Motley Fool Hidden Gems Investing - Twitter in Limbo, Amazon in the Spotlight

Episode Date: July 11, 2022

Elon Musk and Twitter are headed to a Delaware courtroom. (0:21) Jason Moser discusses: - How messy the current situation is for Twitter's employees and shareholders - The potential for another company to swoop in and buy Twitter - Why Amazon's combination of retail and AWS make it the business he's most curious about this earnings season (14:30) Rachel Warren talks with Matt Kolby, VP of Investor Relations for Indeed, about the trends driving today's labor market and the implications for one lesser-known tech giant. Stocks mentioned: TWTR, CRM, AMZN, RCRUY Host: Chris Hill Guests: Jason Moser, Rachel Warren, Matt Kolby Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

This family is on the brink of civil war. On September 18th, Mobland, the hit original series, is back on Paramount+. We are the Hartigans. Don't know them yet? Then Google us. From the underworld of Guy Ritchie. Do you want to step up the ladder?

I want Comet dead. Starring Tom Hardy, Pierce Brosnan, and Helen Mirren. Do I have to do everything myself? You want more? I'll give you more! Mobland, new season hits September 18th Paramount Plus. Twitter, its shareholders and employees are in the one place you never want to be, limbo. Motley Fool Money starts now. I'm Chris Hill, and I'm joined by Motley Fool

senior analyst Jason Moser. Happy Monday. Happy Monday. Unless you're a Twitter shareholder. Well, or employee. I got to believe if you're an employee, it's probably worse than being a shareholder. We'll get to all of that. Let me just pull back the curtain a minute, because this has only happened, I believe, three times in the 12-plus years we've been doing the weekly Motley Fool Money radio show. What I'm referring to is, we record the show midday on Friday, and then late in the day, there is breaking business news that is so big, we think, boy, if this had broken just a few hours earlier, this might have led the show, this would have been in the first segment

of the show. To my memory, only the third time in 12-plus years, that happened this past Friday, because we recorded the show, and then around 5 o'clock, the news broke that Elon Musk is walking away from his deal to buy Twitter. He alleges that Twitter underreported the number of bots on the platform. This whole situation now moves to a court in Delaware where place your bets, people, on what the outcome is going to be. Musk could be forced to pay the $1 billion breakup fee. It's theoretically possible both sides just walk away. He could be forced to do the deal, which seems like a not great situation to force someone to buy a company. This is going to be messy, Jason, and shares of Twitter are close to

their lowest point in more than four years. Yeah, you're right, it is going to be messy. I feel like this is intentional on his part. I feel like he's playing them, so to speak. I think he's essentially pushing this to get as much information as possible from the company and potentially possibly a lower price along with it. It's a gamble. I think he was more or less baiting them and he wanted this to go to court because he wasn't, at least as he sees it, he wasn't getting satisfactory information. That's going to be something ultimately for the courts to decide. He feels like Twitter, the company, has not acted in good faith. They've not provided the information that he asked for when the deal was first

inked. They feel otherwise. Then you get this to the court where ultimately, and I think tweeted this out earlier today. You take this to court, and ultimately, that's where this information is going to have to come to light. I think at the end of the day, regardless, when this goes to court, he's going to get the information he's been looking for, and that's going to result in potentially him just going ahead and making this acquisition on the terms that were originally agreed to, or if it turns out that that information that they were giving him in regard to the bots in specific, if it turns out that they were not being forthright or not giving the complete picture, maybe it results in not only getting

that information, but also then getting a lower price. You look at it today, I think Twitter shares are down something like close to 40% from the original agreed-upon price. So, I mean, that's significant. I can understand him wanting to get a better price. Whether that actually happens or not remains to be seen. But this, to me, feels very much intentional on his part. I mean, it feels like he's viewing this as a chess match, and this was his latest move. You mentioned the employees at Twitter. and I were talking about this earlier today. I'll just speak for myself. I don't think about this as quickly as I think about what happens when a company announces layoffs. Because I think we do

a pretty good job on this show of anytime we're talking about a company that has announced layoffs, we talk about what it means for the business and we acknowledge that for the people who are being laid off, that just sucks. In a lot of cases, there are people who are doing a good job going about their business and maybe through no fault of their own, they're being let go. I don't think as much about the companies where the status of the business is in limbo. This is an extreme situation with Twitter, but it does happen more frequently just with acquisitions in general. Think about something like Activision Blizzard, which is at the beginning of the year, Microsoft says, we're going to buy them, and the deal is going to take about 18 months to

close. If you work at Activision Blizzard, you're like, in 11 months, we're going to find out whether or not we're bought. In some cases, it's a business where the acquisition is happening, but the acquiring company has come out and said right off the bat, we might be selling off parts of this. It has me thinking, Jason, that it might be a worthwhile exercise to just look at my portfolio and look at each company and think, wait, is this company in any way in limbo? Because when we talk about the culture at a company, and is this a good place to work, and are employees motivated, that's so much harder to do. As you indicated right at the top, it's so much harder to do when you're in a situation like the employees at Twitter.

Yeah. I would go even probably a step further and say it is downright impossible to do. There is a level of uncertainty that's been lobbed into Twitter, the company. There are certain employees, executive level employees, they're going to be fine regardless. No matter what happens, they're financially relatively secure. But for most of the workforce, that just isn't the case. I think you're right. The day-to-day uncertainty with just wondering, not only am I going to have a job, but even if I do, is this going to be a company where I want to work? There are a lot of folks who are concerned that maybe what Musk wants to do with Twitter isn't really in line with the company that they came on board with. Obviously, things

change in the business world and companies grow and they evolve. But generally speaking, I mean, yeah, it does feel like the employees are really getting stuck in just an untenable situation here. I certainly understand why many are updating LinkedIn profiles. I feel like it's more than reasonable to start looking around because you just don't know what's going to happen. For someone who is relying on that job, not maybe necessarily living paycheck to paycheck. But listen, they need the job. Most of us need the job. It's our source of financial security to an extent. They don't get to go to work every day with that general feeling of security, knowing that where they work is really looking out

for them because so much is now completely out of the company's control. Twitter, historically, has been fairly mismanaged. I think you can make that argument pretty well. This really just seems to be another notch in that belt, so to speak. It's very understandable the frustration that is building there among the workforce. It seems like it's darn near impossible to build any kind of a culture. Culture is going to be defined differently by everyone, I assume. But at the end of the day, it generally results in a place where people want to be and where people are proud to work. I'm sure that is not the feeling among most employees there today. That's going to play out of the business performance. There's no question

there. That's going to play out of the business performance. Last question before we move on. Let's say the deal falls apart one way or another, whether it pays the breakup fee or not, and Twitter is left on its own again. I believe it was six years ago that Salesforce was taking a long, hard look at buying Twitter. What odds would you place on Mark Benioff and his team coming in and saying, we're not going to pay $54 a share, but we'll pay $40? I would venture that is probably slim to none. It feels like the story at Twitter has done nothing but get worse as time has going on. That goes back to the platform being mismanaged. The community guidelines and rules

always seem to be somewhat arbitrarily enforced. It seems to have gotten nothing but messier as time has gone on. It's very difficult to build and grow a company when there's no real consistent vision and consistent management, and Twitter has just never benefited from that consistency of vision. It felt like for a time that was coming back with Dorsey at the helm, clearly he's not there anymore. I think that Dorsey is onto something when he says really, the first step is to take this company back from Wall Street. I think that Twitter is better off as a private company or part of a bigger entity where it is out of the spotlight because it just cannot go on the way it is today. It feels like at this point, very difficult to put the toothpaste

back in the tube. No matter who steps into that executive office, the hurdles, the task at hand, I think it's just, as Michael Scott would say, insurmountable. At the end of this week, earnings season is going to kick off with the big banks reporting. When you think about earnings season, what is a company that you're particularly curious to see report? I'm going to pan out here a little bit. I'm going to cheat. I'm not going to point one specific company, because I feel like there's so much going on, it's difficult to just focus on one individual company. It really does feel like looking at where the market is today, if you look at the market year-to-date, the S&P is down around 19%, Nasdaq is down around 27%. Now,

if you look at those numbers since the last earnings season, the S&P is down 12% and the the Nasdaq is down 15%. Last earnings season was a very difficult one. It felt like no matter what company reported, no matter what they reported, the market just wasn't having any of it. If I'm going to pick one company, it does feel like Amazon is going to be an interesting one to watch just because it ties so much to not only consumer behavior, but also the tech world through Amazon Web Services. You get a better idea, I think, just on how the consumer is feeling right now. Amazon came off of a couple of years of phenomenal growth in the retail side of the business. That more or less has hit a wall here. I wonder

if that is something we can expect for the rest of the year. They've got Prime Day coming up in the third quarter of the year, and so we obviously won't get that for another couple of quarters really. But ultimately, we've talked about this before, they really built out capacity, overbuilt that capacity over the past couple of years. It was for understandable reasons, but now they're really trying to figure out exactly how to deal with that. impacting their earnings to the extent where they don't really have a lot of control over it. There's going to be some time that needs to lapse in order for that to really start playing back in their favor. I think the capacity will ultimately play back in their favor, but they need a little

bit of time to get back to where the consumer is feeling a little bit more willing to spend. Maybe that's something that starts in the third quarter with Prime Day and accelerates as we go into the holiday season, it'll be interesting to see how management is looking at the back half of the year because it does feel like those signals will tell us a lot about a lot of the rest of the retail segment. But we know that Amazon Web Services continues to be really the rock star of the business. I don't see any reason why that shouldn't continue. Jason Moser, Thanks so much for being here. Speaking of Twitter employees updating their resumes, up next, we've got a look at the job market with one of the companies leading its evolution.

Matt Colby is the Vice President of Investor Relations for Indeed, a popular job search engine. Motley Fool contributor Rachel Warren caught up with Colby to talk about the top trends driving today's labor market and the implications for one lesser known tech giant. I think what's been happening and the dynamics of the job market are something that's top of mind for a lot of job seekers as well as companies. Movements like the Great Resignation have impacted companies across a wide range of industries. Jumping off of that a little bit, What are some of the most prominent trends that you're seeing from your vantage point

in the U.S. job market right now? And beyond that, how is it impacting Indeed's performance? So we're a global tech company serving more than 250 million people across Indeed each month. And so we're seeing three main trends in the labor force. So we're seeing, number one, it's an aging workforce problem. So baby boomers are aging and retiring every year, and the average age is, well, actually 25% of the labor force is greater than 55.

So again, aging workforce is becoming a problem. Net immigration declining each year is something else that we've seen. So since 2015, we've seen declining immigration. There was a surplus in the U.S. of more than 1 million immigrants back in 2015. in the most recent year, that surplus was only 270,000. So obviously, the pandemic has significantly impacted that. But across most developed countries, we're seeing immigration declining. And then lastly, and this is probably a product of the pandemic, is changing attitudes towards work-life balance. So this is really, especially among the younger

generation. We're seeing less demand for certain types of jobs and greater demand for flexibility. And on Indeed, we've seen three times the number of job postings are including remote options or flexible options. And job seekers, when they're searching, are searching five times more than they did before the pandemic for remote and flexible jobs. So that's clearly a trend of flexibility that seems to be here to stay. And what does it mean for our performance? Well, It means there's a lot of changing, a lot of job turnover. You continue to see the overall quits rate from the labor stats remains very, very high. And tight labor markets are continuing to exist.

So what it means is the increasing need for our solutions and our products that make it easier and make it simpler for employers to find candidates and for people to find jobs. And we saw this past year, revenue grew 92% in what we call our HR tech segment off a base of $3.5 billion of revenue. So we almost doubled revenue in the last year. And we saw our EBITDA, which is our profitability grow from 600 million to 2.6 billion. So we've seen tremendous growth, but most of that came from volume. So the number of jobs dramatically, the number of sponsored jobs dramatically increased, and the number of employers advertising on Indeed increased as well. And we expect these trends to continue to persist. And this next year,

we expect to grow about 10% to 20% of our revenue growth is what we've guided for. You know, we look at how much the labor market has changed, and you mentioned some of these key trends that are driving hiring practices right now. If you look back, you know, over the last five years, say, to now, what do you think are some of the key factors that have changed the most in the recruiting and hiring sector, and then specifically for Indeed? In the past five years, we've made significant progress towards this idea of making it as easy as possible to find a job by pushing a button. And really, our strategy is not changing, and, but it's really just been accelerated. And we have this relentless focus on this mission to

help job seekers. And what we're doing is we're moving beyond just finding candidates to what we say is getting closer to the higher. And we're focused on delivering qualified candidates. And to do this, we need to understand job seekers better. So we need to understand the preference, not just looking at a resume, but understanding, well, do they want to commute or do they not want to commute? How long do they want it? How close to their home do they want to work? What type of work environment do they want to be working in? And the more we know about job seekers, the better we can match them to the perfect job. Indeed, it's built for everyone. Really, we want to have all people find jobs across all types of employment. So full-time, part-time, temporary work

at all levels and all wage levels as well. And we've made significant progress based on what we can measure. So we've seen before the pandemic, 10 hires per minute on our platform. This was in the first quarter of the calendar year in 2019. And this last quarter, it's doubled to 20 hires per minute on our platform that we can measure. So we know we're making progress. We have a lot of work to do, but it still takes 15 weeks to find a job on Indeed and in general. And we're focused on shortening this time in half by 2030. We've actually made a commitment to do that. Well, you know, as we mentioned, Indeed is part of the global tech company Recruit, which, you know, just reported strong earnings results, as you mentioned, thanks to very strong revenue

growth in HR tech, which is made up mostly of Indeed. So maybe, you know, walk me through a bit Indeed's performance this past quarter? What's driving the company's growth and how is that impacting its parent company, Recruit? Indeed is part of this large Japanese company, Recruit Holdings. Recruit is a 62-year-old company with a $55 billion market cap, as you said, and one of the top 10 largest companies in Japan and actually one of the 300 largest companies in the world. And Recruit's revenue is $25.5 billion in the last fiscal year, has 46,000 employees and that revenue grew 25%, 26% actually year over year. It's actually one of the largest tech companies in the world that people haven't, many haven't heard of. And so

Indeed was acquired by Recruit in 2012. And again, most people don't know that. But with Indeed and Glassdoor, which is our sister company, which was also acquired by Recruit, we have what we call this HR tech segment. And this creates this two-sided talent marketplace that has really been a big driver of growth for Recruit Holdings overall, and a driver of Recruit's overall profitability. And Recruit has a strategic pillar called Simplify Hiring. It is what it's called, just making it easy. And Indeed and Glassdoor are really at the center of that strategy. and, um, 85% of recruits revenue is HR related businesses. So it is the most important strategic pillar for recruit holdings. And again, the HR tech segment did about seven and a half billion

dollars of revenue up 92% year over year with margins that expanded to 34%. And even this next year, we, we got it to EBITDA margins to be around 30%. Um, but in terms of overall revenue growth, HR tech has contributed more than 70% of the revenue growth for recruit in the last fiscal year and more than 60% of recruits overall EBITDA. So clearly this is a very important business for recruit and it's a driver for the growth for the future. Moving forward, what do you think are some of the most prominent catalysts for growth that you expect will be driving the direction of Indeed's business? so so we are in the hr business and hr is a is a cyclical business but we think again there's a

huge opportunity to go from where we are today in this slow painful process of hiring and finding a job to this nirvana of pushing a button and finding that perfect job and we think technology will definitely be a catalyst. And we think AI and automation are going to help make that a reality. The pandemic has been a catalyst for adoption or accelerating the adoption of these new hiring tools and the appetite to transform the way people hire, like video or virtual interviewing processes. And majority of job search actually today is happening on mobile apps, on people's phones, smartphones, and actually interviews are taking place on phones as well. So the way people are searching for jobs and interacting with potential jobs is very different today. And

that increased transparency I talked about before we think is a catalyst. So more information, reviews, and transparency is going to drive some of that change. And broadly, when you think about the labor markets, so tight labor markets, it was tight before the pandemic. And today, it remains very tight as well. And we expect that to be a catalyst or a trend that continues and the need to lower the cost. We think that's a trend that's going to drive our business forward. And lastly, we're evolving our pricing model. And this is something I haven't talked about yet, but we are trying to evolve our pricing model to align more closely to what the employer wants and the outcomes they're looking for. So we think that, and that's a higher, like people come to

Indeed, they post a job. Why? Because they want to ultimately make a higher, and we want to be able to always deliver value for every dollar they're spending with us. And that actually, that value or that mentality forces us to improve our product and continue to make things better and always make sure that we're delivering that value and having good outcomes or positive outcomes for our clients and for job seekers. It's early days, but we think that will continue to be a catalyst to drive our business forward. 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 Chris Hill. Thanks for listening. We'll see you tomorrow.