Motley Fool Hidden Gems Investing - Mr. Zuckerberg Goes to Washington

Episode Date: April 13, 2018

Mark Zuckerberg testifies before Congress. Bed Bath & Beyond takes a bath. And Walmart and Amazon battle it out in India. Ron Gross, Matt Argersinger and Jim Mueller analyze those stories and more.  Plus, David Kirkpatrick, author of The Facebook Effect, talks about the future of Facebook. Thanks to Slack for supporting The Motley Fool. Slack: Where work happens. Go to Slack.com to learn more.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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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, and joining me in studio this week, senior analysts Matt Argersinger, Jim Mueller, and Ron Gross. Good to see you, as always, gentlemen. We've got the latest headlines 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. Once again, we begin with Facebook. Mark Zuckerberg spent some quality time with the nice people in the United States Congress. And later in the show, we're going to get David Kirkpatrick's

take on how he did. So, let's focus on the stock. Jim, I'll start with you. As an investor, did anything happen this week to change your expectations of how Facebook shares are going to perform over the next few years? Not really. I mean, Zuckerberg was grilled, of course, but that's more of a sideshow if you're an investor, except as it might relate to regulation. But as far as the company business goes, which is what investors should be focused on, there's not that big an effect on this. I mean, Facebook still has, what, 2 billion users of its platform. And if the delete Facebook meme gets some legs and 10 million people decide to drop off, that leaves, what, 1.99 billion left? I mean, like half a percent would be that

number. And their data that they're collecting to sell to advertisers is not going to change at all. What they should worry about is whether the advertisers are going to actually leave or not. And a few have, at least temporarily. And I'm sure a lot of them are looking because they don't want to be associated with something like Cambridge Analytica. But in the long-term, I don't think it's a big problem. Matt Argersinger, I agree with Jim. I think in the near-term, the user base, the advertising, the return on investment the advertisers are getting, not going to change. I guess I do worry a little bit that what Congress, I think, cares most about,

and we talked about this on MarketFoolery earlier in the week, is not so much about how Amazon makes its money or how much money it's making, but really, the influence that it tends to have. Facebook, right. And so, if that becomes more a focus of regulation, then it gets to the question of, what does Facebook do with data? How does it keep data secure data? How can it share data or license data with app makers? It becomes a bit of a slippery slope in terms of how they can use data. And I do think that might affect the business model in the long run. Yep. As a side note, it appears our congressmen don't really know how Facebook makes money, for the most part.

That's true, too. It's a little bit troubling there. I think light regulation is probably on its way. But light, nothing that will impact the industry as a whole too badly. And Facebook will probably end up becoming the winner anyway, because it's already the leader in that space. I think it's more about growth rates naturally coming down over time. We'll probably start to see them in the mid-20s in both top and bottom line as you get a few years out, which is lower than we've seen in the past. So, then it's just a matter of what do you pay for a stock like that? Maybe trading around 17, 18 times EBITDA now. So, I'm still bullish. I'm still a shareholder. But as

time goes on, you just got to keep an eye on the growth. But one of the things we've talked about before, particularly over the last couple of years, is with the growth of mobile advertising in particular, all of that growth is being captured by two companies, Facebook and Alphabet. I'm curious if you guys think any company, whether it was Alphabet or possibly Twitter, was watching Zuckerberg under the hot lights on Capitol Hill and maybe smiling a little bit at the prospect that some of that future gain in mobile advertising growth could be captured by someone other than these two companies. I would like to think so, except what's already been said, it's just that Facebook, if anything comes to bear on Facebook, it's coming

to bear on those guys, too. So, even if you're Twitter or Snap, and you're looking for Windows opportunity, I do think advertisers are desperate, in fact, are looking for other platforms. The problem is Facebook, as Jim alluded to, it's so huge, it has such a large network effect. I don't know how you get away from the platform. Yeah, those 2 billion users, I mean, those are a lot of customers for those advertisers to advertise to. Let's move on to retail, and we will begin in India, where Walmart is working on a deal to buy a majority stake in Flipkart. Flipkart is the most established e-commerce company in India. Walmart is reportedly looking to spend somewhere in the range, Matty, of $10-12 billion for a 51% stake in Flipkart. This

can get interesting in a couple of ways, one of them being that Amazon is reportedly interested in bidding for Flipkart as well. That's right. This is actually the The race in India for India's e-commerce dollars is a lot closer than you think it might be. Flipkart is the leader, but according to a recent report from Forrester Research, Flipkart has roughly 37% market share. Amazon, from a standing start five years ago, has almost 30% itself. In fact, Amazon, according to Forrester, is winning in some places like appliances, household goods, and grocery, which tend to be stickier, and Amazon tends to be doing better in cities. So, I feel like Amazon, in a way, could be the leader in maybe

a year or two in terms of market share. And so, I think for Walmart, the reason they're going after Degrassi is because they have to. They really have no presence in India. They've kind of advocated their position in China to JD.com through a minority stake. So, India is really the emerging market prize, e-commerce prize in the world, so to speak. And so, both companies are gunning for it. I do expect Walmart to win. I think they're going to overpay. I think Amazon is maybe throwing their hat in the ring just to kind of shake things up and keep Walmart on its toes. But I think Amazon, on its own, without making an acquisition, can actually become the leader. But I think if you're a Walmart shareholder, you have to have a little bit more

confidence about their ability to make this work. Maybe they overpay for it, but when you look at the acquisition of Jet.com and how they have implemented that, that's got to give your confidence a little boost. I agree. And on top of that, if you're looking at it from Flipkart's perspective, excuse me. They look at it as, well, Walmart wants to acquire a minority stake, they'll probably let us be independent, whereas Amazon's going to come in and really just consume the brand. And so, I do think Walmart ends up being the winner. On Thursday, Bed Bath & Beyond shareholders had their worst day ever. Shares of Bed Bath & Beyond fell 20% after fourth quarter same-store sales came in lower than expected. And Ron, guidance for the new fiscal year was

pretty weak, too. Oof! That's my analysis. You know, earlier in the week, my colleague Bill Mann called it a dead company walking. And I think that's fair. It's a little extreme. They're not dead yet. They're actually beat expectations, if you can believe it or not, this quarter, both on the top and bottom line. But as you mentioned, the stock got slammed because of this horrendous guidance. And the guidance, the profits are going to be much lower than anticipated by the investing community because of the investments this company needs to make to attempt to be competitive with Amazon and other online folks. So, the investments are in people and processes and technology, and it's going to really take a bite out of earnings. So,

the question is, will those investments be fruitful? Bill Mann obviously thinks not. I don't think they will be either. However, the company is still profitable. The balance sheet is fine. They're not going anywhere anytime soon. In fact, interestingly, they increased the dividend and bought back a bunch of stock. So, they're not just playing defense, there's a little offense here as well. O'Reilly. Do you think people still go to Bed Bath & Beyond if they don't get the coupon? You know, the 20% off coupon that are so ubiquitous? O'Reilly. Well, you know, they have a Beyond Plus loyalty program now. So, you pay a $29

per year fee, and you get 20% off your entire purchase every time you shop there, plus free shipping, which makes sense if you're a regular shopper at Bed Bath & Beyond. I don't think there are many of those, however. But $29 certainly seems fair. Isn't there a way for them to make this work, though? Because as I said earlier today when we were meeting, this is not Dave & Buster's. Not a knock on Dave & Buster's. But they sell stuff that people actually need in their homes and will continue to need. This is not some niche area that they are selling into. So there's got to be a business model that works. It's still a $2.5 billion company. I think it does work. I actually don't mind shopping there. I prefer the stuff

in the Beyond section than the Bed Bath, mostly the cooking section and stuff like that, which is fine. But they're too cluttered. The footprint probably could be shrunk a little bit. They could save money there. There perhaps are too many stores. They have to look very closely at ones that underperform. I think there probably is a business here, but it's a smaller one. And they do have, obviously, along with everyone, have to increase their online business. Yeah, it's getting so hard right now when you are not a very specialized brand like Bed Bath & Beyond. So, when you can get everything that Bed Bath & Beyond provides at Walmart, at Costco, at Amazon, at Target, in the consumer

mind-share, I think it becomes a less valuable place to go. Coming up, one thing investors should be watching this earnings season has almost nothing to do with actual earnings. Stay right here. You're listening to Motley Fool Money. All right. Just want to say a quick word of thanks to Slack for supporting this week's episode of Motley Fool Money. Slack is a collaboration hub that lets you organize your team's work in easily searchable channels. So, whether it's projects, interests, teams, or by office, that way you've got all the right people who are always in the loop, all the relevant information is in one place, and new team members can easily get up

to speed. Ron, we love Slack at The Motley Fool. I literally use Slack all day long. I would say it has replaced email 90% of the time in the work we do. The amount of email that we use internally at The Fool has dropped dramatically since we started using Slack. For sure. This is much more immediate. It's a much easier way to collaborate with your colleagues, whether they're actually here in the office or not. Love it. It also makes it easy to share files, whether it's documents, links to articles. It works with Google Drive, Salesforce, and you can tailor it to work with over 1,000 apps.

And as Ron said, the mobile app is great. It works on iOS and Android. It's going to help make your life easier and more convenient. Slack, where work happens. Find out why at slack.com. 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 Matt Argersinger, Jim Mueller, and Ron Gross. Shares of Broadcom up 8% this week. The chipmaker announced a $12 billion stock buyback plan that goes into effect immediately. Jim, I feel like this is a sneak preview of coming attractions across all industries. Not just coming attractions, but it's part of a long trend that started last December as the Trump tax bill was going through. I did some digging this morning. Boeing, in early December, announced $18 billion, which would be about 6% of the company. Pfizer, a little later in December, $10 billion added to the $6 billion they still had left. That's 7% of the company. I mean, it just goes on and on. Lowe's,

Applied Materials, Celgene, even your little tiny companies, $10, $20 million here and there. So, companies are flush with cash. They're getting more because their tax rates have gone down. And so, they have to do something with it. You don't spend capital, capex, and build plant just on a whim. You don't hire employees just on a whim. I mean, it'd be nice if they paid those employees a little bit more, but that's more the economics of labor and supply and demand than it is just because we have the cash. It seems, though, Matty, when you're just listening to the companies that Jim ticked off there, there are some that I just thought, Well, that makes sense, like Lowe's, because I don't think of Lowe's as a particularly

innovative company. Broadcom is a chipmaker. $12 billion is a boatload of cash. And I'm wondering if at least some people at that company are looking at that saying, shouldn't we be reinvesting this into the business? Well, and as an analyst and investor, I look at it and say, you know, it's interesting that a company like Broadcom, like you said, can't find other places to invest. And it makes me more worried about the overall market. I think, up until recently, 2007 was the high-water mark for buybacks. And of course, we know what happened shortly after that. And everything was great right after that.

Right. And so, I just feel like, at this point, the way the unemployment rate's very low, the economy is doing really well, these companies aren't finding things to invest in. That tells me maybe we're pretty late in the cycle here. Yeah, but I'd rather have them buy back their shares or pay a special dividend. I mean, that'd be great, rather than try to force the reinvestment and end up destroying shareholder value instead. I totally agree, Jim. I just think, for the most part, companies have tended to be bad timers. On buying back shares, definitely. A lot of companies do it really well. Most companies don't. Yeah. Most companies are buying at the highs and selling at the lows.

And from a societal impact, dividends and share buybacks accrue to stockholders, and there's far too many of us in this country that are not stockholders. So, I would love to see some of that be put towards wage increases. And, Batty, when we were talking earlier, you talked about special dividends and how they just don't happen that often. Why is that? That seems like such a win immediately for shareholders when it does happen. I agree. And actually, I don't have a good answer for it. Because one thing they do in Europe is, they tend to pay dividends based on your earnings or your cash flow. In the U.S., for whatever reason, a lot of

companies are worried that as soon as they pay a dividend, it becomes something that they have to do regularly, and they get locked into it, and then the stock sells off if suddenly they cut the dividend or don't pay it the next year. I just think that's the mentality. We've got to get rid of it. There's no reason we shouldn't have more special or earnings-based dividends in the country. And playing off what you're just saying, Matty, is in the U.S., they pay the regular dividends, and they work their darndest not to cut those things, because it's seen as such a bad news for the company. Busy week for Lucadia National. Lucadia

is a conglomerate with different business units, but that is changing. The company announced plans to focus on its financial services business by selling off its meat business and its stake in a car dealership. And if that's not enough, Ron, Lucadia is also changing its name to Jeffries Financial Group. Yeah, it's interesting. They're known as Baby Berkshire. Another company that is known is that Markel Insurance is also often called that. And if you like that about Lucadia being a diversified conglomerate, you may actually not like this move. This move is there to focus the company on its largest segment, financial services. And as you mentioned, as a result, they will change the name to

Jefferies Financial, and they will exit some of their other more diversified businesses. Now, I happen to like this. I think they're going to do well here. And Jefferies is a a strong company, and the former CEO of Jefferies is now at the helm of Lucadia as a result of the fact that Lucadia purchased Jefferies back in the day. So, I think this is going to unlock value. Selling some of these pieces off are going to result in nice gains, which should help bridge the gap between what people think Lucadia should be worth and what it's trading at. It's currently trading at about 80% of its book value, which is a pretty big gap. If you ever saw Berkshire trading at 80% of its book value, you would see Warren Buffett dump cash and buy back as much stock as he possibly could.

Yeah, it's fascinating, Ron, because I feel like Lucadia, if you look at some other ones like Allegheny, conglomerates who have taken the Berkshire Mold, they all seem to be trading at book value or less. And I just wonder, Lowe's is another one that comes to mind. And I just wonder why the market tends to be so pessimistic about these conglomerates. I think they're hard to value. Some of the parts analysis is sometimes difficult. I mean, they're trying to take advantage of it by buying back a ton of stock, which makes sense at these levels. But there is often that gap, as you mentioned. We like it when executives are aspirational, and we also like it when executives are very transparent and clear-eyed about who they are and what they do.

And I thought that was very nicely captured in the announcement this week in which Lucadia's management referred to itself, and I'm quoting here, as a highly diversified but relatively random group of assets. I thought that was perfect, because it's like, yeah, there's the conglomerate, but then it's like, wait, you have a car dealership? They own part of an Italian telecom? It does seem sort of random. Yeah, they're by no means going to be a pure play financial services company, but they're going to be more of a pure play that you'll be able to analyze more directly, like you would a financial company, and maybe that will close the gap between valuation and stock price. One last thing that Lucadia announced

this week, doubling their stock buyback plan. Of course. Like Starbucks, Dunkin' Brands is dealing with a California judge's recent ruling that coffee needs to come with a cancer warning on it. But unlike Starbucks, Dunkin' Brands is testing an array of new food offerings, including gluten-free brownies, pretzel bites, and doughnut fries. Ron, I'm not going to lie, the doughnut fries part of this story is what sort of pulled me in. But I actually think from a business standpoint, this is pretty telling that Dunkin' is willing to test a lot of new food options. And when it comes to Starbucks business, the food is the most uninspiring part.

Yeah, I was actually pretty impressed with the new offerings that Dunkin' is going to be offering us. The pretzel bites, as you mentioned, alone were intriguing. I'm going to taste the chicken nuggets, the waffle-coated chicken nuggets. I don't know how we'll hold out a lot of hope, but I'm going to make a visit to Dunkin' just to see. Well, we do have one just across the street. Well, and that's the thing, they've got six or seven different things they're testing out there. If a couple of them hit, that's perfect. Home run. That's all you need.

Matty, since you and I are native to New England, I want to ask you about the other recent development with Dunkin' Brands, which is the first location in New Hampshire that comes with the new name they're testing, which is simply just Dunkin'. They're dropping the donuts. How do you feel about that? I feel uncomfortable about this. I mean, it's always been Dunkin' Donuts. I mean, you know, I just was visiting my parents actually recently.

My dad just turned 70. But they call it Dunkies nowadays. They're always like, yeah, we're going to Dunkies, you know? That's not a thing. I know. No, but hey, so the donut part, it feels important to me, but I can see why, with everything they're doing, why they're doing it. Will the logo change? The DD? Are we just D? It's just one D now.

Let's go to our man behind the glass real quick. Steve Broido, can I interest you in donut fries or possibly pretzel bites? I don't know. Well, give it some thought and get back to us. All right, Ryan Gross, Matt Argesinger, Jim Mueller, guys, we will see you later in the show. Mark Zuckerberg went to Capitol Hill this week, so how'd he do? We'll ask the man who wrote the Facebook effect. David Kirkpatrick is next.

Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. This week, for 10 hours over a two-day period, Mark Zuckerberg answered literally hundreds of questions from members of Congress. And here to help us make sense of it all is David Kirkpatrick. He is the founder and CEO of Toconomy Media, and he's the author of the New York Times bestseller, The Facebook Effect, the inside story of the company that is connecting the world. David, thanks so much for being here.

It's really good to be with you. Thanks for having me. Let's start with the man himself. when you watched Mark Zuckerberg. How do you think he did? Well, on balance, I think he did excellently. I think that it would not be easy for anyone to go through a 10-hour marathon over two days with something like 80 people interrogating him for four minutes each, and many of them in an extremely hostile manner. I think considering how taxing that is by definition. He kept his cool quite well. I think there were some occasions when he didn't answer quite as fully or as forthrightly as I think he would have been

advised to do. But I think on other occasions, he went beyond what people would have expected. And I was impressed at things he said. Clearly, he took it all extremely seriously. I don't think he made a major faux pas. That's something that's always what everybody's watching for. So I would say, you know, considering what could have happened, it was a successful outing. When Zuckerberg was asked about, for lack of a better term, the data breach, what was happening with Cambridge Analytica and others accessing the data on Facebook and when he talked about how essentially we we weren't really aware that this was happening do you believe him when he says that yes uh sadly I do it shouldn't be the case but I believe it you know it's all an issue

of controls you know the way the facebook mindset kind of calculates what happened is that they and he didn't really say this much to congress at least not in the portions that i heard and i wasn't able to listen for the entire 10 hours i confess most of it um they think the reason it all happened is that they're too trusting and that when they opened the uh app a platform in 2007 and continued to develop it until 2015 as a very open platform in which while they had rules for developers they pretty much were operating on the honor system that the developers were abiding by the terms that they said they were abiding by and and they feel now that what they learned in this instance and now they're suspecting it could have happened in way too many other instances is that

some of the developers just simply didn't follow the rules and surprise surprise you know they missed that and you know it is kind of hard to understand how they could have been so credulous and so trusting and but that's the way they think of it that it's because we're such good guys and we expected people to be honorable and and you know do the right thing that this all happened now i think that's a crock by the way because the reason it's a crock is that you know anybody who builds a system of this power and gravity and scope has an obligation to society to imagine how it would be used for ill. And that has been true from the day they created it. I don't care how young they were. And maybe in the very first couple of years, Zuckerberg gets a little bit of

a pass because he was literally working out of a dorm room or out of a rented house in Palo Alto with two other, you know, pot smoking teenagers. But the fact is, you know, after maybe 2006, there's just no excuse for not having operated with essentially paranoia, because that's the way you have to operate in the digital world. And they didn't. And that's why it all happened. So I don't know if I answered your question. I think you did. One of the things that Mark Zuckerberg said was that he believes that regulation is inevitable. What form do you think regulation of Facebook and the advertising business that it is very much in takes? And what do you think that actually does to Facebook's business? Well, if I could answer both what I

think it will take or what I think it should take and what I think it will take are two different things. In other words, what will happen is we will have fairly simple minded privacy type regulations. You know, if we're lucky, they'll go somewhat in the direction of the European GDPR stuff, but not all the way. We certainly don't want things in the US like the right to be forgotten and that kind of thing, in my opinion. But but people, you know, should have even more control over their data in Facebook. Facebook needs to have much simpler privacy controls. I think that was an obvious conclusion from the barrage of complaints he got from the senators and congress people um but you know what really should happen which is certainly not going to happen

and it really could not happen and it's sad is that we need governments that are savvy enough when overseeing algorithmic systems that have social impact, that the government itself should deploy algorithms as its regulatory response in part. And basically, you could even say it's AI, watching AI is the way the system should go down the road. The government should essentially be inside Facebook's systems with its own software to just monitor it. That's my opinion. I don't think we're anywhere near that because we don't have a government that even knows how to deploy algorithmic regulation. And, you know, probably no other government in the world could do that very readily either, except possibly the Chinese one, which I'm sure does do

that. But given that we're not going to get that, what we'll get is a patchwork of efforts coming from a variety of different places, we certainly will get these disclosure rules on political advertising, the Honest Ads Act that's already gaining some momentum, where you'll be able to click on an ad and see not only who placed it, but all the other ads they placed, etc. I think there's a lot of people who are arguing rightly, and I think intelligently, that that same kind of disclosure ought to be applied to all ads on Facebook. And, you know, that's a step in the right direction it is going to be iterative because this problems are iterative but you know the way i look at the whole situation is you know the cambridge analytica problem is a symptom not a

disease uh the real disease is that facebook has more social weight than society knows how to manage and its its impact as the town square and as a commercial company is a fundamentally new reality that we don't really know how to manage and figuring that out is going to be time-consuming iterative and require increasing maturity of government's technological competence i don't think the citizens of the united states or the 190 other countries where facebook operates want it to be banned you know um i saw today that some people were getting excited on social networks about an absolute ban on targeted advertising that would be way overkill i think because it would essentially undermine the business model of a lot of the things we really

care about maybe i'm wrong about that i hadn't really ever thought of that as a real possibility until today seeing that discussion but if that were to happen it would really cut into facebook's profitability big time, as well as Google's, as well as Microsoft's, as well as, you know, name your consumer-oriented internet company. But there will be a lot of different kinds of regulation. And again, in 190 countries, the EU at least has the advantage of sweeping together 20-some countries into one set of rules. The rest of the world, Facebook doesn't have that luxury. So you could see some huge complexities on their part managing the challenge of patchwork regulation occurring all over the world on multiple levels in multiple areas of their business. When you and I spoke last fall, one of the things you said was that if you were a shareholder of Facebook stock, you would be concerned with the fact that Mark Zuckerberg prioritizes the company's mission over its profitability.

given everything that has unfolded this week and given that the scrutiny that Facebook is under is greater now than it was six months ago? Do you think all of that combines to push Mark Zuckerberg even more in that direction? Yeah, it's funny. I forgot that I said that to you because I just published a huge piece in Time Magazine today, a six-page piece in which i say that he has essentially strayed more institutionally or allowed the company to stray more towards making money than fulfilling the mission and that's partly why he got in all this hot water and that the company has always had an essential intrinsic schizophrenia or identity crisis or ambivalence to be kinder about it between is it a humanitarian organization that

is aiming to connect the world and build community or is it a profit machine based on targeted advertising and it has tried to be both with them sort of being more or less mutually beneficial growth being mark zuckerberg's big goal growth at all costs funded by advertising but i think the money has flowed in so freely that it has blinded them to some degree to the sense of gravity of the project they were engaged in, and it allowed them to think they were doing a better job at serving the users who they really should think of as customers, in my opinion, than they actually were. The reason they don't think of them as customers is because they really aren't customers, because

the real customers historically have been the advertisers. They need to make a more decisive shift in that direction. Whether it results in less ad revenue or not, I'm not positive, but I think it very well might. But I do think Zuckerberg, as he said explicitly in his testimony on more than one occasion, both to the House and the Senate, ads are never going to be more important to him than connecting people and building community. He also hinted at the possibility of a paid service, which would actually turn the consumers of Facebook into paying customers of Facebook, some of them in theory anyway. Do you think Facebook ends up offering a paid version? And if so, what does that even look like? You know, it's funny that

You could almost imagine a legal requirement that they do that. That's one way regulation could go, which would be an awfully bizarre thing to say, no, no, no. You have to make money a different way. But maybe. Yeah. But that does happen occasionally in regulation. I would never have expected they opened it up as much as they have in the last week as a possibility, because it's certainly not something they want to do. I think for people like us or your listeners and readers, the amount they would have to charge to compensate for the losses they would be able to, you know, in what they'd be able to charge advertisers would be substantial. I mean, like $100 a year ballpark, I would think, because even though the average revenue per user for Facebook in the United States is somewhere in the vicinity of $30, that's an average. people who are affluent are much much more valuable um and so those are the people who

would be most likely to pay and those people would have to pay a lot more than the average in order to compensate for the lost revenue from targeted ads so you know i think it's a terribly difficult thing because they'd have to have pretty much a flat rate and if if the rich people were all the ones who took it which is probably what would happen it it would be result in a net loss of revenue in the developed countries. It may still happen. And Facebook has so many users and so many levers to make money that it might be OK. But it's they will do their darndest to avoid having to charge users. And it really does shock me that they opened the door to it as much as they did. I think, you know, it was sort of one of those things where

the nature of the questioning on several occasions was so tenacious that it was almost the only thing he could say to kind of make it sound like he was a reasonable human being. One of the things we've talked about on this show recently with regards to Facebook and everything that's gone on the last few months is the prospect of Facebook having fewer options in terms of what they can do in terms of business. There were reports that they were going to have a home assistant that appears to have been put on hold. The possibility that Facebook would get into the payments industry, that seems like it's

far less of an option. If Facebook has fewer options, do you think that increases the likelihood that they actually do get further into media, whether that's streaming live sports, movies, or something else? You know, any of those things could happen. But look, I am not the slightest bit worried about Facebook's profitability. I mean, you guys know numbers. Facebook has the highest net margin of any company of its size in history the thing i could i just slightly broaden the the whole discussion just to make a big point to your to your listeners absolutely i think what is so easy to forget about facebook which i've hinted at and mentioned a little bit already in this conversation is that there are a number of superlatives that apply to them that have never

applied to another company i mean let me just give you a few the largest aggregation of human beings for any purpose in the history of humanity the most profitable large company in the history of capitalism the richest young person in the history of mankind uh probably the most unilaterally controlled large company certainly in the internet and there's very few companies of this scale and certainly of this profitability that are 100 absolute monarchies looking at your logo of the uh of the crown like motley fool logo uh you know he's like a king you know even rupert murdoch doesn't probably have the kind of power in his companies that zuckerberg does you know he has absolute authority it's bizarre um so so those are a lot of things that cannot

be said to apply to other let me give you a few more they are the town square for humanity and they're a commercial company. That is another fundamental, unique, bizarre reality. And you have to keep all these things in your head to really assess what you're dealing with when you think about Facebook. And I think a lot of people fail to keep a lot of those things in their head and they sort of default to thinking it's just another company. It isn't just another company. It is a unique historical institutional phenomenon of the likes we have never seen before, and it requires new thinking and different thinking. I think some of the senators in Congress, people sort of got that. Most of them didn't.

I would say most investors don't really get that either. The book is The Facebook Effect, the inside story of the company that is connecting the world. It is a New York Times bestseller. David Kirkpatrick, I know it's been busy for you this week. I really appreciate your making the time. Thanks so much for having me. Up next, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money.

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are you looking at this week? All right, Chris. In 2017, I invested in a basket of eight biotech stocks, and one of them is Bluebird Bio, ticker symbol B-L-U-E. Very early stage biotech focused on cancer treatment, inherited blood disorders, metabolic disorders. As I said, very early stage, buyer beware. This could be quite risky, but also quite lucrative if they succeed. Steve, question about Bluebird Bio? Any medications in the pipeline right now? They have one that is licensed to Celgene Corp, which is kind of their big hit so far. Jim Mueller, what are you looking at? I'm looking at Kinder Morgan, ticker symbol KMI. This is a big pipeline company that moves a good portion

of the natural gas around the country. It was a big popular company for dividend holders. But when they slashed the dividend, the share price just cratered. But now management has the cash to raise the dividend again. And so I think it's a good time to get back in. Steve, question about Kinder Morgan? Yeah. Prices that I pay at my local gas bills, do those have any impact on a company like Kinder Morgan? No, Kinder Morgan gets paid by the contracts that they have, and they're basically take-or-pay, which means they get the money. Matt Argersinger, what are you looking at? I'm looking at iQiyi, probably no surprise here. The ticker is iQiyi. It went public two weeks ago. It fell sharply on the

IPO day, but it's since rallied above its $18 price. As of the end of February, 60 million subscribers, roughly half of what Netflix has. But iQiyi comes with a market cap that's about the 10th of the size of Netflix. So, it also has a great advertising business, It's a company I'm very intrigued by. Lots of competition, obviously, in the space. But I bought shares on day one, planning on holding them for a while. Steve, question about iQiyi? What does iQiyi do?

It could be called the Netflix of China, but it's a video streaming service. It's kind of like a YouTube-Netflix hybrid in China. Biotech, oil, Chinese video. You got one you want to add to your watch list there, Steve? I think I'm going Chinese video. There we go. All right. All right.

Drop us an email, radio at fool.com. Earnings season heats up next week, and we want to hear from you. Radio at Fool.com. Jim Mueller, Matt Argesinger, Ron Gross. Guys, thanks for being here. Thanks, Chris. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido.

Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.