Motley Fool Hidden Gems Investing - Tech Titans: Infinity War

Episode Date: April 27, 2018

Amazon hits a new high, and raises the price on Prime. Alphabet racks up big profits amid higher spending. Facebook posts record revenue, while Microsoft’s cloud goes higher. Which one of these tech behemoths will get to a $1 trillion market cap first?  Jason Moser, David Kretzmann, and Jeff Fischer analyze those stories, as well as the latest results from Visa, PayPal, Baidu, Twitter, Chipotle, Intel and more.  Plus, we dip into the Fool Mailbag and share a few stocks on our radar. Learn more about your ad choices. Visit megaphone.fm/adchoices

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But you can give them to the birds and bees 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 Jason Moser, David Kretzmann, and Jeff Fisher. Good to see you as always, gentlemen. Hey, hey. It is Earnings Palooza.

We've got so many companies reporting earnings. We didn't even have time for a guest this week. But as always, we will give you an inside look at the stocks on our radar. We will get to the tech giants, Alphabet, Facebook, and Microsoft in just a moment. But last week, we started the show with Amazon CEO Jeff Bezos revealing the company has 100 million members in Amazon's Prime service. This week, we begin with Amazon's first quarter report. Profits more than doubled, and the company announced it is raising the annual fee for

Prime membership from $99 to $119. Jason, it is the first time in four years Amazon has raised the membership fee, and I don't think anyone is going to bat an eye. I agree with you. It's a much better service today than it was just a couple of years ago. In regard to the quarter, what's to say? It seems like this was really just more of the same. For a company this size to be growing its top line at those rates is really nothing short of phenomenal. There's really no reason to think it shouldn't continue. They've guided for this current quarter for just under 40% top-line growth at the midpoint there. Operating margins for the quarter were up across the board. Amazon Web Services is operating on a

$22 billion run rate at this point. I mean, under the radar there, they have a multi-billion dollar ad business to boot. And so, I think there are just a lot of different ways for this business to win. A lot of headlines out there recently in regard to President Trump and the post office and whatnot. If you think that's going to have some sort of an impact on this business, I just advise you to lay off the hash pipe and think about this for a second. If the post office loses Amazon's business, their business goes from bad to worse. There's no reason to think that that's going to happen. If anything, the post office needs more Amazon, just like we need more cowbell, Chris.

Yeah, the market sees a lot of opportunity ahead, too, Jason. They just priced Amazon at above $730 billion, the company as a whole, making it larger, just a bit larger than Microsoft and Alphabet. And with good reason. All the revenue streams that Jason just touched on are all growing strongly. Some of them are very high margin, including the advertising business. And just incidentally, I saw a Prime Air jet at the Baltimore-Washington airport the other day, and it's a slick look in the airplane. A lot of Prime 18-wheeled trucks on the road these days, too, it seems. Yep, they're building that out.

And it's crazy with about 100 million Prime members, which Jeff Bezos unveiled in the shareholder letter a few weeks ago, and raising the Prime membership by $20, that means about pretty much $2 billion of pure profit added to the bottom line. So not too shabby when you have a subscription business with high retention rates. And I think it's also important to remember that we still haven't lapped the Whole Foods acquisition. So the revenue growth that we're seeing is kind of artificially boosted by that Whole Foods acquisition. But I think we're still obviously, in the very early stages of rolling out that online grocery delivery. Right now, in the U.S., online grocery sales still make up just about 3% of the total grocery market.

I think Whole Foods and Amazon combined are in a great position to bump that percentage up. You know, there was this story over a year ago about the grocery store that Amazon was developing in Seattle, where basically, you wouldn't have to go through the checkout. It would all be linked to your Prime account, they'd use near-field technology. Where is that? Is that coming? Should we expect that to be rolled out into Whole Foods? Or was that just an interesting test that needs a lot more work? I think it's an interesting test. It's probably technology that needs to be perfected. I'm a little bit more enthralled with the personal robot efforts. I don't know if you saw anything about this, but it sounds

like in about a year, they may be taking us one step closer to the rise of the machines, Chris. So, be afraid. Be very afraid. I'm already afraid. Alphabet is spending more money, but that's okay, because they're also making more money. Alphabet's first quarter profits came in just shy of $9.5 billion. David, that is really some serious cake. Yeah, that sounds pretty good. Revenue this quarter up 26%. As Jeff mentioned, this is a company worth around $730 billion. To be growing revenue at that pace is incredible. Earnings per share also up 28%.

The company is sitting on close to $98 billion in net cash. And that's after spending $5 billion on R&D this quarter alone, $7 billion on capital expenditures. So, the company still has to find something to spend that money on. But they continue to heavily reinvest back into the business. I think YouTube also represents a really interesting opportunity. One initiative that they are rolling out starting this quarter is something called YouTube Director. that'll be expanded to over 170 cities in the U.S. And that really gives small and mid-sized businesses access to professional filmmakers

who, for no charge, will create and edit video ads for YouTube. So, really investing heavily into that video advertising space. Yeah, we talk a lot about this space and really the leaders in it. Facebook, obviously, won Alphabet One. And we get the question a lot, which one would you rather own for the next five years, ten years, whatever? I can't help but lean towards Alphabet in this case, though, Because I feel like in five years, search is only going to become more valuable. It's going to become more useful.

And obviously, that's what Google's forte is, not to mention the fact that YouTube is such a phenomenal property, like David was saying. I feel like Facebook right now is really trying to figure out how to sort of take that next leap beyond just social networking, because that may not necessarily be as useful for people in the coming five years and beyond. Well, in that vein, my main concern with Alphabet would be voice search, taking on more and more search share, and how do they monetize that? But I like both companies, Google and Facebook, which we'll talk about today as well. Yeah, I think that one of the interesting things with Alphabet is how they have their section of the business, which is the, quote-unquote, other bets.

And they took Nest, their attempt at the smart home, and they basically moved that out of the other bets division over to the Google division, which certainly made the economics of the other bets division look better in terms of maybe not being profitable but losing less money. And I think to your point, Jeff, in terms of voice search, I mean, you look at what they're doing, it's really more about the Google Home device. That really seems like it is the big focus for Alphabet this year. Yeah, I think with Google Assistant, you have a lot of optionality there on phones, home devices, refrigerators, whatever it might be. And with Alphabet, I agree with Jamo that as far as optionality goes, I think Alphabet has so many different levers they can pull. They have, I think, seven products with over one billion monthly active users. So, so many different levers they can pull with that business in the coming years. All right, let's move on to Facebook.

first quarter revenue was a record high. Cash on the balance sheet, Jeff, has more than doubled in the past two years. This was one of those quarters that made everybody forget about Mark Zuckerberg's trip to Capitol Hill. More or less. Even though he opened the conference call with that, he said, our numbers were great, record high, but we have some bigger issues to fry. But to the cash balance, yeah, they're running at a $20 billion a year free cash flow run rate right now. Shares traded about 25 times that projected free cash flow. The sales numbers, sales were up 49%. Daily active users were up 13% to 1.45 billion. Monthly, also up 13% to 2.2 billion monthly active users. My overall takeaway, even though

expenses are expected to rise the rest of the year, up as much as 50% to 60%, is that I still like owning the stock, I would still be a buyer of the stock. The shares are inexpensive. The platform is proving extremely sticky. They're only still scratching the surface on ad revenue. Facebook, for example, has $45 billion in annual sales, almost all of it advertising. Google has nearly $120 billion in annual, mostly advertising, sales. So, meanwhile, the market just keeps growing larger and larger, and Facebook is taking more share, ads are becoming more effective. They did make a point that advertisers have not left, that they do not ever sell your data, that advertisers can target you, but they don't

know who you are. I think they're taking all the right steps, I sure hope, to make people trust Facebook again. I'm glad you mentioned the spending that is coming later this year, because I noticed in the media coverage, immediately after the release was dropped in terms of what their earnings report was, some of the reaction oh, see, the Cambridge Analytica stuff? No problem. It's all in the past. And to your point, no, as Zuckerberg indicated right at the start of the call, no, they are going to be hiring hundreds, if not thousands of people. They're going to be spending a lot more money. It's not showing up in this quarter. It's going to be showing up in the quarters to come.

Yeah, this particular quarter, I think, only included about 10 days after that Cambridge Analytica scandal broke. So we'll definitely be seeing more of that in the second, third, and fourth quarters this year. But I completely agree with Jeff. Facebook accelerated revenue growth and their margins expanded this quarter. So, they have plenty of cushion to digest any expense increases that are expected to come this year. The balance sheet is incredibly strong. Free cash flow grew 33% to $5 billion this quarter. So, I think they can handle the increase and expenses. And I also noticed they rolled out a national marketing campaign watching the NBA playoffs and lo and behold, saw a couple ads for Facebook pop up. Meanwhile, they're committed to

improving the user experience on the site as well. Even if that means, again, that you spend less time on the site, they want it to be more valuable to you. And they're ready for the general data protection regulation that rolls out in the EU on May 25th. And if it works as hoped, they may just use that universally, or at least the best parts of it, around the world. That is a little bit of a question mark, though. They don't know if those regulations will ding ad sales in Europe, but they're not that concerned about it. Shares of Microsoft have risen more than 40% over the past year, so maybe that's why Wall Street shrugged after Microsoft's third quarter revenue came in just shy of

$27 billion, Jason. And cloud continues to get it done for them. Yeah. I mean, you have to really love what Satya Nadella is doing for this business. I mean, he was such a great hire at such a pivotal time for this company. Cloud, as you mentioned, remains a big opportunity, and I think that makes sense, given the company's installed base on the enterprise side. They continue to grow the business across all three main business segments. Big opportunities in gaming. Obviously, we see Microsoft every day in some shape or form. And I think, if there's one place, one area where I think Microsoft is weak, and I think this is really probably the only place, it's mobile, right?

And I mean, you don't see mobile really anywhere in their releases. They only mention the word five times in the conference call, and even those five times were essentially meaningless. And that's a problem in a mobile world, right? So, when we talk about these companies that are growing so fast, the first company to a trillion-dollar market cap, for example, I mean, it's not to say Microsoft couldn't get there, but they're going to have a really hard time if mobile is not a part of that strategy. And so, when you put them up to companies like Amazon and Alphabet, I mean, the growth rates speak for themselves. I mean, Microsoft isn't keeping anywhere close to the pace that those tech giants are, even though they're investing

at that same pace. So, good quarter, good business. Just, you know, it's a difficult space to keep any sort of sustainable competitive advantage. Alright, real quick, before we wrap up, since you mentioned the race to a trillion-dollar market cap. We've got Microsoft and Google, just over $700 billion. Amazon, around $735 billion. Oh, yeah, there's Apple, $820 billion. Who are you picking in this race, David? David Gardner. Apple has a head start. I'll go with them. David Gardner. I've been consistent with Amazon. I'm sticking with it. David Gardner. I've been inconsistent. In the past, I've said Apple, and now I'm leaning

Amazon. David Gardner. Coming up, how is the war on cash going? We'll check the latest results from two of the biggest warriors. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, David Kretzmann, and Jeff Fisher.

You can catch Motley Fool Money every weekend on radio stations across America. Happy to welcome a brand new affiliate, WNTK 99.7 FM in New London, New York. Hey, welcome. Shout out to the Granite State. Shares of Visa hitting an all-time high this week after second quarter profits came in higher than expected. They also raised guidance and

Jeff, Visa, they're not going to get to a trillion first, but they are closing in on a market cap of nearly $300 billion. They are. And even at that size, they grew revenue 13% and they grew earnings per share 30% year over year. Now, 10 points of that was thanks to the new tax law. So, without that, they grew around 20%. Still really impressive. For the whole year, they expect earnings per share to grow in the high 20% tile range. The stock trades at that same multiple to earnings, so it looks reasonable. What's happening, Chris, is economic activity continues to pick up around the world. Plus, cash continues to get eaten away by credit card usage. And there's been a lot more

cross-border economic activity, which is high margin, even higher margin for Visa and MasterCard. And there's India to consider. 1.4 billion people there. Visa is the market leader there by quite a wide margin, has all the deals in place, and it's still just getting started there. It sees a lot of opportunity in India. It's also filed to start transaction business in China, which is still a few years down the road, but still all these – Is that a big market? It's fairly big.

It's about the size of New Jersey. So, you have a majority of the world is still in the future for Visa. Meanwhile, the company is celebrating its 10 years on the market. It went public 10 years ago already, which is hard to believe. An 837% return for those fools who bought and kept the stock. I don't think it'll do 800% again the next 10 years, but I could see to 300%. The thing that really appeals to me when it comes to MasterCard and visas, they're almost like platform agnostic. So whether you're paying through PayPal, Square, Stripe, any of these different platforms, you're usually going to be using your Visa or MasterCard credit cards. So they just seem like companies that are going to win almost regardless of which of these platforms end up duking it out and coming out on top.

So true, David. And at a great point. And they have relationships with Square Cash and Venmo and a giant relationship with PayPal. And so, you're right, they're integrated in all these new ways to pay as well. Speaking of Venmo, PayPal's first quarter profits rose 33%, but that wasn't enough to keep shares from PayPal falling just a little bit this week. I'm assuming, Jason, that this is due to valuation, because there was a lot to like in PayPal's quarters. Yeah, I mean, I think it's the voting versus weighing. We tend to look longer-term and weighing these companies. So, you can't really speak to the market voting in the short-term. But it's funny, I always get a funny look

when people ask, what's one of your favorite stock ideas out there? And I say, well, PayPal. And they kind of look at me funny, like, PayPal? Really? They just sort of don't maybe get it. Let me see if I can elaborate here a little bit. In the quarter, revenue was up 24% to $3.7 billion. 2.2 billion payment transactions went through PayPal platforms. $132 billion total payment volume. 237 million active accounts. They processed $49 billion in mobile payment volume in the quarter. That was up 52% year-over-year. And mobile payments now represent 37% of the business' total payment volume. So, there are a lot of big numbers there. That's all to say that PayPal has done a very good job in building out a tremendously valuable network

that provides a very valuable service for a lot of people. And I tell you what, we were just talking about this race to a trillion dollars, and I think I know the way that Microsoft gets there first. They buy PayPal, right? I mean, they need that mobile presence, and that would be tremendous right there. They actually have the cash on the balance sheet. They could make a nice little offer and probably do that if antitrust would let it slide. If you're a PayPal shareholder, Do you want that? No! I am a PayPal shareholder, and I don't want that. I'm just simply making the point that if Microsoft wants to win this race, that could be one way to do it.

Why are you giving them that idea, then? You're supposing they're listening. I don't know. I don't know that that's the case. Somebody at Microsoft is. Shares of Baidu up this week after first quarter revenue grew 31%. David, am I the only one surprised that the Google of China is still as small as it is? It doesn't even have $100 billion in market cap. Yeah, they're really making a strong comeback. They had about 18 months there where the company was facing some scrutiny from the government over their searches and just the quality of

the search results that were displayed on their platform. But the company has since really come back with a vengeance. They've, I think, cleared through a lot of those regulatory government issues. They're investing a lot into artificial intelligence, whether it's speech recognition or translation, face recognition. They're working with several prominent cities in China to develop smart cities and just improve city management. They're also, I think, far and away the leader in autonomous driving in China with their Apollo platform. So, a lot of things going for the company. They have about $10 billion in net cash, trading for about six times revenue, which seems kind of low, certainly when you compare it to other tech giants in China,

like Tencent or Alibaba. Considering that revenue growth is accelerating, margins are coming back to where they were a few years ago. So, definitely want to keep an eye on. All right, coming up, if you are hungry or you're thirsty, good news. We've got burritos, pizza, and beer. Stay right here. This is Motley Fool Money. Hey, if you're looking to get a mortgage, here are a couple of tips. Boost your credit score before applying.

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You won't get no dessert till you clean up your plate, so eat it. Don't you tell me you're full, just eat it, eat it. Get yourself an egg and feed it. Welcome back to Motley Fool Money. Chris Harker in the studio with Jason Moser, David Kretzmann, and Jeff Fischer. Chipotle shareholders had their best week in years after first quarter results sent shares of Chipotle nearly 30% higher. And Domino's Pizza shares were up this week after first quarter same-store sales rose more than 8%. David Kretzmann, let's start with Chipotle. This was a good quarter.

I don't know if it was 28% good. Listen, the market has spoken, Chris. Don't doubt the market. You tell me, how good was this quarter for Chipotle? This quarter itself was, eh, you know, it was okay. Comps were up about 2%, revenue up 7%, so nothing lighting the world on fire. They are seeing improvement in restaurant-level operating margins, which are now at about 19.5%, still below where they were several years ago before that E. coli crisis, but moving the right direction.

But I think this is 95% about Brian Nicol, the new CEO at the helm of Chipotle. And I think he's really saying and hopefully doing everything that Chipotle should have been doing over the past several years through this crisis, focused on digital innovation, revamping the menu and restaurants, I think, in the coming months. Just doing a lot of tests there. They've rolled out a new national marketing campaign already, without that condescending tone that we kind of got accustomed to with Chipotle. Really just trying to remind people why they like Chipotle. Quality, fresh ingredients. And hopefully, we'll have some new menu innovations coming down the pike as well. Yeah, I think the big question going into this was,

what kind of a role Steve Ells was going to still play within the business? He wasn't on the call. His name was mentioned once on the call as just a quick thanks. So, I think, generally speaking, I think Wall Street is very enthusiastic that this is clearly Nickel's show here going forward, and it sounds like he's up to the task. Yeah, and he has a big opportunity because so much traffic still has not come back, and yet that's kind of reluctantly so. People want to come back. They want a reason to go back.

And so, I think he has that laid out in front of him. Yeah, and digital is especially, you're seeing some nice progress there. digital sales are up 20% this quarter, but they still make up less than 9% of total revenue. During his time at Taco Bell, he did a lot as far as digital innovation, menu innovation, and then marketing as well. So, bringing some of that over to Chipotle, I think, will bode well. And in the meantime, free cash flow this quarter grew 50%. So, the company now is sitting on over half a billion dollars in cash with no debt. So, they have some flexibility to do some tests here. Also, Nicol, on the call, didn't close the door completely on the idea of breakfast.

If you listen to what he said, he basically said, yeah, we're not doing that right now. But it seems like that option is open to them somewhere down the line. Yeah, I'm sure we'll see tests with breakfast, different menu ingredients, hopefully improved queso. So, a lot to look forward to, I think, as Chipotle shareholders and customers. I'm going to go taunt them with my breakfast burritos and tell them they can't make them better than I can. And maybe that'll just force their hand. Would either of you buy the stock? Any of you buy the stock today if you didn't own it? I personally would. I mean, it still looks expensive based on trailing metrics,

trading for about 40 times free cash flow. But I like the direction that Nickel is taking the company. It's the direction I thought Steve Ells would have taken the company a couple years ago after the crisis. But if they can get margins back up, which I think they can do to the marketing efforts they're doing, digital initiatives, I think they can get closer to the glory days. I sold this stock within the last probably six months or so, so I've missed out on the recent gains. He was angry, too. I was angry for a lot of reasons. But no, I think David speaks to sort of my slight hesitation about jumping back in.

It still seems like an expensive stock, but I might throw a couple of shares there. Can we just say a quick word about Domino's Pizza and the job that Patrick Doyle has done as CEO? because this was his last quarter as CEO of Domino's Pizza. And, David, you had posted on Twitter a chart of how Domino's Pizza shares have performed under Doyle, and it is basically up and to the right. It is one of the all-time great turnaround jobs I think we've ever seen, certainly in the restaurant industry. Yeah, you know, is there a Business Hall of Fame museum somewhere? Because if there is, he should be in there.

there should be a hall of fame for great leaders who have really changed their companies or the world. Outstanding performance and shareholders have, I think, been rewarded more than anyone could have imagined. And I love the lesson here that goes to say that something as simple as pizza or coffee or, I don't know, name something else simple, can make a regular investor like you and me a mountain of money if you just buy the stock and keep it. Yeah, and the company has been so innovative with technology and just doing all sorts of different tests. Something that they're rolling out this quarter is hotspots. So now you can have pizza delivered to 200,000 parks, beaches, sports fields, and kind of other untraditional places that don't have a typical address.

So just amping up the level of convenience, especially with that digital platform. And they have a wedding registry, which is something I've learned as well. Really? And they also have pizza insurance, too. If you put your pizza on top of your car and drive off and forget it, you can go back and get it replaced for nothing. You know what? If you put your pizza on top of your car and you drive off, I'm sorry. Well, you should have had it delivered in the first place, right?

There you go. Real quick, since Jason and Jeff and I have already gone through the wedding process with our respective brides, David is the only single person at the table. Is that something you're going to explore maybe somewhere? Is it an option somewhere down the line if you decide to get married? It's a deal breaker or a deal maker. By the way, first quarter sales and shipments for Boston Beer were higher than expected. The company is best known for its Sam Adams beer, but management gave credit for the results

to some new beverages. Jason, did you help shareholders out this quarter? Yeah, Chris, I was just going to say, my hard work paid off. You're welcome, Jim Cook. We'll keep that ball rolling. I think, honestly, though, 2016 and 2017 were tough years for this business, it seems like perhaps 2018, they could be turning a corner a little bit here. Sales growth, 18%. Strong shipments there. Depletions growth of 8%. A constant theme in these trying times has been some tough, tough sales on the Samuel Adams brand. And this quarter, that seemed to have turned a little bit. And so, perhaps, they're seeing some new offerings in the the Samuel Adams 76 and a New England IPA. And even this new Angry Orchard Rose Cider

that they just pushed out, it seems like consumers are receiving these well. So, new CEO Dave Berwick fully in the mix now. It seems like he is focused on the company's three main priorities of returning the Samuel Adams brand to growth, cost savings and efficiency, and long-term product innovation. It's a good business. I think the stock has bounced back a little bit. It's one you can hang on to for a bit, and we still like it. Let's go back to restaurants for a second, because separate from the earnings that were reported this week, the restaurant industry was also in focus, Jeff, because Jim Chanos, the famed short seller, was on CNBC talking about some of the businesses that he's shorting

through his fund. And two of the more well-known are Dunkin' Brands and QSR, which is Restaurant Brands, which is the parent company of Burger King and Tim Hortons. First, in terms of Chanos, I was saying when we were meeting earlier today, I just kind of like the guy, because as short sellers go, he kind of lays out his ideas there, not like he's trying to sell me on anything. He's just sort of sharing what he thinks. You're someone who has a lot more experience with shorting stocks than I do. What is your opinion of Jim Chanos? He is straightforward. Like you said he's a matter of fact and he's a good thinker definitely and and he's nuanced his critique of the restaurant industry is focused on franchise models he sees the franchise e being not always

treated well by the business itself and he thinks ultimately the model is is flawed in various ways and he has a point you see a lot of franchise models slowly degrade over time because attention isn't given to individual locations, and their income is relatively modest. These are asset-light businesses for the owners as well, and so if things start to go south, there's not much there to back up the value of the business. That said, shorting is very tough, as you know, Chris, and I don't think I would short Dunkin' Donuts myself. It's too well a known brand in this country, especially on the East Coast here, and it's not that expensive. He's shorting on valuation, which is also risky because the market can disagree with you for a long time. He's been

short Tesla for the past four years. How's that working out? The stock is up less than you would think, from the mid-200s to like 290 now. So, it's only up a little bit. And he pointed that out as a success in this roaring bull market. And that's true. For the short to not go up that much in a bull market, that's a good call. And yet, he spent the time focused on these shorts instead of finding a stock that has doubled or tripled the past four years. So, you know, it's still an expensive trade-off. Shorting is difficult, not for everybody, not even for a majority of people to do.

I don't know. I mean, you can think whatever you want about Tesla, but that just seems like a stock that you should just stay the heck away from in terms of shorting. He has a lot of good arguments for shorting it as well. He thinks Musk keeps over-promising and under-delivering. Well, he's right about that. That'll catch up to him eventually. The finances of Tesla are challenged. They'll have to raise more money again. Yeah, he's staying short that stock, he says. For the second quarter in a row, Twitter posted a profit. Twitter also showing some pretty nice growth internationally, Jason. Shares down a little bit this week, but maybe

that's a valuation thing, because it's up about 75% over the past year. Yeah, I think that goes back to that voting vs. weighing thing. In the short-term, people are just voting, there's profit-taking and whatnot. It's been, obviously, a very good stretch here for Twitter. And I think if you're a Twitter investor, you need to feel great about this quarter that the company just turned in for the first quarter of 2018. all metrics, really. It was just an unmitigated success. And so, for me, looking at not only revenue growth, but why it's growing, engagement is there. They saw another quarter of double-digit daily active user growth, which is a sign that the platform is indeed remaining engaging.

And I think it's proven its place in this world, so to speak. It's not Facebook. And I think that was the point of Jack Dorsey's quote when he said, we're not a social network and we do not benefit from the same social graph that social networks do. People come to us because they're interested in something, and they're interested in seeing what's happening within the world or within a particular topic or within a particular niche interest. And that's important because that's the mentality that's going to guide decision-making and investments for this company going forward, which is good, I think. And one final metric I'll note, because this was held against them for a very long time, so let's give them credit where credit's due. Stock-based compensation as

the percentage of revenue has come down tremendously. This quarter, they reported it was 11% of revenue. A year ago, it was 21%. So, that is just a sign that management is living up to the promise that they made, and that really does matter. Well, and just from a 50,000-foot view, you look at Twitter, and the conversation has changed about Twitter, for the better, I would argue, because there was a good six-month stretch a couple of years ago, where the dominant question about Twitter was, who's going to buy them? Because everyone or most investors agreed, well, they don't really look like a company that's going to make it on its own. So, someone's going to buy them. Who's going to be the best fit? And that's no longer the case at all.

Yeah. And the shares now trade at 35 times free cash flow, which is not that expensive. So, any acquirer would have to pay quite a premium to the current share price. And it's a $24 billion company now. So, not cheap either. And it's a profitable company. So, I mean, we're going to have some new fundamentals to measure it by. And I mean, let's just, last thing here, I mean, a few years back, there was the whole Twitter is dead thing. Now we've got this delete Facebook thing. I mean, people get real.

You're not going to do it. Changing human behavior is just far more difficult than some hashtag. So, I really do, I think the delete Facebook, I hold that right about there with the Twitter is dead thing. It's just, it's going to pass here in no time. Just leave it to Kanye West to boost engagement a bit. See, Jason, I thought you were going to suggest that if Microsoft wants to get serious about mobile, they should buy Twitter. Well, no, because then I fear they might ruin it.

I'd rather Twitter just be on their own. I don't want anybody to buy them. They're doing some good stuff. LinkedIn, then Twitter. There is a lot of room to keep improving Twitter, too, the experience. So that's on the positive side. Up next, we will dip into the Fool mailbag and give you a few stocks you can add to your watch list. Stay right here.

You're listening to 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 Jason Moser, David Kretzmann, and Jeff Fischer. Our email address is radioatfool.com. From Adam Godfrey in Derby, England, Adam writes,

I'm excited about an enterprise software business called ServiceNow. It recently hit $2 billion in revenue and is on track to hit $4 billion in a couple of years. It's run by John Donahue, formerly of PayPal. I'd like to know what you think about this business and the enterprise software space in general. Jeff, what do you think? In general, what an exciting space to be in. Enterprise software is becoming essential to almost every business, whatever you do. And so we see a lot of small companies, and ServiceNow is one of the bigger ones.

The ticker, by the way, is NOW. It's a $29 billion market cap company, but there are a lot of other companies that are only $2, $3 billion serving the enterprise software space, which is growing rapidly. And I think ServiceNow is a clear, by any measure, a leader for a smallish, mid-sized company. It sells customer service software, human resources, security, workflow, all these things. It trades at only 40 times free cash flow, which for a company growing at about that rate looks reasonable. That said, it won't be gap profitable until at least next year, but it has a non-gap profit starting now, so that's good. But like Adobe or Paycom or Atlassian or even giant Salesforce, all these enterprise software businesses are doing really well. And I think down the road, we're going to see a lot of consolidation as well.

Yeah, I agree. This is a very compelling space. And in general, if you can find a company that's growing their overall base of subscribers, maintaining or increasing retention rates and increasing average revenue per user, I mean, that's a beautiful business model. And a lot of these enterprise software companies are doing just that. And if you can find one that's a little bit earlier in its growth cycle, like a company that's $5 billion or less, I think that's where you should be looking if you're looking for future multi-baggers over the next three to five years. One more quick hit, since it is earnings palooza.

Intel, just your average $235 billion chipmaker. First quarter profits came in higher than expected. They raised guidance. Blowout, really. Their data-centric business grew 24%, grew sales 24%. Even their CPU business grew sales 3% or 4%, and that's the PC market, which is the total addressable market there is shrinking, and yet Intel was able to grow sales. Margins are up, expenses are down, the stock still looks reasonably priced, has a good

yield. Intel looks strong for this year and next year, at least. All right, let's get to the stocks on our radar. Our man behind the glass, Steve Broido, is joined by some special guests this week, Lee Fry, Lisa Novak, and Jack Singe, all from Florida, all stock advisor members. Thanks for coming to hang out with us. All right, David Kretzmann, you're up first. What are you looking at this week? I'm going for a flashy company here, AutoZone, ticker A-Z-O. This is a company that's really been down in the doldrums over the past year, but I think there's still something to

like here. Revenue growth has accelerated in recent quarters. We're coming off the harshest winter in the U.S. that we've had in several years, so that should be a good thing for car repairs, which is really how AutoZone makes their money. They're expanding internationally in Mexico and Brazil. They're expanding their commercial business, buying back a ton of stock as usual. And despite being a clear leader in terms of producing free cash flow and margins, they're trading at a lower valuation compared to O'Reilly Automotive and Advance Auto Parts. So, I think there's something to like here with the stock. Steve, question about AutoZone?

So, I think of AutoZone as more of akin to just an auto parts store. When does it look more like Jiffy Lube, where I go and drop my car off, they do everything for me, and I just come back and pick the car up? That's a growing segment for them. So, their commercial business, or that do-it-for-me business right now is about $2 billion in revenue, but that's something they're reinvesting in. Jason Moser, what are you looking at this week? Yeah, taking a look at Square, ticker SQ. An interesting little deal announced this

week as they're acquiring Weebly. As a Weebly user, I can certainly testify to that product and its value. It makes building a website really easy for a dummy like me. It's an interesting deal. It gives Square exposure to commerce. Small business is obviously a big part of our economy. And I think a lot of people ask the question, how is Square different than PayPal? And I think this is a good example of Square becoming more than just a payments company. I think it's using its tech and its data to integrate complementary offerings into a bigger model. Steve, question about Square?

Is Square bigger than just that little chip reader thing that I see at the Renaissance Festival? When I go to buy my gear, is there something bigger going on here? There is. There is. I mean, there's a Square Capital part of the business where they're actually making loans to small businesses to help them fund their growth. And I think this acquisition of Weebly is another good example of them diversifying away from just being a payments provider. Jeff Fisher, what are you looking at? Zendesk, ticker is Z-E-N, customer service software. $400 million in sales, growing quickly.

It has about a $4 billion market cap. So speaking of a smaller enterprise software company, this is one. Maybe you buy Zen and Now, and then you're all set with both. Gap profits are a few years off, so this is more speculative, but it should have non-gap profits starting this year. Steve, question about Zendesk? So it's a subscription model business. I know we use it here.

How do they increase it to beyond just subscription revenue? Well, they're adding more products all the time, Steve, which they can then cross-sell to their existing customers. And I don't know that they need to go beyond subscription, but they'll also have service revenue. Zendesk, Square, AutoZone, you got one you want to add to your watch list, Steve? I like them all, but I think I'm going Zen. All right. All right, David Kretzmann, Jason Moser, Jeff Fisher, guys, thanks so much for being here. Thank you.

Thank you. 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.