the U2s, the Beyoncés, the and Jay Zs of the world, that market is completely dominated by another company called Live Nation, which could be another good company to play on millennials. But Eventbrite is a very interesting niche one that's in the middle. People that are content creators who want to put on shows can go to Eventbrite's platform. They can get the thing up and running. They can charge tickets for it. They promote the event, they can process payments, they can even do analytics to help get the word out about that. 700,000 creators are currently on the platform, and they sold 200 million tickets at three million live events last year. This is a big company.
Lewis: Yeah. We think of Live Nation specifically in the concert space. I think why Eventbrite is interesting to me is that they have some concert businesses, but they really have a lot of other stuff out there, whether it's tours, special events, wine tastings, craft brewery tastings, that kind of stuff. There's a lot out there that currently isn't being captured by the giants. That creates a nice little space for them to work in.
Feroldi: Yeah, totally. What we've seen thus far is pretty good results out of the company. Again, newly public, but their most recent quarter, they reported 21% revenue growth. This is a company that hasn't, again, performed well for investors out of the IPO gate, because the guidance they gave in the last quarter was much lower than expected. They're saying that they're having a lot of trouble integrating a company that they bought prior to their IPO called Ticketfly, which is a company I know you're pretty familiar with.
Lewis: Yes. As a former Pandora shareholder, I was enthused when they bought Ticketfly, thinking, this is a company that capitalizes on that mid-market in the same way. You go out in D.C., so many of the mid-tier venues use Ticketfly. I thought that was a no-brainer acquisition for Pandora. They weren't able to make that work. I believe they actually went up selling that stake for slightly less than they paid for it over to Eventbrite. It seems like a no-brainer business. If you are simply connecting people with a valuable platform and selling a digital product, that's pretty high margin. At a certain point, I assume the numbers will work, especially because Eventbrite, like Upwork, is one of the big players in the space. They benefit from that name recognition.
Feroldi: Yeah, totally. If you believe the company's market opportunity here, they essentially think they can grow 10X just within their current markets, just through organic growth and getting the Ticketfly acquisition working. There's still a lot for investors to look forward to here and like about this business for the long term.
Lewis: If you want a proof in concept, look at Live Nation. It's been a very successful company. I know Nick Sciple, host of the Energy show, is a huge fan of Live Nation. Where else are you going to go? If you want to go to an event and there's only one way to get the tickets, you have to pay them. As consumers, we might not love that. As investors, it's a pretty good business opportunity.
Feroldi: Yeah. I think that both Live Nation and Eventbrite are great ways to play the rise of spending on experiences over things. These products definitely appeal to millennials that want in on some special experience. Both of those companies are totally great stocks for investors to look at.
Lewis: Brian, when you pitched me that we would do a millennial stocks show, you had a lot of names in mind. We're only touching on three. I think what we'll do is break this conversation up and touch on it again down the road. Listeners, be ready for that!
But we're not just going to stop at millennials here. We're going to go one step further as we wrap this show up. We're going to touch on Gen Z. We have some Gen Zers here in the studio with us.
Feroldi: Yeah, we got some experts. Let's bring them in and hear what they have to say!
All right, Brian, we are joined in the studio by some special guests. I want to let them introduce themselves. Guys?
Lindsey Feroldi: My name's Lindsey Feroldi.
Madeline Feroldi: My name's Madeline Feroldi.
Tyler Feroldi: My name's Tyler Feroldi.
Lewis: And you are the children of Brian Feroldi, yes?
M. Feroldi: Yes.
Lewis: What do you guys think that your dad does all day?
M. Feroldi: Work?
T. Feroldi: Write at his computer and post it?
Lewis: Yeah. Do you guys ever read the stuff that your dad does, or see the videos that he does?
T. Feroldi: No.
L. Feroldi: No.
M. Feroldi: No.
Lewis: No? [laughs] Aww, Brian!
B. Feroldi: I know, right?
Lewis: Well, I know that your dad has gotten you interested in stocks and investing. Tyler in particular. Do you want to talk about some of the stocks that you own, Tyler?
T. Feroldi: Yeah. The stocks I own are Tesla, Nike, Disney, EA, Activision and Citrix.
Lewis: I look at that list, and I think there are a lot of companies that play pretty well on your generation, Gen Z, the people that are younger than me and your dad. I think a lot of those video game stocks, Brian, major tailwinds with Gen Z.
B. Feroldi: Yeah, totally. I mean, Tyler is an expert at video games. Ty, what is your favorite video game stock right now?
T. Feroldi: Tencent because of Fortnite and Clash of Clans.
B. Feroldi: Tencent, the largest owner of Epic Games, which makes Fortnite, and they make Clash of Clans, which is another game you really like.
Lewis: Yeah, that's the way things are going, Brian. We were talking about it before the show. Entertainment has changed a little bit.
B. Feroldi: Completely. I mean, Tyler, what's your favorite thing to watch on YouTube?
T. Feroldi: Fortnite videos.
B. Feroldi: Fortnite videos. This is other people playing Fortnite, and you like to watch the videos to get, what? Tips and tricks on how they do it and stuff? And watch them play, right?
T. Feroldi: Yes.
B. Feroldi: Yeah. So, there you go! That is what the generation is doing with their time.
Lewis: I don't know if your experience was different growing up, Brian, but when I was growing up and I was playing Xbox or PS2 at my friend's house, watching my friend play was the worst part.
B. Feroldi: [laughs] Completely!
Lewis: [laughs] I have a cousin who has kids that are about your age, all you guys. It's the same thing, they love watching the video game walkthroughs. If they can't play the video games, they want to watch someone else play the video games. It's hard for me to wrap my head around.
B. Feroldi: At the same time, your friend or your cousin that you were waiting for, not a professional video game player, was he?
Lewis: No. [laughs]
B. Feroldi: So, it is a different level, what they're talking about.
Lewis: It's a different level.
B. Feroldi: The draw is there. He is certainly not alone. Do a lot of your friends do the same thing?
T. Feroldi: Yeah, they just play Fortnite a lot.
B. Feroldi: They watch videos of people playing Fortnite. There you go! So, Google, the owner of YouTube, and Amazon, the owner of Twitch. Two other great millennial stocks.
Lewis: It's hard to go wrong with those companies. Thank you for the insights on Gen Z, Tyler! Thank you for hopping on today's show, Brian!
B. Feroldi: Yeah, awesome to be here! Always fun to be in the studio!
Lewis: All right, listeners, that does it for this episode of Industry Focus! If you have any questions or you want to reach out and say hey, you can shoot us an email over at [email protected], or you can tweet us @MFIndustryFocus. If you want more of our stuff, subscribe on iTunes or check out the videos from this podcast over on YouTube. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for all his work behind the glass! For B. Feroldi, I'm Dylan Lewis.
Lewis and the Feroldis: Thanks for listening and Fool on!