Motley Fool Hidden Gems Investing - Disney’s Latest Magic, Facebook’s Latest Challenge

Episode Date: November 8, 2019

Disney earnings produce some magic. Gap gets a new look. And Zillow raises the roof. Motley Fool analysts Emily Flippen, Ron Gross, and Jason Moser discuss those stories and weigh in on the latest from Roku, Activision Blizzard, Take-Two Interactive, Match Group, Booking Holdings, Tripadvisor, Expedia, Uber, and Papa John’s. They also share why they’re keeping an eye on Adobe, Boston Omaha, and Baozun. Plus, The Facebook Effect author David Kirkpatrick talks Mark Zuckerberg, tech breakups, and the future of Facebook. (To get 50% off our Stock Advisor service, go to http://RadarStocks.Fool.com.) Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me in studio this week, senior analysts Jason Moser, Emily Flippen, and Ron Gross. good to see you as always. We've got the latest earnings from Wall Street. Best-selling author David Kirkpatrick is our guest. And as always, we'll give you an inside look at the stocks on our radar. But we'll begin with the Walt Disney Company. Although, let's face it, as we close out the decade for the 2010s, this really has been the Bob Iger Company. Fourth quarter profits for Disney came in higher than expected. This comes just a few days, Jason, before the much-anticipated Disney Plus video streaming service launches. And I have to believe that unless you're a direct competitor, there is a lot to like in this report.

There is a lot to like. I mean, you remember, it wasn't all that long ago we were talking about Disney's reliance on ESPN and how that was a bit of a risk given the change in the media space and competition out there. I mean, I think going through this release, going through this call, to me, they've put any of those concerns to rest at this point. And when you look at the amount of content that they're going to be bringing into your living room over the course of the next decade, I mean, the amount of content that Disney is going to control, is astounding. My living room, too?

Your living room, too. I defy you to tell me this isn't a great value. Ronan, you're our value guy. The numbers itself, we talk often about how Disney makes its money so many different ways, and this quarter was no exception. The studio segment operating profit was up 79%, thanks to strong performance from Lion King, Toy Story 4. Not much to Max chagrin. I know he wasn't a big fan of Toy Story 4, but Aladdin. Parks operating profit up 17%. But like you said, this really is all about the rollout of Disney+, how they're going to integrate that. They've got a deal with Verizon that's going to open them up to 20 million households as well. If you're a Verizon Fios subscriber, you'll get a year

of that Disney Plus on the house. So, there are a lot of reasons to be excited. Hulu was a big point of the call. You go back a couple of quarters, and you didn't hear Hulu all that often. Now, they're mentioning Hulu more than they're mentioning ESPN. So, you see the direction they're going. Yeah, but here's the thing, they're not making a ton of money off of Disney+, at least not yet. And there's so much expectations baked into Disney's stock price, where it is today, about the success of Disney+. Now, do I think Disney is going to succeed? Yes, of course. And it's really going to be precipitated on how much they're able to increase that price as time goes on, and how sticky those

customers end up being. So, it's great. They're running out with Disney+. Now, the whole intention is to get as many people into that service as they can initially, and then slowly raise the price over time to the point where it is then a huge driver of profit for them. It's not there yet. So, are you, Emily Flippen, saying Disney is overvalued here? I am not saying it's overvalued. I am simply saying that there are expectations there. And the expectation is that they do have some pricing power with Disney+. Yeah, I think she's spot on. on there. And Chris, we had talked a lot leading up to this, probably the biggest risk is the

execution risk, right? I mean, they rolled this platform out, and if the infrastructure doesn't work, if this BAM tech acquisition doesn't prove to be as prescient as we thought it would be, I mean, that's going to be a big problem. But they have definitely tested this thing ad nauseum to try to make sure there's not going to be any hiccups. And to me, that really does remain the biggest risk, but it does sound like they're addressing it. It is worth remembering, to your point, that we are just a few weeks away from 2020, and the original launch for this streaming service was over a year and a half ago. That is true. But, you know, all good things do take some time. And to that point,

they really led up to the very last minute here in just getting on the Amazon Fire platform. And that matters, because Amazon Fire is one of the leading streaming services out there. Speaking of video streaming, real quick, Jason, Roku, that stock has had a great year. It had a bad week, down 17%. Third quarter losses really overshadowed the revenue growth. Yeah. I mean, listen, when you look at the actual streaming platform space, we're talking about Amazon Fire. Well, Roku is the other big player in that space. And so, I think the market was reacting to a little bit of a pullback on EBITDA guidance for the quarter. Understandable, but Roku is making a lot of investments, and they are pivoting away from

being the device maker and seller, and more to becoming the platform. That page out of the book of Bezos, right? Make more money from us using the device as opposed to buying the device. They are executing. There's a big market out there, particularly internationally, when you look at that ad-supported video-on-demand market. It's just going to take some time. I think the stock price looks a little bit more tracked today, perhaps, than it did at the beginning of the week, but that's all right. Shares of Zillow up more than 10% on Friday after the company's loss in the third quarter was smaller than expected. Emily, management says Zillow Offers, which is their home-flipping

business, is going to generate $1 billion in revenue. Are you buying? I have not been a huge fan of Zillow's business model transition. That's not to say that I don't think the real estate industry is rife for disruption. I think there is. But there are a lot of players that are ahead of Zillow. Zillow's Offers business, which is part of their home segment, is really what the entire company is revolving around at this point. where they buy homes on the market, they fix them up, if needed, then resell them for a profit. The problem is, there is no profit yet. So, it's important to note that while there was significant revenue growth, it was 117% year-over-year, largely driven by this home

segment, that raise of guidance for, I think, $1.25 billion in revenue from the home segment, that's gross. So, what they're doing is, they're recognizing gross revenue, that's where they're recognizing the entire selling price of that home as their own revenue, and then taking out the cost of selling it before they get to profit. So, it does make that number look a little artificially big, but you get a better idea about the really low margins that exist on this business. That was my question. Any guidance on margins that they have offered? Yeah. So, they're not profitable yet, but they're saying that they want to be profitable in the home segment without including ancillary revenues. So, it's expected to be

within the next couple of years. It's not quite sure. It's such a growing industry that they really don't know. But the idea is, look, we don't have to do your mortgage to be profitable on that transaction. We want to be profitable on the home itself. They definitely seem like they're one step closer to that goal today than they were yesterday, at least for investors. I'm not sure if I'm really sold. There are, like I said, so many businesses in this space. But I do think it's an interesting business. It's just, admittedly, a much, much lower margin one than the one they were in before. It sounds like there are a lot of ifs in there. There are a lot of ifs. I mean, we were

talking about Wayfair last week. I think it was about, hey, when are they going to be profitable? Zillow is another company. They have just strung this story out for so long. I just want to know when they're going to be profitable. I'm not buying it. From housing to video games, Activision Blizzard's third quarter results were fueled by strong sales of Call of Duty and World of Warcraft. Take-Two Interactive's second quarter revenue came in 74% higher than a year ago. You tell me, Ron, what stood out to you? You know, there's similar stories here with better than expected results, but weak guidance for the coming holiday quarter,

which was a little troubling to me. The other main difference here is that Take-Two actually posted really impressive growth in revenue and earnings, while Activision, which is in the middle of what they're calling a transition year, had declining revenues and earnings. So, a pretty big difference there. Both companies dealing with this tough competition from online, free-to-play games, a la Fortnite and companies like that, Apex Legends. So, it is a tough environment for these guys right now. I don't like to see that guidance for the coming quarter. Any chance they're sandbagging just a little bit going into the holiday quarter?

They would not be the first companies to do that. Yeah, I think it's appropriate to be conservative here. If you want to go as far as sandbagging, sure, I think some appropriate conservatism makes sense. Match Group posted solid growth in the third quarter, thanks in part to Tinder. But guidance for the fourth quarter was lower than Wall Street was hoping for, and shares of Match Group sold off more than 10% Wednesday morning. Although, Emily, the stock really recovered most of those losses later in the week. Which it really should have. That immediate sell-off was a little bit ridiculous,

because if you actually look at their report, virtually all of their numbers were up. I mean, the most important ones, which is engagement on their platforms, really exceptional results. I mean, Tinder obviously being Match Group's most well-known and popular platform. They're saying that people are, on average, using their app more than five times a week, and that number has only gone up over the years. They're aggressively expanding into new markets, like Japan and India, where they're seeing lots of success with OkCupid. So, there's lots of areas for them to continue to grow. They had an impressive 38% year-over-year growth rate in average subscribers. That's on top of a 9% year-over-year increase in

the average revenue per subscriber. So, lots of great numbers here. A little bit light on guidance, but not nearly justifying a 10% sell-off. Boy, there's nothing like the energy of youth, is there? Because the idea of using a dating app five times a week just sounds exhausting. It's funny, if you go through the call, you'll notice that management commented on the fact that amongst young users, more than 50% say they feel lonely, and they see that as an opportunity. I saw it as a little bit depressing. Kind of makes you wonder why IAC wants to spin this thing off, right? IAC has a big

stake in Match. And I'll tell you what, they have proven time and time again to be so resilient. I mean, I think you look at that competitive space, the way that Etsy stood up to Amazon, I think Match stood up to Facebook the same way. Really, it's a compelling business. Is your resume on LinkedIn up to date? If so, we have a job opening that you just might be interested in. That's next, so stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Emily Flippen, and Ron Gross. The Gap is looking for a new CEO. Art Peck is stepping down after four and a half years in the corner office. During that time, CapStock has gone from $42 to Friday's

price of lower than $17 a share. Ron, they've got an interim CEO, but the main job is open if you're looking for one. Son of the former founders is back in on an interim basis. I'm actually surprised it took this long for Peck to leave. I thought maybe when they announced the spinoff of Old Navy, they would take that opportunity to put new folks in place. But, better late than never, I think this certainly makes sense. The problem is that GAAP continues to deteriorate, and the bigger problem is that Old Navy is not doing that well with comp sales down 4% this quarter. So, that spinoff doesn't look as attractive as maybe it did a few months ago or a few quarters ago. So far, we haven't

heard anything related to the fact that that spinoff is going to be put on hold. Right now. I think it's plowing ahead. However, you know, they've got to get the merchandising right there. They've got to get merchandising right in all their stores, whether it's Banana Republic or Gap. Gap being pretty much the worst of them, with comp sales down 7%. They had a lower guidance. This is not going well. It's time for some significant changes at the top. I'm glad to see they're making them. Do they also have inventory problems as well? Because I think of the Gap, Old Navy, Banana Republic, I think of them as maybe not the most fashionable brands, but certainly reliable.

If you go into any of those stores, you'll typically see 40% off the whole store. That's an indication that they have inventory problems and they need to be promotional to clear it out. Last thing before we move on, 2019 is going to be a record year in terms of CEOs leaving. Is it just harder to be a public company CEO in the age of social media, among other things? I think investors have less patience and it gets harder for CEOs to take the longer view. so there's more pressure. Activist investors have stepped in in a number of these cases and said there has to be a change at the top, so that the companies are following through there. So, I do think it's more difficult. In the old days, you could probably stick around

for 10 or 20 years with a board that's entrenched and not really putting too much pressure on you. Shows like ours probably don't help them either. Rough week for travel stocks. Booking Holdings, the parent company of Priceline, TripAdvisor and Expedia, all issuing third quarter reports. All three stocks falling this week. though to be fair, Jason, booking holdings down around 7%, 8%. You look at Expedia, TripAdvisor, those things down to the tune of 20%, 30%. Jason Moser. Six little letters, guys. Six little letters did it all. G-O-O-G-L-E. Man, I tell you, Google is really causing these travel companies to take a step back and try to figure

out how to deal with their dominance in search, because that is how so much of that traffic gets to where they want to go. TripAdvisor, I mean, they're just waving the white flag. That's the point of the $3.50 special dividend. That's the point of the share repurchases. They're reassessing the business. I think the best thing they can do at this point is shop that business around, sell it, and do right by shareholders in some capacity. Expedia, bigger business, they've already made that leap into being an OTA. Still difficult for them to combat Google and their dominance in search. Booking.com is the winner of the three, certainly the biggest network. And I think we've seen time and time again, they continue to invest in the service,

in the app, in the website, making sure that people go back to Booking.com or its properties as opposed to going to Google and searching for stuff. And so, they're a little bit more resilient on that front. But yeah, I mean, when you look at it as a whole, it's a very competitive space. It's a huge market opportunity. But you're seeing very clearly, Google and Booking.com are turning into really the best ways to play it. Yeah, and it's not just Google either. When you look at these businesses, a lot of their sales, the higher margin sales are actually hotels and vacations, these sorts of things. And more and more hotels are trying to get people to book on their own websites. So there's just less incentive

for customers, people like you or I, to actually go and use one of their platforms to book versus using Google or using just their own platforms. Jason, I know that TripAdvisor is a smaller company than it used to be, but it's still $4.5 billion. Who do you think is going to buy TripAdvisor at this price? Or do you think that maybe an Alphabet looks at them and thinks, well, if they get a little bit smaller, then maybe we'll put down some money? I mean, given the content, Booking.com and Facebook were always companies that seemed like they could be good fits. But they've introduced this joint venture partnership with Trip.com in China to grow the presence out there. I think that could be a company

under the radar, probably off a lot of people's radars there, that could think, hey, we roll this thing in for cheap and get a lot of free content, and then build out this additional side of the business that focuses more on this side of the world. Should investors be worried that all this is happening at a time when the economy in the United States is doing relatively well? Oh, absolutely. Yeah, I mean, you would hope these businesses, particularly these businesses that are profitable and make so much cash, you'd want to see them performing well. But the market is telling us something.

Uber lost $1 billion in the third quarter, shares down more than 10% this week, Emily. Yeah, there's a lot wrong with the Uber story. And, you know, honestly, you can get that anywhere. There's so many problems that, really, really, Google search Uber, and you'll see the problems that are associated with this company. I mean, not only are there just fundamental ways with the company in terms of their margin profile and how they make money, but there's lawsuits now against how they pay their drivers, their questionable legal practices. So, lots of concerns here. And honestly, like I said, you can get that anywhere. So, I'm going to give you the bull case for Uber, because I feel like there's

so much pessimism out there that people forget just how ubiquitous Uber truly is. So, I think, well, I'm not saying to buy it. All of those are very legitimate concerns, nonetheless burning a billion dollars last quarter. I think Uber actually has a decent amount of pricing power that's going largely unrecognized by the market right now. And that's not just associated with the Uber name and saying that you'll grab an Uber, but it actually goes down to the fact that this is essentially an oligopoly, at least in the United States. And as we see with most oligopolies, it comes down to some sort of price-fixing and it's going to result in higher prices for people who use rideshares. We've already seen Uber

stop rider incentives, so they're increasing the prices. And what's your alternative? We've all become so entrenched in the ride-sharing culture that we'll pay the higher prices. So, I think it's just a matter of time for Uber before they work out the profitability picture. But I don't think they're just down and out like people may have you think. My question is, do higher prices accrue to the driver, which is a major problem of drivers being underpaid, or does it actually flow through to the company and result in increased profitability? Yeah. So, what you'll notice is that Uber, and different to the way that Zillow reports, they report net. So, actually, their

revenue is reported after they pay their drivers. And it does, in some places, accrue to the driver. Naturally, Uber is trying to prevent that as much as possible. But we'll see, just over this quarter, their revenues were up 30%. So, obviously, some of that is coming down to their own revenues, which is reported net. Shares of Papa John's up 8% this week on a surprising third quarter report. And, Ron, for the first time in a while for Papa John's, I mean surprising in a good way. You know, perhaps a turnaround has begun here. Certainly, the stock price this year would indicate it, up 55% this year. Comparable sales in North America turned positive for the first time in nearly two years, up 1%,

not huge, but still up. International comp sales up 1.6%. You've got adjusted earnings up 10%. So, looking pretty good here. New CEO Rob Lynch made several top-level changes. Five executives, including a new CFO, will be coming on board. They put in a very impressive guy named Max Wetzel as Chief Commercial and Marketing Officer. You've got my buddies over at Starboard Value with the $200 million investment. Now, have the chairman role as well as the director role on the board there. They're looking at the menu, they're looking at the recipe, they're baking that garlic sauce into the crust now, which I'm not a fan of, but more power to all those who are. This could be an interesting one for the next few years.

Is that Max Wetzel of Wetzel's Pretzels? Oh, that's interesting. I don't think it is. He's formerly from PPG. Some experience in this space. I just want to go on record. I think I said midway through the year here, right when Shaq came on board, I was calling the bottom there. I said, It's nothing but blue skies for Papa John's. I'm liking what I'm seeing. Never bet against Shaquille O'Neal. Never.

Up next, David Kirkpatrick, author of the New York Times bestseller, The Facebook Effect, weighs in on the latest drama surrounding the social network. Stay right here. You're listening to Motley Fool Money. Somehow my finances will grow with the interest I show in the interest it gives me. Welcome back to Motley Fool Money. I'm Chris Hill. David Kirkpatrick has spent his career covering technology. In 2010, he wrote the New York Times bestseller, The Facebook Effect, the inside story of the company that's connecting the world.

Earlier this week, I caught up with David to discuss the latest headlines involving Facebook and CEO Mark Zuckerberg. Let me start with the political ads. As I'm sure you've seen, you know, Jack Dorsey coming out recently and saying, we're not doing this anymore. It's just not worth it to us. And Mark Zuckerberg, on the one hand, said, yeah, political ads are going to make up less than one half of 1% of our revenue in 2020, but we're still doing it. And I guess my first question is, do you think he's going to change his mind? I actually doubt that he's going to change his mind, and I have my reasons for that. But, you know, I think if he was going to do it, he would have done it already because he's been under such extraordinary pressure from so many corners.

And he's still, you know, he's doubling down, really. He's not yielding at all. Why do you think that is? Well, I have a cynical explanation. You know, he says it's because he believes in freedom of speech. but as many commentators have pointed out you know there's a difference between freedom of speech and as we say freedom of reach and when you're advertising on facebook you're essentially buying reach and it isn't the same as having the right to speak when you're having

the right to promote what you say and i think in the opinion of pretty much everyone that i can see um, except for a number of Republican party, uh, supporters and commentators. Um, and that's an important distinction. Um, people are pressuring Zuckerberg to change his policy, but it is significant that, that it is widely believed that if he were to change his policy, it would be a negative for Donald Trump's political campaign for the president to re-election, and probably for conservatives generally. And so here's my cynical theory, unfortunately, and I hope I'm wrong, but I'm afraid the evidence suggests that it's probably true. Facebook doesn't want to offend the ruling power. And if they were to change their policy now, it would be perceived

by the White House in particular. And we know you don't want to get on the wrong side of that guy as a fundamentally hostile act. And, you know, at a time when even many Republicans, notably Josh Hawley and others, the senator from Missouri, and some of the people in some federal regulatory agencies are making noises about increased regulation of social media, Facebook, internet giants. I think the calculation is, if you get the White House mad at you right now, you are in business jeopardy, at least in jeopardy for much harsher regulatory treatment, possibly breakup. And I'm afraid that that is probably the way they're thinking. I want to come back to the regulatory stuff in a moment. But

let me ask you about Sheryl Sandberg, because she's been credited with a lot of Facebook's commercial success. In your book, you wrote about her ability to really get Facebook focused on its ad business. To what extent, if any, do you think Sheryl Sandberg deserves blame for the current state of Facebook? Well, it's a very tough question. And, you know, who's really responsible for any one thing inside that black box is hard to say. I mean, she is in charge of ads. So presumably, you know, but but then again, Mark is ultimately in charge of everything. And Mark, you know, Cheryl works for Mark. So I think we can reasonably assume that whatever Cheryl does is what Mark wants Cheryl to do. And Cheryl is enormously effective. I mean,

we've got to remember, she essentially built the best business that anybody's ever built per dollar of revenue. In terms of the profits per dollar of revenue, you've never seen a more profitable scale business machine than Facebook. And Sheryl Sandberg built that entirely from whole cloth. So she is a master business person. And Mark's very grateful to her for that. And it's really a lot of his wealth is attributable to that. But I honestly think the buck stops at Mark Zuckerberg on every matter at Facebook, literally and figuratively. Absolutely. One business initiative of Facebook's that's gotten a lot of attention this year is Libra, the cryptocurrency. I think it's fair to say that Libra has hit some snags with

Visa and MasterCard, among others, saying they're not going to be part of this initiative. Right. What is the state of Libra right now? If I was at a sportsbook in Vegas, should I be betting on Libra to even happen? No. I would be very surprised if Libra happens at all in any near term. Maybe a redesigned, much different, less ambitious version could come about over some very lengthy period of time. But, you know, Mark Zuckerberg has said he's not going to launch it anywhere in the world unless he gets the blessing of U.S. regulators, which really surprised me when he said that, because up to that point, he had made it sound like he wouldn't launch it here unless he got, or in Europe, unless he got the support of regulators in those

geographies. But, you know, some of us were assuming he would launch it in a place like Vietnam or some other relatively, you know, remote country where it might be better received and might be more needed, because I actually think Libra is a good idea, by the way, in many ways, not so much because it's a cryptocurrency. I think that's the mechanism. But in order to have a global transaction tool that can increase financial inclusion and particularly serve remittances market globally. That is a really desperately needy marketplace because many, many immigrants, and there's hundreds of millions of them, are sending money around all the time, and they pay ridiculous, usurious fees. And I do believe Facebook wants to help that. That's one

of the things about Libra that I really like. But I think they've managed it. They've launched it very clumsily. And going back to quickly the issue of Sheryl Sandberg, my understanding is that she opposed the announcement of Libra at the time it was announced, believing that Facebook's reputation was not good enough to embark on a fundamentally new initiative of this scale and controversial nature. But she did not prevail, and Mark and David Marcus instead prevailed, because they wanted to do it regardless. So there's a point in Sheryl Sandberg's favor, probably, because she was right. It shouldn't have been done now, because it's getting universal opprobrium from the people that have to approve it. And if it's really true that they're not going to launch it until they

get U.S. regulatory approval, they're not going to launch it, because that ain't coming anytime soon. So we've talked a little bit about the scrutiny that Facebook is getting from the federal government. The same can be said of Amazon and Alphabet. Meanwhile, you've got Microsoft and Apple, the two biggest public companies, they appear to be in less danger than the other three in terms of onerous regulations, breakups, etc. When you look at the big tech companies in the United States, who do you think is in the greatest amount of danger in terms of being forced to break up? And is there one that you think is the most likely to preemptively, if not break itself up, at least spin off a major part? Well, Amazon is a company that wouldn't mind breaking itself up,

is my own impression and belief. And I think that Amazon's AWS could be separated from the rest of the company relatively cleanly. And there are those who believe, who are relatively well informed, that that's what the company actually even intends to do at some point. I mean, it's been said that AWS might be worth as much as $500 billion on its own. That may be an exaggeration because we don't know all the numbers there. But it's a hugely successful business in the center of the global economy, and more and more critical parts of companies and governments, too, are depending on it. And it's a very fast-growing business. So there's an easily separable part of a major tech platform, and I think it could happen. Who's most vulnerable to having imposed

on them is Facebook. I mean, I personally oppose breakup as a tool. I don't think it's really rational. I think it's too punitive in its feeling, and I don't really think it would solve the problems. It's not because I think, as they say at Facebook, you know, they're going to be stronger if they can all stick together and use all the same software. If they really cared about that, which is their argument, you know, that they're more powerful at combating misinformation, et cetera, when they have all their networks under one roof and they can collectively, you know, all row the same boat. I mean, if they really cared about that, they could be helping Twitter, too. They could be using the tools that they've developed for

the entire industry and, you know, making them basically public to some substantial degree. And I'm surprised, frankly, that Facebook has not volunteered to do that because their public reputation is so negative, they need better PR, and that would be a great move. But in any case, you know, there certainly is an impulse, and Elizabeth Warren talks about it, and even Donald Trump has made noises like he wouldn't totally oppose it. Again, I think he does everything for political reasons, for his own personal benefit, the president. And so, you know, he might decide he wanted to hurt these people, and that's when it might happen. I don't think it would happen probably under most other circumstances. And I don't think it would

happen to Google. And I don't think it would happen to Apple. It's funny because you think back 20 years ago when Microsoft, from a market cap standpoint, was a much smaller company than it is today, but they were squarely in the crosshairs of the government. And even some of the words that are being used today to describe Mark Zuckerberg, words like ruthless and stubborn, They were being used 20 years ago to describe Bill Gates. Oh, yeah. I was there. I definitely was covering tech at the time, so I remember that. But think about Gates now. He's honored and revered for his philanthropic work. He's one of the most respected corporate leaders in the world.

Twenty-five, 30 years hence, do you think that's what the future holds in store for Mark Zuckerberg? At some point, he just hands the reins off to someone else, and he goes to start his foundation? I doubt that he – there's not a whole lot of likelihood that he's going to hand the reins to somebody else in the near term. He just is too passionately joined at the hip with his creation, and it's too important to him to let somebody else do that, and it's unilaterally his own decision. Nobody's going to make him leave, so I really don't think he would want to leave in any near term. Do I think he could resuscitate his reputation by giving away a large percentage of his $75 billion in wealth intelligently? Yes, I think he could. I think you can do penance for a lot of sins with enlightened philanthropy.

But the thing that's more amazing to me about Gates and Microsoft is that the company itself is now perceived as the most responsible, conscientious, law-abiding, non-harmful of the tech giants. Nobody would even suggest breaking up Microsoft now, and their market cap is bigger than the others in most days. So, yeah, I mean, I think that's amazing. Gates got out at a good time. he's so brilliant in terms of understanding social issues and he's such a scientist in the way he studies things you know he's really known what to focus in on i don't know if zuckerberg would do it that way and i frankly hope that i think zuckerberg should spend his time mediating the problems and the harms of facebook before he goes out and starts curing the problems of the world but you know memories are generally short and if he started doing some very high profile

stuff in some very important areas, you know, he would be applauded for it. Last question, and then I'll let you go, because I know it's a busy time for you. What should we be watching with Facebook and Mark Zuckerberg in the next 12 months? What are you going to be focusing on to give you an indication of what the following three to five years are going to mean, either for the direction of the business or for Mark Zuckerberg's reputation? Well, I think, you know, the issue you started with of political ads, the whole issue of political disinformation, which I discussed, the whole role that Facebook plays in what many would say is damaging democracy, and not just in the United States. This is in pretty much every democratic country in the world or formerly democratic countries. I mean, if you look at the rise of autocracy around the world in Turkey, Hungary, Brazil, Philippines, to some extent India, Poland, Brexit, Trump in the United States, and some of the people that he's surrounded himself with, Facebook has played a big role in a lot of that.

and the bad sides of some of that. And, you know, I think the key thing I'm always looking at the company for is to see what are they going to do to try to reduce the harm that they're causing to global democracy. I worry about it. I worry about it tremendously. And I don't think they worry about it enough, although I do think they worry about it a lot more than they used to.

And I think they would like to come up with the answer that would allow them to get us to stop worrying about it so that we would be impressed with them. The problem is they don't want to sacrifice a lot of revenues in the process and profits. So nothing much that they've done has really, to remediate some of their social harms, has really been salient in affecting their business results. I think the thing that would most impress me and everybody is if they took gestures for social benefit that actually were not to their commercial benefit. And I don't rule out the possibility that it might happen. Luckily, with Zuckerberg as unilateral power wielder, it could.

He could decide, wake up one morning and decide to do that. I think Wall Street pressures him very hard not to do that. And, you know, you guys are the investing guys, and I'm sure your listeners and readers probably would prefer he not do that also, to be honest. So, you know, it's kind of a conundrum, and I don't think the world has a clear path forward for these companies to be both profitable and not causing social harm. It's always good talking to you, David. Thanks for making the time. Well, thank you. David Kirkpatrick is also the founder of Techonomy Media.

You can read more from him and his team by going to techonomy.com. You can also learn about the Techonomy 2019 conference that's happening later this month in Half Moon Bay, California. Up next, get ready to take some notes because we've got a few stocks for your consideration. Stay right here. This is Motley Fool Money. 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. Welcome back to Motley Fool Money. Chris Hill here in studio once again with Jason Moser, Emily Flippen, and Ron Gross. Before we go to our man on the other side of the glass, Steve Broido, also on the other side of the glass this week, special guests visiting us, Tama and Steve Rustick. Long-time listeners, Motley Fool One members, thanks so much for being here. All right, let's get to the stocks on our radar. Ron Gross, you're up first. What are you looking at this week?

I'm looking at Boston Omaha, BOMN. Just a radar stock for me here, not a recommendation. Financial holding company with operations in advertising and insurance, sometimes compared to an early-stage Berkshire Hathaway. Been public for only a couple of years. Market cap of $500 million, a little bit over. So, small cap stock for sure. Run by two guys who are co-president, co-chairman, co-CEO. It's a billboard company. 52% of the company's assets are billboard. They have 2,900 billboard structures, and they also have an insurance business that primarily writes surety policies. Reasonable valuation, only 1.6X book value. Steve, question about Boston, Omaha?

Where does this name come from? How are Boston and Omaha connected in any way? One of the CEOs lives in Boston, and the other one's in Omaha. Jason Moser, what are you looking at? Well, you know it probably as The PDF Company. I am taking a look here at Adobe, ticker ADBE. And actually looking at it for my augmented reality service here, they have a new product called Adobe Aero, which is allowing designers to design and share augmented reality experiences. So, a neat part of the business that's starting to grow out. But you've already got this really well-established subscription business that, I mean, it's brought

us to $140 billion market cap at this point. Subscription revenue is the overwhelming driver for the business. And those subscriptions go anywhere from one month to 36 months and everywhere in between. So, I like the trend towards digital media. And the stock, while it's at 35X free cash flow today, it's a company that deserves that premium, I think. Steve, question about Adobe? We use a ton of Adobe products. I'm recording on Adobe Audition right now. Do you think there's any way that they will unwind the subscription thing. A lot of producers and media folks don't like having to pay a monthly fee. Understanding that's the case, I have a hard time seeing that they would actually do that,

because it really does help drive a lot of money for them to continue to invest in that business and provide us with better tools to produce this awesome content that we're bringing to our members and listeners every week. Emily Flippen, what are you looking at? Well, I'm looking at the largest shopping day in the entire world, and no Black Friday has not come early. This is Singles Day on Monday, 11-11. Singles Day in China launches. One company I think is poised to benefit well from that, that is Baozun, ticker BZUN. Often called the Shopify of China, although that's not a one-to-one comparison. Baozun helps manage the e-commerce presences for international and domestic brands in China.

Steve, question about Baozun? Do you think we'll see a big spike in this stock once this trade war stuff gets resolved? I think it's possible, although Baozun has, admittedly, relatively limited influence with the trade war. It'll be interesting to see, though, if the Chinese economy slows down and affects Singles Day at all. What do you want to add to your watch list, Steve? Well, I own Adobe, and I think I would add more, because I just love that stuff. Alright. Alright. Ron Gross, Jason Moser, Emily Flippen, thanks for being here.

Thanks! That's going to do it for this week's show. Our engineer is Steve Broido, our producer is Mac Greer. I'm Chris Hill, thanks for listening, we'll see you next week.