Motley Fool Hidden Gems Investing - Motley Fool Money: 09.19.2014

Episode Date: September 19, 2014

Alibaba works its magic on Wall Street.  FedEx delivers.  And Oracle's CEO steps down.  Our analysts discuss those stories and share three stocks on their radar. Plus, Facebook Effect author David Kirkpatrick talks about the future of Facebook. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Radio Show. I'm Chris Hill. Joining me in studio this week from Motley Fool Income Investor, James Early. From Motley Fool Pro and Motley Fool Options, Jeff Fisher. And for Million Dollar Portfolio, Ron Gross. Good to see you as always, gentlemen. Good to see you, Chris. We have got bellwether stocks, retail stocks, and a merger brewing in the beer industry. We will say adios to one of the most successful business leaders of the last 40 years. And as

always, we give you an inside look at the stocks on our radar. But we begin with what is now the biggest IPO in history. Alibaba, the e-commerce giant in China, went public on Friday. Shares rose more than 45% in just the first couple of hours of trading. And Jeff Fischer, market cap of over $240 billion already. Not a bad start. There are a lot of pieces to this story. Let's start with the stock. Do you want any part of this stock? Today, no, I do not. Long-term, probably not. And here's why. I thought he was going the other way. Glad we differentiated it, right?

Here's what I know today. I mean, it's starting at $245 billion or so. And it's pretty much an unknown as far as how the company will be run as a public company. Let's not even mention that it's China, so there are all kinds of risks and unknowns there. But why I don't want to buy an IPO at this sort of valuation, maybe it could double in the coming years. But so could a lot of things with, in my opinion, much less risk. So this is one of the largest companies already out there. Google is, by comparison, $500 billion or so.

Google is now larger than Microsoft, by the way. Yeah, absolutely. Or maybe Google is $400 billion, one or the other. Apple now is $600 billion, a new benchmark for that company. Anyway, I don't want to pay this type of price for a company that has no track record being public, that is Chinese-based, which I do have an aversion to because there are so many unknowns there. Technically Cayman Islands-based. I was just going to say.

Yeah, let's get into that. The reason is that foreigners cannot invest directly in certain things in China, and this is one of them. So the foreigners like us would invest in an entity typically in Hong Kong or in the Cayman Islands that in turn controls the Chinese management team through a series of contracts that violate the spirit of Chinese law. However, the Chinese government itself uses these contracts for other state-owned entities, so it's not necessarily a guaranteed bad thing. But I'm a little bit with Jeff. Not a guaranteed bad thing. I like that. I mean, my opinion is maybe more placid, but it comes to the same end.

I think Alibaba has harvested the lowest-hanging fruit, 80% online shopping market share in China. That is phenomenal. It is hard to get much higher than that. China will grow. But in the U.S., Amazon has a big leeway. I just don't know how... I mean, Alibaba is a great company, but I don't know that they can muscle out other companies for growth elsewhere in the world so easily. Right. I separate the company and their business from the stock and the entity that controls the business. I think the company is pretty impressive. 43% margins, really the only game in town as of now. That's pretty impressive. Typically, perhaps the kind of company you would want to hit your wagon to

in the sense that they really, at this point, have first mover advantage, have the network work effect, and probably can't be beat for some time. However, then you get into the mechanics of both the IPO, where you have insiders actually selling into the IPO, not locked up, which is very rare. I don't like to see that at all. There may be some mitigating circumstances, but in general, I don't like to see it. I don't like to see that Jack Ma and the partners have basic control of this company, that makes me worried. And quite frankly, once bitten twice shy, I have not had success with Chinese-based companies, their disclosures, their auditors, and the way it's all set up. And there's fine companies that we can look to right

here that have perfectly good disclosure. On the Jack Ma issue, I think that's worth pulling out a little bit. The reason this company is IPO-ing in the U.S. and not in Hong Kong is that Hong Kong would not allow Jack Ma et al. to control the board. The U.S. was more okay with that and jack ma has a history of of these sorts of sort of aggressive grabby things i want to say it was 2011 they kicked out they spun off uh alipay into a separate unit that jack ma would control 46 percent of not really giving much of a reason nobody got a heads up and basically screwing can i say that yahoo you can say that yeah in in the in the process and you know there's nothing stopping uh other shenanigans like the reason at the time was that the the government

was going to regulate online payment and online commerce separately but that wasn't actually a to split them up. And they later admitted that. Well, we'll get to Yahoo in a second. But going further into the business, I mean, this isn't just an e-commerce giant in the same way that Amazon is. They do have Alipay. They have mobile payment. But Jeff, when you look at what would be sort of the natural competitors in the United States, Amazon and eBay, which owns PayPal, investors don't seem scared because both those stocks up slightly this week. So if the business of Alibaba represents any sort of significant material threat to Amazon and eBay and presumably others, it's not really being reflected in the stock.

Right. And I don't think it does. I agree with Ron. It's a good business, good business model. For those who don't know, Alibaba does not take inventory. It doesn't have distribution. It hasn't built out that whole network the way Amazon has. They're mainly a meeting place, a place for merchants to set up a shop and sell directly themselves. So very high margins, as long as they keep traffic, which by all means I would think they would at this point, it's going to be a good cash flow generating machine. But I don't think they're in a place where they can come in and start to push Amazon aside, Amazon that excels on customer service and fast delivery and reliable products and services that you can then return easily.

They really feel much more like eBay to me. I don't think of them as an Amazon because of the inventory, because of not having the distribution network. I think that's the better kind of example. Let's close on Alibaba by talking about Yahoo, because Yahoo does have a stake in Alibaba. Per agreement, they are selling about 27% of that, which will reap billions for Yahoo. And that is, on one hand, a good problem to have, Ron, that all of a sudden you've got $5, $6, $7 billion that you didn't have last week. But of course, now I think, at least if the coverage in the media is any indication, people are looking to Yahoo not as, you have this great opportunity. They're looking at it as, what are you going to buy

with this $5, $6, $7 billion? What are you going to do with this? I hope Marissa Meyer turns off the news. First, I'm a big fan and proponent of returning at least half of that to shareholders, which I think they're going to do, whether it's dividends, special dividends, or buybacks. Definitely important. So that doesn't leave you with as much money as you just said. You still have a nice chunk of change. They already have, I guess, about a billion in the bank. So, they'll go out and they definitely will acquire, as they have been. Can they get Snapchat or Yelp? Probably not. Those companies are already probably priced out of their range. AOL has been bandied about. Doesn't really

do it for me. A company like Pinterest may be interesting. Advertising technology companies is maybe a way to go. Continue push to mobile. Continue with higher technology in the advertising space. You could probably get something interesting there for not too much money. Jeff? You know, if I were Yahoo, I would think they could wait. I think it'd be a good move to wait. If they're returning $3 billion and they keep $3 billion more, let it burn a hole in your pocket until you see something you really want to buy. It's a very hot market right now, especially for tech. And why rush? Unless you see something you really want,

really need, then go for it. Now, I'll close on Alibaba by saying I'm not opposed to large IPOs, of course. The largest prior to Alibaba was Visa, and I happily bought Visa and own it still, Google, MasterCard. So large IPOs can be very lucrative long-term. I'm just not compelled to buy this one. There were some other companies making news this week. Shares of FedEx hit a new all-time high after first quarter profits came in higher than expected. And, Ron, this is one of those quarters where you kind of have to look hard to find any sort of bad news.

every division looks like it's doing well. They're reinvesting money into expanding ground delivery. It's really looking good at FedEx. You nailed it. Express, ground, and freight all did well. The big deal here is the restructuring of the express business, which was struggling against competition for a while. Looks like it has turned the corner really nicely. Operating income up 35%. You can't fault that. They're going to be raising rates. They're hiring 50,000 people going into the holiday season, so they're getting ready for that. Things are going well. The one negative is that they're kind of under heat in a litigation perspective.

And they came out and they said it's reasonably possible, like quotes around reasonably possible, that there could be a material impact from workers in California and Oregon being deemed employees and not independent contractors, which would have tax implications, back pay implications. So if we're looking for a negative, that's the negative. This week, Home Depot announced that as many as 56 million cards may have been compromised in a cyber attack on its payment terminals. James, this is over a five-month period. This is a bigger data breach than we saw from Target. And yet, shares of Home Depot up nearly 5% this week. And they're even up slightly since the announcement. That's the coolest and most amazing thing.

Apparently what happened is some Eastern European hackers got into the do-it-yourself terminals, you know, the self-service checkout things and installed the software that was there for months and now have been harvesting this data. So if you've shopped at Home Depot and see a lot of bratwurst on your credit card statements, that might be what's going on. Are you a user yourself of typically not just Home Depot but of the takeout aisles? I do. They've gotten better. At the beginning, it was always frustrating, right? The guy would have to come over and fix it. But now it's gotten better.

It's gotten faster. so I will use them now, unless you've got some weird checkout item, but I usually don't. Yeah, they did it right. They were candid about their issue, and I think the target kind of broke the ice in terms of having a major data breach. So Home Depot kind of gets a little bit of a free pass here, it looks like. Coming up, one of the giants of the tech industry rides off into the sunset. 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 with James Early, Jeff Fisher, and Ron Gross. Shares of Oracle down on Friday in the wake of the news that longtime CEO Larry Ellison is stepping down since he helped start the company 37 years ago. Jeff Fisher, this is a guy who has never shied away from a fight. He is, in many ways, the epitome of the brash tech CEO. But when

you look at the long-term performance of the stock, which went public in 1986, if you're a long-time shareholder of that company, you are tipping your hat to Larry Ellison. That is true, So, Chris, I think you looked at some numbers that the returns were around 90,000% in the last 37 years. So you've made some money owning Oracle. You've done well. He's done very well, too. He's one of the richest persons in the world, of course. And he really did that partly by being an acquisition-based CEO.

Oracle acquired PeopleSoft back in the day, about 10 years ago now, and then Siebel Systems and BEA Systems. And they grew to become the biggest enterprise software company in the world. and they're still the leading database company and middleware company in the world. Impressive growth. I think their returns are better than Microsoft's since they both came public the same year. He's stepping down, but he said in the conference call last night that he'll keep doing the same thing he's been doing, as will the two new co-CEOs. But still, the whole change makes me a little nervous, trepidatious as a shareholder.

We own it in pro as well because it's a big change. He's 70 years old now. He has a lot of interest, as we all know. He owns part of Hawaii, one of the islands out there. He has gigantic yachts. He still owns 25% of Oracle, doesn't he? He owns a lot of Oracle as well. He's into movie producing with his children, which is going very well.

He does all kinds of things, tennis matches he owns. He's a busy guy. The problem is we all went to college. I believe he dropped out of college, and it seems like everyone that's really successful kind of didn't waste time. I figured it out, Ron. They get a four-year jump start on the rest of us. In those four years, you can take over the world

or at least set the foundation for it. Anyway, so he says he'll keep doing the same thing, but clearly he's stepping back a little bit. He's 70 years old. He should be. He should be enjoying all of his pursuits, but we need to see now where Oracle goes next. They are struggling to replace their very lucrative licensed software revenue

with cloud revenue, which is much slower to come in. It comes in on a monthly basis, where a licensed contract is a giant upfront contract. So that's a headwind right now. It's been an interesting few days in the beer industry. At the beginning of the week, SAB Miller made a bid to take over Heineken. That bid was rejected. Now there are reports that Anheuser-Busch InBev is considering buying SAB Miller.

It is a deal, Ron, that would be worth more than $120 billion. So just to recap, No. 2 beer maker in the world tries to buy No. 3, gets rejected. Now the biggest beer maker in the world is thinking about taking out its closest competitor. That's a big deal. I think let's be clear. There are no active discussions supposedly. People are saying that right now Anheuser-Busch is exploring financing. Obviously, as you said, $120 billion.

That's a big ticket. They're going to explore. I'm sure they have their antitrust lawyers on this as well to see if there would be any issues. From my reading, it looks like people are saying it probably could go through if SAB divested itself of some of its joint ventures. The Miller Coors, the C.R. Snow in China, that could make it easier to get past the antitrust guys. Are you a beer guy, Ron? I am not a beer guy, no. I don't drink any alcohol, actually.

Yeah, I think the only person who comes close is Jeff. And, I don't know, Jeff, do you have a fall beer recommendation for us? Something with pumpkin, perhaps? Well, sure. I can give you my most recent beer experience, which was Kingfisher. It's not a fall beer, but we had Indian the other night, and it went well with that. You're welcome, America. You've never heard of it, have you?

I've never heard of it. No, I'm sure nobody has. I've seen it. I go to Indian places a lot. It's everywhere. Before we get to the stocks on our radar, I've got to mention, you've heard me say before that our mission here at The Motley Fool is to help the world invest better. And we do that in a lot of ways, including this radio show and through investing services like the ones these

guys run. And also, Motley Fool Stock Advisor. It's our flagship service run by David and Tom Gardner. And it's a great way to get started investing. And we've got a special offer for listeners of Motley Fool Money. You can go to mfmoney.fool.com. That's mfmoney.fool.com. It's a special offer to get you started with Motley Fool Stock Advisor, so check it out. Ron Gross, let's get the stocks on our radar this week. You're up first. What do you got? I got InvenSense, INVN, maker of motion sensors for smartphones, tablets, gaming devices.

Samsung's the largest customer. Everyone's kind of holding their breath to see if they're going to be in the iPhone 6. If they're not, the stock could get hit near term, but I don't think that would rule the stock out as a really great investment. It looks like they are, Ron. That just came out minutes before we stepped into this studio. Well, there you go. A teardown show. And Vincent's in there.

Nice. I will say, Barotabdi, the CEO of InvenSense, he was a guest at our Motley Fool member event in San Francisco in August. And I could not have been more impressed. Really impressive guy. Really impressive. James Early, what's on your radar this week? I'm going back to Apollo Investment. This is a business development company with a 9.2% yield.

These guys basically make risky loans, an average yield of about 11-something percent, 7.1%. by 1%, and that's why they can pay people like you and me 9.2%. Financial regulation has made risky loan business harder for regular banks, and that leaves more money on the table for companies like Apollo that are willing to take these risks. So basically what I hear you saying is, I'm backing risky loans. If you want a 9.2% yield, you've got to do something with a little bit of risk, Chris. And the ticker symbol? A-I-N-V.

Jeff Fisher, what's on your radar this week? And Skyworks Solutions, ticker is SWKS. So Ron and I are kind of on the same page here. Skyworks makes semiconductors that go into phones, including Apple and Samsung. Oh, it's not a skywriting company? It's a great name, isn't it? Skyworks? I like the name.

But they're also really focused on wireless connectivity, and they're moving into automobiles and products that GE makes, motors, anything that can be connected. So this Internet of Things is a great long-term opportunity for Skyworks. Really well-managed company, really strong margins, and high-end products that are not easy to duplicate. So not so much with the consumer-facing or just high-end consumer-facing products? Well, they're in iPhones. They're in almost all or many smartphones. Midsize or big company? Where is it? $10 billion. $10 billion.

Sounds pretty big to me. Growing quickly. And the ticker symbol? SWKS. It's a recent buy-in pro. So, all right, Ron Gross, James Early, Jeff Fisher. Guys, thanks for being here. Thank you, Chris. Thank you.

Coming up, we will talk about the future of Facebook with David Kirkpatrick, author of The Facebook Effect, the inside story of the company that's connecting the world. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Time to talk Facebook with someone who's followed the company and Mark Zuckerberg for a long time. David Kirkpatrick is the author of The Facebook Effect, the inside story of the company that's connecting the world. It was published back in 2010, and Kirkpatrick continues to follow the company today.

Motley Fool CEO Tom Gardner recently sat down with him in our New York studios. So let's talk about what you saw and what caused you to write the book. What made you select Facebook rather than any number of other technology companies? What were a few factors that you were looking for? That's a great question because, honestly, you know, I had been covering tech for 20 years at that point. At Fortune magazine. Yeah. And, you know, I thought about writing books about Microsoft, IBM, Intel from time to time, but never really got behind it, you know, mentally. But when I met Zuckerberg, you know, this was when Facebook had nine million users.

And he sat down at this restaurant in Midtown. What year would that be? That was in early September 2006. OK. Right. So Facebook was a little more than two years old and they had nine million users already after only two years, which was impressive, which is why I was meeting with him. But I thought, you know, this college kid thing, you know, I want to meet the guy because he's growing a company. But, you know, it's not that important. So I tell the story in the book. The guy sits down and opens his mouth and like I could hardly close my jaw because he was so incredibly eloquent and big picture in his thinking.

And I very quickly came to the conclusion, based on knowing him, that the company would be a massive, not only success from a business point of view, but transformational system for society. And I really came to believe that quite early, again, because of my opportunity, which I had somewhat uniquely early on, to get to know him. and really taking what he said seriously, which ironically, and to my benefit, other business journalists were not doing at that time for whatever reason. You know, he was essentially dismissed or relegated as something for kids, not as important as Twitter, probably. Never profitable. It will never be profitable. As soon as Twitter came along, honestly, the San Francisco tech community was almost universally convinced

Twitter was the next thing, Facebook was the last thing. And so that was good for me living in New York because I didn't get subject to that misperception. But I think then, you know, moving forward another year and a half when I finally started working on the book, the reason I chose to write a book about this company as opposed to any other was that by then, first of all, they were then already at, let's see, 50 million. You know, from nine to 50 million in those days, one year, that's a big change. Today, it's like 50 million, big whoop. But that was a huge historic thing that a company could be growing that fast. And I really saw what they were trying to do, that they were trying to change the way people communicate and that they were trying to change the way people understand what each other are doing. And I knew that Zuckerberg viewed that as a social, economic, and even political transformation.

And I basically bought into it. And I said, this is going to happen and be politically, socially, and economically transformative. And if I really believe that, I should put a stake in the ground and, as an investor would in a sense, write a book to show that I'm investing in that idea because it's going to be more important later and I have this in now. So that's what I did. What have been the biggest surprises for you in the process of writing the book and after the book has come out? Now the book came out in 2010, so we have an additional four years of information and data about how Facebook is growing, the impact it's having. What has surprised you either about Mark or about the company or about the impact on the world? You mean during the entire time?

Yeah, if you track forward from, let's just say, the moment you started writing the book, completion of the book, the big surprises in there and then the big surprises after. Number one, I really believed long term he was going to be a big success. I did not think he'd have 1.3 billion people after the company was 10 years old. I mean, that's a lot of people. And I think still you're hard-pressed to find any other company that's had that kind of impact at a planetary level, and literally in every country in the world, in any industry in the entire history of the planet. You know, in many ways, Zuckerberg is really one of the greatest business leaders that has ever lived. And now that the company is showing solid profitability and growth,

and that they, you know, I think, you know, he's really underscoring that even from a conventional sense, but just from the user growth, which is the first metric that I was impressed by. And the first metric that he's focused on? It's still the primary metric he focuses on. I mean, he's surrounded by people who are much more financially minded than he is, and he knows that he needs them. And they're very, very good, notably Sheryl Sandberg, but others as well. And he, you know, he lets them do their thing, and he's very good at letting them do their thing, but what he cares about is putting this tool into the hands of more people. That remains his top priority. But going back to your question,

you know, this thing of mobile, you know, it was interesting. I was surprised that he didn't get it, and then I was surprised that he got it as fast as he did, you know, because that really was the chain of events. You know, when my book came out, mobile was not the thing it is today. 2010, you know, the iPhone existed, but it wasn't, you know, we didn't have smartphones in the hands of everyone in the developed world heading towards everyone on the planet. That's now where we are. He did not really see that coming. But the thing that I'm, maybe what I'm, I'm not really surprised that he was capable of

recognizing that he missed it and then turning on a dime and getting it, because that's what he did. And, you know, it's interesting with Alibaba's IPO looming, you know, they are not a very mobile-centric company. And I've been thinking about the comparison, you know, when Facebook went public, the big knock against it was these guys don't seem to really get mobile. There's there's a lot of caveats in this prospectus about do they really have their mobile strategy in place? Could they will they or won't they? And it was a gamble. And but then within the first year, they started getting it.

And now, you know, by the second year, they were like rocking it every single quarter with mobile revenues, which, you know. So and I think it's because he had the humility to say, you know what, I got to start from scratch on mobile. And he did. He brought in some really smart people like Corey Andraka, who had been the CTO at, of all things, the Linden Lab Second Life. But who was a who has really been a great asset in the mobile technology side there. And he's got a bunch of other people. Is it a combination of his humility, plus that he has the founder ownership stake and internal influence to say, I don't really care what our numbers look like during the IPO process. If people hate us for a while, that's fine, but we're going to retrain all of our developers toward mobile because this is where the world's going. I missed it, so it isn't just I blew it and I'm humble, but I also have the authority, at least for a time being here,

to make this call before people might drive me out as they have other founders and companies. I think that's a good characterization of what happened and how he thinks. I mean, the thing that really many people don't appreciate is the degree to which he is revered internally at that company and viewed as a great visionary who people will follow literally off a cliff if he asked them to. And they know he wouldn't ask them to do that because he's had such an amazing track record of making the right calls. I mean, for example, hiring Sheryl Sandberg, you know, So, you know, in my book, I talk about how they spent like 40 hours together before he hired her. I mean, he did not do that rashly.

He doesn't move rashly. He's good at research, but he often makes a big change based on big needs. But he is, again, a big thinker, and people love that about him at Facebook. They don't want to just be working for a company that's good at mobile advertising. All those 7,000 employees of Facebook. They want to be working for a company that is, sorry to use the phrase, changing the world, which they actually almost to a person believe they are doing. And certainly he does. That is the ethos that he brings to leading Facebook, that we are making the world a better place by helping people communicate more effectively, you know, make the world more open and connected, as he likes to say.

he really thinks that is a economically, socially, and politically transformative thing that he and his company are uniquely positioned to do. Would you say that he reminds you of any other technology founder throughout history? I'll let you answer that. I have a thought. I'm curious if you agree, but I want you to go. Well, honestly, I think I maybe also say in the book, I'd have to remind myself that after I came back, you know, when I was sitting there that first lunch in 2006, and he started talking, and I was amazed by his big picture way of expressing himself, he immediately reminded me of Steve Jobs and Bill Gates, particularly Steve Jobs. And I knew these people. I was fortunate in that way. Or somebody like Andy Grove, too,

another really big picture thinker. And the fact that he was only like 22 at the time, this was noteworthy. We didn't have all these young 22-year-old founders with 100 and 200 trillion valuations we have today. This was relatively unusual to have a 22-year-old with a gigantic vision, with a company growing rapidly. He was sort of the first of a whole new type of person. And in reality, all these people want to be him. Name your contemporary entrepreneur. He's still the role model because the scale of growth that he achieved has outrun everyone. What is that model? What are his principles you think that people are aspiring to? I mean, one of them would be a growth and impact before revenue. Well, that's not a new

surprise. That's almost too commonly held as a view, right? That's a scary, it's scary how widely held. That's 99 also. That's 99 and it is seemed to be today. Although the companies that go public almost without exception get profits first now, which is very different from 99. So I don't think we're in that same, I don't think of us as in a bubble in the same way. We're in a bubble in that anybody can get funding for anything, almost. You know, if you're young enough and seem smart enough, you can probably get a few million bucks. I mean, does that mean that you think that the bubble, are you saying that you think

the bubble such that one exists in the world of technology is in the private markets and at the point of inception? Absolutely. Not at the IPO and after when more valuation methodology comes in because the companies are profitable. Well, you're very articulate about this and I'm not an investing expert like you, but Yes. I actually think that there's a little bleed over effect where all that excitement about the startup community sometimes distorts the public company valuations. But in general, the people I worry about, if I were to bother worrying about them, which I don't, is the VCs and the angel investors, not the public company investors.

They are not subject right now to the same bubble mentality at all, even close as they were in 99, early 2000. That is a fundamentally different thing. That was a much more, you know, I think almost corrupt marketplace that we really don't have now. I mean, I don't know whether it's because Wall Street reformed or tech investors got smarter or the entrepreneurs just got a better handle on the Internet. But, you know, these companies, even like Alibaba, look, this company is like a super machine, business machine. It is not some kind of wildly inflated dream. These companies that are going public, for the most part, have been in operation for a lot longer period of time than you saw in the late 1990s.

And one of the things that Mark did that was quite unique with Facebook is hold it out in the private markets almost as long as he possibly could. At least it seemed that way from the outside looking in. Oh, it was as long as he could. He just finally couldn't hold on anymore. So what is the mindset there? Take somebody in 99 who started a company and 11 months later is getting their third round of funding and talking IPO and ready to go versus what Mark created and the approach that he took. Why was there such a difference? What was going on in his mind?

Well, I would hate to say it, but I mean, I don't hate to say it. I think it was agreed. I mean, those founders, many of them were motivated much more by how much money they could make than probably even the typical Internet company founder getting a big valuation today. Coming up, David Kirkpatrick weighs in on Facebook, the stock. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Let's get back to more of Tom Gardner's conversation with David Kirkpatrick, author of The Facebook Effect.

So Facebook has been such a great performer for investors. And obviously the somewhat controversial IPO, the high valuation, it's become in our everlasting portfolio that I manage at The Motley Fool, my largest holding, my best performing holding. We started buying at 24 and a half, and we've kept adding. And so the question is, are we- You didn't get it at 17? We didn't get it at 17.

Damn. It was, I posted about it at 17, but I didn't act on it until 24. What inning are we in? do you think, for Facebook right now from a, I mean, it's a $200 billion. Second inning? Yeah, I mean, look. Second inning. Zuckerberg has always said he's in this for 30 years.

Look, I mean, it could be a losing game, but it's only the second inning. Yeah. They are in this for the very long haul. I mean, they meaning him, because he still controls that company. You know, just like people worry about this Alibaba committee that basically run the company. It's much worse at Facebook. One guy calls the shots and will for the foreseeable future. Even those other investors like Sean Parker, who makes the whole deal, you know, they have covenants that they have to vote with Mark, right?

Dustin Moskovitz. They're all going to vote with Mark, whether they have to or not. They would want to. And Mark is going to decide this company's fate, and he's going to be there for a long time. He will respond to setbacks with new ideas, and he will continue for the foreseeable future. Now, you know, the thing he's been saying just in the last week about his market opportunity is, and he said this all along, but people are finally listening to it now. It is literally everyone in the world. That's what he thinks is market opportunity.

Now, I think, you know, he will have to reposition the company because there are things about Facebook that are somewhat anachronistic now. You know, somebody was arguing to me the other day that it's really about self-presentation and it's not as much about real communication as it needs to be. I think the acquisition of WhatsApp will help get it back toward true communication and not so much showing off. Well, because WhatsApp is – Do you use WhatsApp? No, I don't. But that doesn't matter. I mean WhatsApp is a true communications company.

It's a way to just back and forth with people really effectively and it's globally successful. I think Facebook has all these qualities too. But it's not going to be simple. You're not just going to be keep doing social media in the way it was defined in 2004. What we're doing right now, the way we're using social media right now will seem almost comically antiquated five years from now. Oh, my God. Everything we're doing with tech will seem comically antiquated in five years. I mean, think of how comically antiquated the things we did five years ago seem now and then recognize the pace has been accelerating.

What was five years from then to now is going to be like two and a half years going forward. And, you know, it's just that's why Zuckerberg feels comfortable doing things like buying Oculus or buying WhatsApp. He knows the landscape's shifting. He's got to move quickly, and he wants to. Future of Facebook, you said second ending in terms of the market opportunity, the impact. How about the performance of the stock? I know you're not an investor in Facebook. You may not spend a lot of your time evaluating companies for investment.

But Facebook is a $200 billion market cap, is already now one of the largest companies in the world. And you do start to see that it's difficult to succeed when you're that size for investors. Does that cause you concern? If a friend of yours, a family member who is an owner of Facebook stock was talking to you, would you be saying, I think you should just continue holding this? It's a great company. Founder's 30. I think he's going to be there the next 20 years. That's when he'll be Jeff Bezos' age, by the way.

I think there are so many great opportunities. They have excellent financials. Sheryl Sandberg, they put a great commercial model in place. I think you should hold. Or would you be saying, I think the company now is getting a little bit long in the tooth at this market cap? well you're as i said before more articulate about this than i am but i would probably say yes i would tell someone who owns a stock to hold it i wouldn't go around broadcasting to everybody they should go out and buy it and which is a subtle distinction but i you know i think

might you have been saying that five years long term i mean this is going to be a volatile stock because it's the kind of reason that we're doing this interview it's the it's under such a microscope, any stock that's under that kind of microscope in such a fast-changing industry is going to intrinsically be volatile over the long term. But the long-term trend is absolutely going to be up unless something I don't anticipate happens. And I do think from a PE point of view today, it's quite pricey. But I've said, I mean, I have said buy it all along. And I still basically say at least if you have the long term view, you're likely to come out fine. If you think you're going to buy it at, you know, a 200 billion market cap today and it might not

go to 125, then, you know, it could easily go to 125 market. The stock could go down by 50 percent if we had a global economic slowdown, if, you know, WeChat took over the American marketplace. If, if, if. Some startup or some social networking technology came along that Facebook couldn't acquire in the U.S. that had a founder that was totally diehard. That's what Mark worries about. But I mean, look at what the EU is doing to Google right now. I mean, if they were further along that path, I mean, these companies might actually have to withdraw from Europe. That's the way Zuckerberg thinks about it. If they were like to really insist on a right to be forgotten and all these crazy ideas they have over there, which really

is untenable with the way Facebook's structured, they would have to consider withdrawing from the countries that required that. And that sort of governmental pushback is one of the real risks. So there are real risks. I mean, one of the risks he sees is that, you know, for all of mobile's importance today, it's not the platform forever. And he thinks maybe virtual reality is the platform for the future, or maybe it'll be something else.

He knows that it's going to be something after mobile. Maybe it'll be Google Glass or something like that. He's got to stay on that train whenever it goes to the new station. That's not going to be easy, and nothing's guaranteed. Very difficult to make the shift in devices. But when you have 1.3 billion customers, you tend to stay with a lot of momentum for a long time. You can find Tom Gardner's full interview with David Kirkpatrick, along with a lot of other great interviews and investing resources,

in our Motley Fool One lobby. Just go to foolone.com. That's foolone, O-N-E, foolone.com. That's going to do it for this week's edition of Motley Fool Money. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening, and we'll see you next week.