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The Jack Dorsey News Got These Investors Talking

By Chris Hill – Dec 3, 2021 at 6:50AM

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And they chew over some Amazon news, too.

Twitter (TWTR) CEO Jack Dorsey resigns as longtime CTO Parag Agrawal moves into the corner office. Amazon (AMZN -0.59%) executive Dave Clark says the "Everything Store" is about to pass UPS (UPS 0.42%) and FedEx (FDX 0.31%) as the largest delivery service in the U.S. Motley Fool analyst Jason Moser analyzes those stories and more!

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This video was recorded on Nov. 29, 2021.

Chris Hill: It's Monday, Nov. 29. Welcome to MarketFoolery. I'm Chris Hill, with me today, Jason Moser, how was your Thanksgiving?

Jason Moser: Where am I? Sorry. I was just waking up from my turkey-induced coma. [laughs]

Hill: Like many of us.

Moser: It was great. How was yours?

Hill: The same.

Moser: Yeah.

Hill: Yeah. Going to have to get back on the whole exercising thing.

Moser: No.

Hill: Because there was not a lot of that happening.

Moser: You got to give it the Fool. Don't you just wait till January? December, that's a whole holiday month, too. I don't know. I've always found it difficult to just turn it on and off like that. I just give up around the beginning of October [laughs] and then just try to reassess at the beginning of January.

Hill: Wait for the season of resolution.

Moser: Yeah.

Hill: We're going to start with the present that the news fairy dropped off this morning, which is Jack Dorsey resigning as CEO of Twitter. Parag Agrawal, who is the longtime chief technology officer of Twitter, was named to move into the corner office. Initially, this was really moving the stock. At one point early this morning, shares of Twitter were up 11%. Now they're basically flat. There are a couple of things I want to get to, but look, we're long-term investors, but let's start with the very short-term movement of the stock. Because one way to read what happened was that everyone got very excited and look, this has been [laughs] pushed by some activist investors who were pushing for change. Not happy with what has happened with Twitter stock over the last few years. Initially, you could look at this and say, great, we got the change we wanted, and this is not a knock on Parag Agrawal, but one way to read what happened to the stock or what is happening with the stock, is that people got excited for change and then change came in the form of a longtime Twitter executive who basically said, "We're going to keep doing what we're doing." [laughs]

Moser: Yeah, that didn't really sound like change. It just sounds like you're switching chairs out there. Let's begin with the very first point you noted there, the knee-jerk reaction. I guess that's been the trend here over the last couple of days at least, I would qualify last week's sell-off as a knee-jerk reaction. I think that what we saw with Twitter this morning was a knee-jerk reaction albeit an understandable one. One of the criticisms a lot of people have had with Twitter over the years is the fact that Jack Dorsey is running two companies. Running Square (SQ -1.94%) and Twitter just seems like a lot. I certainly early on felt like it made sense. I felt like he was the one who at least could bring some mentality of experimentation, of trying new things with Twitter. I feel like Twitter really needed him at that point in time to try to right the ship there. I think he's done a lot. I think he's done a lot with Twitter, the business, so to speak. To me the platform is really more or less the same. 

I know they continue to introduce little bells and whistles along the way, but meaningfully they haven't really changed the nature of the platform. But the business itself, I think Dorsey he's done a pretty good job of rightsizing it. He had big focus on stock-based compensation early on, bringing that back down toward peer levels and he's done that as well. From a business perspective, good job. From a platform perspective, maybe not quite as good of a job. I don't know that that's necessarily his fault because I feel like the nature of the platform, I've always been a Twitter user, but to me it feels like, you and I talk a lot about businesses that we feel like there's a ceiling. I feel Twitter, the platform, maybe has hit its ceiling. I don't believe it's a platform for the masses. I think it serves a unique purpose, but I don't think it's a platform for the masses and it's free-flowing and fascinating. I think it's going to make it difficult to monetize meaningfully over the coming years, which is going to be a big problem for Mr. Agrawal. I honestly thought Kayvon Beykpour would've been the guy taking that chair over. Kayvon is the one of the founders of Periscope, came onto the Twitter team when that deal was finalized. He's been head of consumer product there for a while. But either way, I think it's good to see someone internal. I don't know what else they can really do with it. I think that's going to be one of the biggest challenges.

Hill: There is an argument to be made that's this transition is to go with someone a longtime executive like this. But to your point, this is going to be interesting to see over the next, let's call it 6-12 months. Are there going to be significant changes to the business? You think back to when Satya Nadella took over at Microsoft and within that calendar year, it was obvious that he was going in a different direction than his predecessor, Steve Ballmer was. I think there's an opportunity here for the new CEO.

Moser: There is. A couple of things there. No. 1, I don't know if you had a chance to read the email that Jack Dorsey sent. I found it very enlightening. It was a very interesting perspective I think he has there in regard to founder-led companies, because his primary point, one of his biggest points in all of this, we talked a lot about businesses that are founder-led and how much we value that. Founder-led businesses being such a high-quality dynamic there. Always really take note. Dorsey sees it a little bit from a different perspective there and he calls companies that are being founder-led up to a point that's fine. But it can ultimately limit where the company can go and it risks that single point of failure when you tie that company's success to one individual or a collection of individuals in the case of co-founders. It's not going to be absolutely right or wrong one way or the other. I certainly see his perspective. I think it's a fair one. Well, I'm sure some will disagree with that. There are plenty of examples out there that speak to it. There are founders that just hit their limit. They're not able to take that business to the next level and sometimes they can leave a little bit too late. 

I think that in regard to Twitter, the one thing that Mr. Agrawal is going to have to deal with is some explicit goals that Dorsey set out earlier in the year in regard to where they want to take this business by 2023. They're talking about a goal of at least 315 million monetizable daily active users. They're talking about something like they wanted to more than double total revenue to over seven-and-a-half billion dollars by 2023. Those are some very audacious goals. Honestly, I look at that with a little bit of skepticism. I don't think they can achieve that. I would be surprised if they did, I hope they do. But to me that sounds like a bit of a lofty goal. I do wonder if they are not going to go back and maybe look at those explicit goals and reassess. But for now, listen to me, Wall Street is going to hold them to it and if they go in there and they change those goals to the downside, it'll be noteworthy how investors react to that. Whether they see that as an admission of taking a more realistic approach, or if they see it as internal pessimism in regard to the business, that we'll have to wait and see. But those are some benchmarks to keep an eye on, those user goals and that revenue goal. Because as it stands right now, that's what the Street's expecting and then so leadership is going to have to figure out a way to deliver.

Hill: Last thing before we move on. You think back to, let's just say January. Who were the CEOs of the big tech companies that occasionally get hauled in front of Congress [laughs] to answer questions? Now we've got Jack Dorsey joining Jeff Bezos in 2021 in saying, "I don't I think I'm going to do that anymore."

Moser: I don't blame him. It doesn't really look like a very enjoyable experience and you added that the fact that, I'm getting the vibe that a lot of those people in Congress don't quite know what they're talking about, Chris. I could be off base, but I'm just throwing it out there.

Hill: Just in time for Cyber Monday, Amazon executive Dave Clark said this morning on CNBC that his company is about to become the largest package delivery service in the United States, passing both UPS and FedEx if not by the end of this calendar year then in early 2020. Are you surprised by this?

Moser: No.

Chris Hill: Because as an Amazon shareholder, who has watched them build up their delivery service over the past decade. I am surprised at this, I don't know when I thought it was going to happen. I didn't think they were that close.

Moser: I've started thinking about this more and more lately just because, I mean, we have multiple Amazon packages delivered to my house on a daily basis and for whatever reason, there's always something being dropped off. My dogs can attest to it.

Hill: Respectfully, your dogs are not the one paying for that.

Moser: No, they're not.

Hill: When you say for whatever reason, it's like I'm pretty sure that you and your spouse are the reason.

Moser: They are the beneficiaries of some of those packages, but yes, you're right. They're not the ones forking over the bucks. But I think it strikes me that more and more of these delivery vehicles had that Amazon logo on them, I have noticed that. It's not to say we don't have FedEx and UPS stuff come by as well, but it's certainly the ratio has come far more apparently than it ever has been. I'm not terribly surprised. I think to me with Amazon, the biggest risk for Amazon has always been ultimately not living up to what they say they want to be, in being the world's most customer-centric company. If they start getting the reputation of not being able to get stuff from point A to point B on the timeline that they promise, consumers will go elsewhere. There are more options out there now. Ten years ago, Amazon was a little bit more of an "only game in town" sort of a thing. But that's not the case today. You have other options, and so I think they saw that, I think a while back. Bezos has always been very, very forward in saying how scared he is of customers and the competition, and customers always waking up the next day and choosing someone else, and so you have to be able to do everything in your power to keep them. Years ago, they had the wherewithal really to invest in this massive network in logistics and fulfillment, and it's starting to pay off. The shipping and logistics market opportunity is just really, really big. We're talking about hundreds and hundreds of billions of dollars in play here from a global perspective. 

Amazon clearly being a global company, this is the investments that they've made over the past decade-plus in fulfillment now start to make a lot more sense. I think that's why the market was always willing to give it a little bit of wiggle room because there were some understanding that they were trying to do this. But ultimately, this is really, I think, a good thing. They have so much data not only on what people are buying, but now where it's got to go. They have so many facets to this distribution channel, whether it's straight to the house, Amazon lockers, pick-up in-store somewhere else. I mean, it's just a number of different ways for them to get those goods out there. While we always talked about AWS being really the profit center of the business, this still at the end of the day, is an e-commerce business on a global scale. To see this happening doesn't surprise me and probably is moving faster than some expected, but it absolutely makes sense. It turns them into a little bit more of a vertical organization with more control over that entire distribution chain, and then for investors that can be very good thing.

Hill: You go back to about this time, eight years ago, 2013. That was, maybe disastrous, is too strong a word. That was a bad holiday season for Amazon. That was the year that they didn't have nearly the control over the shipping and logistics that they have right now. They ended up sending a lot of gift cards to people who had bought things for the holidays that did not arrive on time as they were expecting. I don't know you think about everything we know about Bezos and his focus. My hunch is, not that that was necessarily a tipping point for Amazon, but I have to believe that it did inform the decision to make these investments that they've made. Because let's be clear. There's been no shortage of people questioning these investments, starting early on and then through the decade where people are like, well, wait a minute. Why do you want to do that? Why do you want to spend on planes, and trucks, and the people necessary to drive? Why would you do that? It's not like FedEx and UPS are start-up businesses. They're established, they're global leaders. Why not just depend on them? I think the holiday season of 2013 goes on the list of reasons that Amazon has methodically grown this part of their business.

Moser: Yeah, I think you're absolutely right. You could sit back there and say, why do that heavy lifting, seemingly low-margin work when you can just get someone else to do it for you. That's the reason, right? It puts you at risk not being able to live up to your promise and Bezos and team, they're known for leaving no stone unturned. I'll tell you, you're right. FedEx and UPS, between the two of them, bringing around $180 billion in revenue on an annual basis. Now Amazon, somewhere in the 450 billion and growing. But that can just put it into context, those two businesses compared to Amazon. I think they probably saw back then that with the promises they wanted to keep with the philosophy that we're taking and being so customer-centric, that shipping was going to become a more expensive part of the business as they got bigger. Certainly, if you look at worldwide shipping costs, in the most recent quarter of $18.1 billion, that was up 20% from a year ago, and $110 billion in sales, that shipping represented about 16.4% of total revenue. 

If you go back to 2018 that same quarter, shipping costs were about $6.6 billion on $56.6 billion in sales, so it's only about 11.6% of total revenue. Certainly, that trend has continued. I think they had that foresight back then, that forecasting ability to say, "You know what, shipping is going to become a bigger part of our business as time goes on. Let's try to figure out how we can benefit from it multiple ways. Not only in making sure that our customers are getting their stuff on time, but maybe we could be the ones to do it as long as we are able to continue investing in and building out this network." We all gave them a little bit of wiggle room there to build out that network, and here we go. I think this is another good example of why for shareholders of Amazon, I don't think you want to be selling these shares anytime soon because it has a lot of different ways it can win. Even though Jeff Bezos has stepped down of the CEO position, I think Mr. Jassy still has as plenty of road ahead, market share to capture.

Hill: A last thing before we move on. One data point from the media industry, which is that last year, a record number of broadcast radio stations flipped their format to the holiday format. More than 500 stations did that, and they did that because historically, it's quite profitable for those radio stations. All of this is just a prelude to something longtime listeners know, which is that, Wednesday, Dec. 1, it's our annual campaign here at MarketFoolery to find the alternative holiday music to celebrate songs, the great music other than those 50 songs that get played all the time. No disrespect to Mariah Carey. She recorded a classic and God only knows how much money is she's made off the royalty for that one song. But we're going to be playing some different stuff starting on Wednesday.

Moser: I love it.

Hill: Jason Moser, thanks for being here.

Moser: Thank you.

Hill: As always, people on the program may have interest in the stocks they talk about on the Motley Fool may have formal recommendations for or against. 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's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. See you tomorrow.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon and Square. Jason Moser owns shares of Amazon and Square. The Motley Fool owns shares of and recommends Amazon, FedEx, Square, and Twitter. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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