Investors Like Twitter's Report

In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Maria Gallagher to talk about Twitter's (TWTR) shares rising after a strong end to the fiscal year. Lyft's (LYFT -1.41%) fourth-quarter loss is smaller than expected, which sends the stock higher. Maria analyzes those stories, as well as Under Armour's (UA -2.42%) (UAA -2.47%) surprising holiday quarter and the challenge ahead for CEO Patrik Frisk.

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This video was recorded on February 10, 2021.

Chris Hill: It's Wednesday, February 10th. Welcome to MarketFoolery, I'm Chris Hill. With me today, Maria Gallagher in the house. Good to see you.

Maria Gallagher: Nice to see you too.

Hill: Cue the Everything is Awesome song from The Lego Movie, because we've got three stocks that are headed higher today and we're going to start with Twitter. Shares of Twitter are up 8%. Fourth-quarter revenue was higher than expected. We can get into sort of guidance and where this company is going in 2021 and beyond, but what did you think of the fourth-quarter, what stood out to you?

Gallagher: It was a really impressive fourth-quarter. I'm sorry as always, there's some background noise. It's like the world knows when I'm recording something to be loud behind me. So I'm sorry about that, but I was impressed.

Hill: In a small town like New York City, that's surprising, that they'd deduct some noise.

Gallagher: I know. The sirens are always right next to my window, but the fourth-quarter was really impressive. Their revenue was $1.3 billion, up 27%. It was actually their highest ever in a quarter, there was this broad-based recovery in advertising revenue. Their U.S. revenue was up 24%. Their international revenue was up 34%. Their Japan, which is actually the second largest market, their revenue was up 26% to now 14% of total revenue. That all reminded the investors of Twitter how global this platform is. Jack Dorsey made a pointed statement without naming any names, saying the platform is much larger than any one topic or any one account. 80% of the audience is outside of the U.S.. There are many accounts with over 25 million followers. The shrink in this quarter, I think just reiterated to followers on Twitter and people who are investors, that it's such a global platform and that it has a lot of room to grow and it's going to keep growing hopefully.

Hill: In terms of the stock performance, it's up today. It's up over the past year, about 80%. You and I were chatting earlier today, and when we were talking about Twitter one of the things I said about, Twitter just seems like one of those companies that can't get on a hot streak. They really can't string together three or four or more really great, strong quarterly reports in a row. The performance over the past year goes against what I just said, but how optimistic do you think shareholders should be about 2021?

Gallagher: I think that Twitter is really interesting because we have seen a return with advertisers. You see that advertisers are choosing to spend money on e-commerce, on social platforms, that's where they're going to get the best return on their advertising dollars. I think that we haven't really figured out where Twitter is and how effective it is for advertisers and what users. It's clear when you're on Instagram, you could be shopping for clothes, when you're on Pinterest, you could be shopping for home decor. I think it's hard for people to make a clear connection between people who are scrolling through politics, Twitter, to know what are you now buying? For an advertiser, what is the benefit of being on this specific platform versus many other platforms? I think that's what we need to keep looking for an understanding for when it comes to Twitter as why do advertisers need to go to that platform?

Hill: It's also a situation where part of what drives engagement on Twitter is live events. There's just for all the obvious reasons, those have been cut back. It certainly would be great for Twitter's business, not to say a number of other businesses, if the 2021 Olympics was able to be pulled off later this year.

Gallagher: Yeah. They did announce that they have a global video content deal with NBCUniversal, so that's going to provide people with premium content as more and more things start to roll out still. People say, "You're watching the Golden Globes. You're watching the Super Bowl. You spend some of your time watching it and then the rest of your time on Twitter, seeing what other people are saying about it." So I think that you're right that as more and more events cause people to go to that platform more, those could be really interesting monetization ideas for advertisers at that moment in time.

Hill: Lyft lost money in the fourth-quarter, but not as much money as Wall Street was fearing. It coupled up with the fact that Lyft's revenue was higher than expected and boom shares of Lyft up 5% and hitting a new 52-week high.

Gallagher: Yeah, so Lyft the quarter-fourth their revenue was down about 44% to $569.9 million, but that is a sequential increase, so it's up 14% from the third-quarter this year and then for their full year there was a revenue of $2.4 billion down, 35% year-over-year. Something that you could see that's pretty interesting with Lyft is one, they did better than they said, they came out in December saying we think we're going to be at the lower end of our guidance. They ended up being at the high end of their guidance. Also, you could see that they are because they have lots of operational efficiencies throughout the quarter, you could see that as restrictions for getting tighter, again, they could cut costs. They have a nimble ability to work within the constraints. They were able to reduce operating expenses, adjust cash flows. I also think it's pretty interesting to see that the revenue per active rider actually increased even as the number of active riders decreased about 45%. So people, they are not sharing rides anymore. They might be taking rides for longer periods of time than they used to, if they were taking the train or public transit, they now feel safer in a Lyft. I think both of those things showing that they can be a little bit more nimble than you would anticipate, and people are still utilizing them, and that they think there's going to be that pent-up demand going into the summer months, hopefully, all combined led to a positive reaction to their quarter.

Hill: All the news recently when it comes to this industry has been around food delivery. In part because of Uber's acquisition of Drizly, the alcoholic delivery service for just north of $1 billion. I have no dog in this fight. I have no shares, [laughs] that I have bought in this industry. I'm fascinated to see how this plays out. Because lift is clearly going the route of we're going to get people from point A to point B and we're not interested in the food delivery.

Gallagher: Yeah, they haven't talked at all about food delivery. I think what's really interesting is they've mentioned a lot in their conference call, the belief that the future of transportation is a service and they talked a lot about autonomous vehicles. They have plans to deploy fully autonomous vehicles on the network in multiple cities in 2023. They think that's happening sooner than I would think that was happening. I wouldn't say 2023 with an idea that I would be getting into an autonomous list. But I think that's really what they're focusing their efforts on. They have their skilled areas, they have the bikes, they have the cars, and they're focusing things. We're doing one thing and we're going to do it better than anybody else and hopefully cheaper for the user and Matt will lead to those economies of scale we want them to see.

Hill: If Wall Street was surprised by Lyft not losing as much money, it was really surprised by Under Armour reporting a profit in the fourth quarter and revenue also came higher-than-expected shares of Under Armour up around 8%, 10% today.

Gallagher: Yeah. I think now is a good time to look back at the past year for Under Armour. But since Patrik first joined as CEO, January 1st, 2020, he's really tried to streamline operational efficiency. He sold My Fitness Pal. He reduced some unnecessarily expensive sponsorships. He talked about Under Armour becoming a purpose-led company instead of a product-led company, he wants them to become a premium brand again. So I do think that he deserves credit for really putting his all into making Under Armour a turnaround story. I'm not necessarily certain that that's what's going to happen, but I do think he deserves credit for trying. Last quarter, you saw revenue down 3% to $1.4 billion. That wholesale revenue was down 12%, but their direct-to-consumer revenue was up 11% with 25% growth in e-commerce and that's the trend we are going to keep seeing. They're focusing more on coming direct-to-consumer being more of a premium brand.

Stepping back a little bit from being in every T.J. Maxx [TJX Companies Inc] or every type of wholesale retailer. So they are really trying to streamline that and look at that in the most effective way as possible. Then for the full-year of 2020, their revenue was down 15% to $4.5 billion. They still made $4.5 billion in 2020. I think [laughs] they deserve some credit for that. The last thing is that they did sell My Fitness Pal, they ended connected revenue, that segment of their revenue. So they did sell it at a loss, which is unfortunate they sold it to Francisco Partners for less than they bought it in 2015. But I do think Patrik first deserves some kudos for what he's done in the past year.

Hill: I look at the increase in e-commerce sales. That was up 25% and it's nice talking about wrong. It's nice to see that. It's hard to get overly excited about that when over the past six, 10 months, we've seen other retailers coming up with triple-digit increases in e-commerce sales. But look, you've got to crawl before you can walk. It's nice to see at least that's happening. Patrik Frisk really has a tough task ahead of him. From time-to-time, I will do interviews with our affiliate radio stations. About a month ago, I was doing an interview and the host asked me, we're sort of a 2021 preview and he asked me who do you think are a couple of CEOs that are on the hot-seat this year. One of the ones I mentioned was Patrik Frisk and I said, this may seem a little unfair because he's only been CEO for a year. But I feel like if he's not on the hot seat, he's certainly under the microscope. All kidding aside, this is the kind of quarter that you look at the enormity of the capacity that he hasn't turned around this business, which has a good brand, Under Armour makes good products and it's like, "All right, this is a good start to the year." Now I'm even more excited to say, great, what more progress can they make over the next three, six months?

Gallagher: Yeah. He has a hard task ahead of him. He's done a good job the past year, but going from a brand is associated a lot of times with sales and if you're going to T.J. Maxx, you can pick up something from our Under Armour on sale to try and to pivot and say, "No, we want to be a premium brand." I think that is a pretty monumental task, but here he's undertaking in the next year or two. I'm interested to see what he does and how he plans to be most effective in that route and see where they go moving forward.

Hill: It's going to be a really tough decision. If you think about the past 10 years, put Under Armour side, think about some of the brands in the fashion apparel space that have essentially been unable to resist the law of discounting. That's like, well, we can go wholesale, we can get access to all of these changes or outlet malls and that sort of thing. It's a compelling argument and I understand why really good to great, really premium to luxury brands would be tempted by that. It's to the point you're making. It seems like it's the thing that if you go that route and it doesn't work out, you can unwind that and clearly Under Armour is trying to do that. But it's going to take some time, right?

Gallagher: I think so. I wonder if they're going to ever be synonymous with Lululemon the way they are with Nike.

Hill: Do you think that that's what they're trying to do? Because I hope not. [laughs] As a shareholder, I'm like, "Oh, please don't."

Gallagher: If they're trying to become a luxury brand.

Hill: What's that?

Gallagher: If they're trying to become a luxury fitness brand, that's the first one I would think of, if you say, "What's a high-end fitness brand?" I would say Lululemon.

Hill: I agree with that. I hope that Under Armour is not trying to position themselves as a luxury brand. I would hope that they would instead look at what Nike has done very successfully [laughs] for decades and say, we think we're going to try and go that route.

Gallagher: Hopefully.

Hill: Maria Gallagher, always great talking to you. Thanks for being here.

Gallagher: Thanks so much for having me.

Hill: As always, people on the program may have interest 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 MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you tomorrow.