Motley Fool Hidden Gems Investing - PayPal Finally Finds Its New Chief

Episode Date: August 14, 2023

PayPal finds its new leader over at Intuit; can he make this fintech shine again? Jason Moser and Deidre Woollard discuss: - Dan Schulman’s report card as a CEO. - What Alex Chriss might, or might not, bring to the party. - If a potential deal for U.S. Steel could be a winner for U.S. infrastructure. Companies discussed: PYPL, X, CLF, INTU, META, TSLA Host: Deidre Woollard Guest: Jason Moser Producer: Ricky Mulvey Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

A new CEO is set to take the helm at a major fintech and big drama at big steel. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Deidre Willard here with Jason Moser. Jason, how are you doing today? Hey, doing great. How about you? I'm doing great.

I love it when there's a Monday with some fun news or at least some interesting news. And I was excited to see that we have a new PayPal CEO announcement on the day we have Mr. War on Cash himself in the house. It feels like fate to me. So we've known for a while Dan Schulman was on the way out as the CEO of PayPal, but now we know who's on the way in. And it's Alex Chris, who I hadn't really heard of, felt like kind of a dark horse candidate to me.

He did 19 years at Intuit, most recently Executive Vice President and General Manager of Intuit Small Business and Self-Employed Group. Young guy, most of his experience at one company. What's your take here? Yeah, I mean, this is perfect timing. I mean, I just spent the morning Venmoing cash to my two daughters. So just, you know, listen, this stuff works. I do really appreciate the fact that we can do it. But I said on the Friday show a couple of weeks ago that it really felt like PayPal

could have taken the entire year off of reporting earnings and just pick up when they actually announced a new CEO, because to me, that's been really the biggest storyline with the company over the last several quarters. Once we knew that Dan Shulman was going to step down, anytime you see a CEO announce that, well, of course, the next question goes to, well, who's going to fill his role? And then what are their priorities going to be, right? And I think that, you know, PayPal is a well-established business, right? They serve a lot of people and a lot of businesses around the world, but it's also a business that's going through some growing pains right now. And, you know,

waiting for a new leader to take the reins, you kind of just, you don't really know where you don't know where this business wants to go, right? What are the priorities going to be? Will new leadership's priorities line up with former leadership? And that remains to be seen. But I do think, I mean, just from looking at the information, reading a little bit about Alex, Chris, I mean, I think this is a sensible hire. I mean, Alex has the experience with Intuit running the small business and self-employed group, as you noted. I mean, that is a big deal because that essentially accounts for about half of Intuit's overall revenue and a considerable crucial component of the company's overall operating profits. And so, certainly a lot

of experience there. I like that you're getting someone who has a lot of experience in that sort of finance and tech world. So, it should be a familiar place for them, I think, to get settled and to start trying to take this company forward. Well, you're really replacing someone who's been with the company since the spinoff in 2014 from eBay. He's going to stick around until 2024. So that gives him the good 10-year run. Marks on Dan Schulman have been, I feel like, kind of mixed. Like in the beginning, start of the company, he's the hero. PayPal's just crushing it. Less so now, maybe. On the whole, how do you think he might be remembered as a CEO? Yeah, I do think that's a good question. It's something worth thinking about because

it's been a little bit of a bumpy ride for him. There was a stretch where it felt like he could do no wrong. I think on the whole, he'll likely be remembered more positively than not. But he's led the way on some acquisitions that make you wonder, some things that haven't panned out as well as I'm sure he'd have hoped. He was really big on that super app concept not all that long ago, right, making PayPal sort of this destination where you can get all of your financial affairs in order. And I just don't know that's really what people want. I think they came to that realization pretty quickly, and they pulled back on that, realized they needed to focus more. You know, he seems like a fairly humble guy at the end of the day. I mean, we've certainly heard

in calls more recently acknowledging some mistakes along the way. And, you know, nobody's perfect. I I mean, he's going out, I think, with a few more question marks than he would care for. Certainly, from a stock performance perspective, he's going out with, unfortunately, a bit more of a whimper. During his tenure from July 20th, 2015 to now, I mean, you've made money if you were an investor in PayPal, but, I mean, the stock has only returned about 70% and it's trailed the broader market. And there was a peak in there during the last several years where really it looked like

sky was the limit for this company. He certainly had a track record before PayPal. He was the President and COO, and then ultimately the CEO of Priceline.com. He was only there for a short period of time, but saw considerable revenue growth with Priceline. He has a good track record. I think timing, as they say in life, is everything. He's probably leaving at a time where there will be some more question marks than probably he deserves. um but the market as as investors you know we we we are ever forward looking yeah yeah and i think i feel like the super app idea is something that a lot of companies are chasing we've talked about it before on the podcast it it's harder to pull off than it it's a it's a great buzzword but it's

harder to pull off than it sounds sometimes it is and i don't know i just at the end of the day i don't know that people really want that i mean i know like you're seeing elon musk in in with Twitter or X or whatever you want to call it, that's the goal there. I just don't know that that is going to work because I just don't know that's what people want. I know that he'll quickly point to something like WeChat in China. While he's correct, that's a super app in that part of the world, I think that's very culturally specific too. I just don't think that generally is what folks want, right? I mean, in investing, we talk about it all the time. You don't want to put all of your eggs in one basket. I mean, generally speaking in life, I think that's

pretty good advice, which makes me think this super app concept just isn't really going to gain any traction anytime soon. Yeah. And Bill Mann pointed out recently that WeChat gained prominence because there was nothing else. And that's not the case when you're trying to make a super app in the U.S., whether it's Uber or PayPal or any of them. We've got a lot of super apps that aren't necessarily super apps. That's a great point. Well, we have a question from our producer, Ricky Mulvey, which was, what would you ask Dan Shulman in his exit interview? What would I ask Dan Shulman in his exit interview?

Wow, that's an interesting one. I'd love to know his honest thoughts regarding the Honey acquisition. I mean, I'd ask him a lot of questions. But one that stands out to me, because I'm still not certain it's really... one that worked out as well as he would have hoped, and they paid a good chunk of change for it as well. But in hindsight, would he have acquired Honey knowing what he knows today? I think that would be at least an interesting place to start. Because again, you look at some of these acquisitions they made, and they haven't really worked out as well as probably they would

have hoped. There was this recent rumor with Pinterest. I think the Pinterest rumor, we started to see a lot of investor pushback. There were a lot of people that were out there just like, what in the world are you thinking about? Just stop it with these silly acquisitions and focus on getting your business back on the right track. From that perspective, looking back at the Honey acquisition and getting his unfiltered and honest thoughts on that one. I'd be curious to know that. Acquisitions is kind of an interesting thing because you've got Alex Chris coming in. He gets credit for Intuit's acquisition of MailChimp, which was also an acquisition that didn't necessarily feel like it was a fit. It's turned out pretty well

so far. So do you think that given PayPal's past history of acquisitions, is Alex Chris coming in and thinking more acquisitions or maybe not so many acquisitions? Well, that was when I was going through the exercise of assessing this hire. You look at pros and cons. The pros, strong background in tech and finance with Intuit, somewhat of a proven entity in that regard. But the con, the one con that really stood out to me, and it's really more of a question mark, is regarding acquisitions. The MailChimp deal seemed like it worked out okay, But, you know, that would be really my question is going forward. Is this a company in PayPal that feels like acquisitions are going to be a priority?

Because it doesn't feel to me like it necessarily needs to be. I feel like there are plenty of organic growth opportunities left for PayPal before they really need to start looking at acquisitions. Acquisitions can be good. You know, if you're bringing in something where it gives you new capability, new functionality that, you know, that customers are demanding, but oftentimes acquisitions, you know, they don't work out as well as the headlines, you know, say at the time. So, yeah, I'd love to know sort of his perspective, at least in the near term, like where is his mind in regard to acquisitions? Because, honestly, I would much rather see a focus on the business, you know, focusing on getting this business back on track. I mean, you've got this huge network of users, two very valuable platforms in Venmo and PayPal alone. Just seems like a lot of opportunities there.

So, it's not the con, but at least it's the question mark I would have. Yeah. Yeah. I think acquisitions, we get very excited about them in the beginning and then we check in a year later and they've been sort of tucked aside. So yeah, it does not always work out. A lot more common than we tend to realize. Yeah. And we had another CEO announcement this morning. Carlos Abrams Rivera is taking over at Kraft Heinz. This is kind of a different story, someone who's been with the company off and on for a while. So thinking about these two stories at PayPal, you know, this is big news. At Kraft Heinz, maybe not so much. Sometimes it seems like you want a fresh face from outside. Sometimes it seems like you just want someone who knows the

company pretty well. Seems like that's what's happening at Kraft Heinz. Do you think with PayPal they really needed to have that fresh face because they are at a little bit more of an inflection point? Well, one thing's for certain is the status quo with PayPal right now isn't working. So, something definitely needs to change. And getting that fresh set of eyes often can do that, right? It's not to say that Shulman didn't know what he was doing. Clearly, he did. But he also went through an exceptionally abnormal stretch here over the last three years, and I mean, certainly PayPal wasn't the only business. I think these last few years, through a monkey wrench in virtually every executive's plans, but we're obviously well

past that and moving forward now. Getting a fresh set of eyes, they can maybe focus less on the legacy problems and more about the path going forward. Sometimes it can be something just that simple. It's an exciting time for sure, particularly for a business like PayPal. You've got a company like Heinz, they're dealing with a different set of issues there. But with PayPal, you see so many opportunities in this space in the coming years. It would really be a shame to see a a company with this type of network not be able to capitalize on that. Yeah, absolutely. Well, let's turn to a far more kind of staid industry, steelmaking. Things got dramatic, though, last night with U.S. Steel and Cleveland Cliffs. I'll break it down sort of quickly. U.S. Steel,

they trade under ticker X. They kind of spurned an offer from Cleveland Cliffs, which is a larger steelmaker. Together, they would have created one of the world's biggest steel companies. It was a war of the press releases last night. U.S. Steel saying it rejected the offer, partly because Cleveland Cliffs didn't sign an NDA. This deal apparently has been in the works for about a month. Now it's all public. Now it's all out there. We know Cleveland Cliffs was going to pay around 42% premium to acquire U.S. Steel.

U.S. Steel's open letter to Cleveland Cliffs, they kind of left the door open for negotiation. Is this just sort of like a little brinksmanship happening here? Could this deal still happen? I mean, I think it could still happen. I mean, this does feel like a negotiation tactic, perhaps. I mean, this is obviously an industry where we're seeing a lot of consolidation. The deal itself, I mean, it would value U.S. Steel at around $7.2 billion. And that's around five and a half times trailing net income. I mean, that's not really a bad price based on historic multiples here. But again, if you've got multiple unsolicited offers, well, there's

clearly some interested parties there. And that means there's a lot to go through. There are a lot of things to consider. And you don't want to be hasty in a time like this. So, I certainly understand their decision to go ahead and try to take this more slowly. I never know about the multiple offers. That always feels to me like when a real estate agent says, oh, we have multiple offers on the house. Maybe they do it, maybe they don't. Could be part of the negotiation tactic, right? Absolutely. And there's another aspect to this, this is interesting, is the United Steelworkers. So according to their collective bargaining, they have the right to counter any proposal to take over U.S. Steel. They published a letter saying they endorse the

transaction with Cleveland Cliffs. They wouldn't endorse anybody but Cleveland Cliffs. Cleveland clips. Of course, they published this on their website. They're very proud of this. They think this is sort of their big bargaining chip. But the only thing I was wondering is, does that mean that U.S. deal could be sold? Maybe it couldn't be sold entirely to someone else, but are there parts of it that might be valuable? And could the deal happen that way? Well, I know they certainly are looking at it from that perspective. I guess it really just kind of boils down to what kind of teeth that endorsement ultimately carries. And then a counteroffer on the part of the steel workers, that doesn't imply that U.S. Steel would actually have to accept it, but it certainly makes

United Steelworkers' position very clear here. Yeah, absolutely. You know, it's funny because we don't really talk about U.S. Steel a lot. I happen to be reading Ron Chernow's book from the 1990s, House of Morgan, which is really fascinating. It talks about J.P. Morgan's original creation of U.S. Steel in 1901. Thinking back on this, this was the biggest corporation in the world at one point. I mean, founded by J.P. Morgan and Andrew Carnegie, Charles Schwab, some others, like these giants, right? Now it's no longer even in the S&P 500. We don't think about it much in today's world. But U.S. Steel and big steel, are they still important for the U.S., I know we're no longer the biggest steelmaker, that's China, but steel does matter

to the U.S., doesn't it? Oh, it absolutely does. I mean, it's fascinating to think about something that's so crucial to our nation's infrastructure as really not being that great of an investment. But frankly, that's what it's been. I mean, at least from a buy-to-hold perspective, right? I mean, if you're just buying these shares and hanging on to them, I mean, this just hasn't really worked out all that great over the last several years. Now, I mean, there are cycles to these things, and in much like energy, if you can time those entry and exit windows, then more power to you. That's a little bit of a different style of investing than we typically embrace here at The Fool, obviously. At the end of the day, right,

steel, I mean, it's a commodity. There's not really necessarily a competitive advantage, so to speak, in the product, maybe as much as a competitive advantage in the way the business is set up. And I think that's one of the bigger concerns with U.S. steel. It's kind of a legacy operation that hasn't been modernized to the extent that some of its competition has, namely Cleveland Cliffs. So, yeah, it's always interesting to think about that, right? And I mean, you made the point about steel not just being a domestic product here, right? We deal with a global supply chain in regard to that. And there are tariff protections that try to encourage domestic production and stifle at least, or make it more costly at least for importing.

And I suspect we'll probably see that continue. Yeah. Yeah. And it hasn't been, you'd think that a company like this might be a good dividend payer. It hasn't, I mean, dividend yield less than 1%. It's not a great dividend play at all. No. And it's extremely capital intensive, right? I mean, making steel just requires a lot. Yeah. The only thing I'm thinking about is given what we know about the push for infrastructure and U.S. domestic products, you've touched a little bit on the tariffs. Given that we might see a real infrastructure push, is there potentially, you know, we don't want to time the market, but is there potential growth for steel? And if this company were to come to pass would obviously have, hopefully, grab a bigger market share.

Well, yeah. And I mean, that's something to always pay attention to, right? We look at bigger picture sort of macro forces that can drive markets like these. And I mean, I think looking at semiconductors, for example, and the recent developments in regard to the CHIPS Act and trying to bring more of that at home as we deal with this ongoing growing demand. I think it really boils down to understanding sort of the demand forces at play here when it comes to steel. That can be a little bit trickier because so much of that depends on actual federal funding and how states and municipalities are all going to approach this on their own terms. I mean, And it can be very difficult from a timing perspective, but there's absolutely no question

about it. I mean, any time you look at the state of our national infrastructure, it always seems to be that we're getting like, you know, that C grade, right? It's like a C or a C plus. It always needs to be a little bit better. And that, I don't know, ever will actually go away. But you would hope that that does continue to spur some demand, which ultimately could create some opportunities for investors in the space.

But again, it's such a difficult one to time, right? I mean, we always talk about timing. And I think that's what makes energy so difficult is it just these things go in cycles. It really takes a lot of attention into understanding the cycles and what drives those cycles. If you can dig in and really get comfortable with understanding the nature of those cycles and what drives them, there's absolutely money to be made. But again, it's a little bit of a different style of investing. And so I think you need to take that into consideration.

Yeah. And anytime you're trying to figure out when something is going to be built in real estate, certainly I have seen so many timelines go so far wrong because so much of it is dependent on the economic cycle. And so there can be plans to have something be built. I mean, we saw it during the great financial crisis. A lot of things were going to be built and then were not built because the financial situation shifted. Exactly. Well, let's wrap up with something silly. I like to wrap up Mondays with something silly. There's two things we had an update on, it seems like, every week this summer, which is Barbie Bach's Office and the Musk-Zuckerberg cage match. Barbie Bach's Office, so one of those is on track to do, could be the biggest movie of the whole year.

The Musk thing, it's on, it's off, it's off, off again. Zuckerberg said on threads, he's just trying to drive attention to threads. Oh, no, I'm moving on. I got to deal with people who are serious about cage fighting. This isn't Musk. So what do you think? Is it going to happen or not? You know, this is really bizarre. I mean, I can't imagine in what world this seems like a good idea. First world problems, I guess. I mean, you know, I think that Zuck is doing the smart thing here. I just don't know that many, if any, really thought that Musk is actually serious about this. I mean, I certainly didn't. I mean, I don't, I take everything he says with a huge

grain of salt. But I mean, when you just look at sort of the state of this, right? I mean, you get Zuckerberg, he's 12 years younger, clearly in better shape. I mean, he's far more proficient in this arena, I mean, he's been training like mad. I mean, this is something he really cares about and takes very seriously. I mean, it just doesn't make sense. I mean, I just, I don't know. I mean, you can always take any crazy idea, and if you throw the word charity in there, then it makes a lot more sense. And so, perhaps from that perspective, they feel like there's a real opportunity from a charitable perspective. And that's great. Again, I don't know that I ever thought this would happen to begin with. And frankly, if I'm an investor in one or

more of Elon Musk's companies, and I'm not, but if I were, I would look at this and think, you know what, this is not good. Because kind of going back to that all of your eggs in one basket notion there, I mean, Musk is running a lot of different companies and doing a lot of different things. I mean, if that guy goes out of commission for anything, it's going to throw a lot of question marks out there. I mean, there are going to be a lot of question marks in regard to what the future holds for many of these businesses. We just saw the CFO step down from Tesla. He was viewed as a potential successor to the CEO role if and when Musk decides to step down from that. So, yeah, I mean, at least with Mark Zuckerberg, I mean, you feel like at least if he

was injured, he'd be able to recover more quickly because he's so much younger. I mean, there was no real planet where any of this made any sense. And, you know, I think Musk is kind of the guy where he, you know, he shoots first and aims second. And so you have to take everything he says with a grain of salt, I think. Yeah, I think the thing that the reason I like this story is it's their particular styles are very in display here. Zuckerberg, he tends to have short, intense bursts of focus on things. You know, he has that thing where like every year he tries something, you know, he learned to kill his own animals, you know, he'll, he'll, he could really zero in on things. Musk is kind of the opposite. It's the total opposite. What's the new shiny toy

today. And, uh, you know, that's got his, that's got his attention and, um, that sometimes it works out very well, sometimes not so much, but yeah, I, I think just in, in, in looking at seeing how Seriously, Mark Zuckerberg has taken this. It's something that is important to him. It seems like it's something he enjoys. It seems like something he wants to be really good at. We're talking about an actual physical battle here. We're not talking about playing chess. Yeah, good point. Well, thanks for your time today, Jason. Thank you. 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. I'm Deidre Willard. Thanks for listening. We'll see you tomorrow.