Motley Fool Hidden Gems Investing - YouTube vs. TikTok

Episode Date: September 21, 2022

Alphabet, parent company of YouTube, deploys a new weapon in its battle with TikTok: cash. (0:25) Maria Gallagher discusses: - YouTube's announcement of a new revenue-sharing model for creators of short-form videos - How this strategy can help with retaining existing creators - Why should really hate to see Lisa Su leave the corner office at AMD (10:00) Ricky Mulvey and Asit Sharma talk about how some people make investing harder than it needs to be, and how to make your investing life a little easier.   Got questions about stocks? Drop an email to [e-mail] or call the Motley Fool Money Hotline at 703-254-1445. Stocks mentioned: GOOG, GOOGL, COST, AMD, ADBE, TTD Host: Chris Hill Guests: Maria Gallagher, Asit Sharma Producer: Ricky Mulvey Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

great news the federal ev rebate is back eligible customers get up to five thousand dollars with the federal evap rebate on select 2027 volt and 2026 equinox ev models visit your local chevrolet dealer today for more details youtube is going after tick tock with one of the best weapons they have, financial incentives for video creators. Motley Fool Money starts now. I'm Chris Hill, joined by Motley Fool Senior Analyst, Maria Gallagher. Thanks for being here. Thanks for having me. Let me say up front, we are recording this late morning. This is a couple hours before the Fed is going to make whatever announcement they make about interest rates. I fully expect

that when they make that announcement, there will be some reaction, possibly an overreaction on Wall Street. By the time folks are listening to this, just know we're recording this before that announcement. We're going to dip into the Fool mailbag, but let me start, Maria, with Alphabet, specifically YouTube, which announced this morning it has a new revenue sharing model for creators of short-form videos. For anyone who's wondering about the impact of TikTok on the business world, here is just, I think, the latest example of that, where Alphabet is saying, okay, what can we do monetarily to get people off TikTok and creating TikTok-like videos on our platform. I also think it can't be overstated the importance of creators to these

type of ad revenue-based platforms. So to talk just a little bit about creators, there are about 50 million people that consider themselves to be influencers, creators online. Only about 2 million of them do it as their full-time job, but it's actually become an incredibly desired career. Being a YouTuber is one of the most popular answers when you ask kids what they want to be when they grow up, it's actually three times more popular than saying an astronaut, which was historically the most popular answer. So I just think that that's an incredibly interesting shift in the way advertising runs that's happened in the last 15-ish, but really the last like five, 10 years. So historically, YouTube has paid out its creators and its long-form videos, but just

like you said, they've announced that they're more directly competing with TikTok, that they're helping monetize on their short form videos, as well as something that I think is really important is they're working with a new music library. Since one of the major downsides of creating on YouTube is the licensing agreements of using popular music. So that's going to be really important for creators as well. I will say that over the past three years, YouTube has paid creators over $50 billion in 2021. YouTube paid more than 15 billion to its creators, which was only about 200 million for TikTok. So just within a creator fund or the YouTube partnership program, it's more lucrative to be on YouTube, but that's not including things like paid brand deals that

a lot of influencers say make up a lot of their earnings. And so with a platform like TikTok, that's shorter form, more likely to go viral. That's a really good way for influencers to kind of blow up within TikTok and then they can monetize themselves really well on YouTube. But I think it's just like you're saying, it's so competitive for these businesses to try and retain those creators. And YouTube is really saying TikTok is a threat to what has been a pretty clear dominance that YouTube has had over the past 15 years. It was 2019 when Alphabet started breaking out YouTube revenue in their quarterly earnings. And I believe the most recent quarter was the slowest rate of revenue growth that they've seen. So, clearly, this is an

area they are focused on. When do you think we're going to get some sort of evidence that this is working for them, not working for them? Because it occurs to me, listening to you that one of the ways that they may actually get a groundswell of support here is if they get some early success, then they can get those creators on YouTube shorts to start essentially being ambassadors for how they're making money. What I think is pretty fascinating about this too is that it isn't mutually exclusive. if you follow a creator, they're probably going to post the same thing to multiple different platforms in a slight variation. But I think it's going to be hard to see how this competition works

out because I don't think it'll say, and now no one's using TikTok anymore. It's just going to say, well, now they're also making YouTube shorts. And so I think that's going to be pretty difficult for people to see. I think it's just YouTube trying to make sure not that many creators leave their platform, trying to keep creators on and helping them monetize. I imagine 15-second videos are easier to make than 15-minute videos, but some people say that actually the shorter the video, the harder it is to make. I have never tried to be an influencer, so I can't comment on if that is true or not, but I think that it's trying to incentivize people to really just not leave the platform, but also say, here's another way you can monetize your

platform within YouTube. I hadn't thought of that before, but just sort of the idea that this is, from a creator standpoint, it is a retention strategy for YouTube to basically give people who have been doing longer form videos, giving them an additional option in terms of making money for themselves. Yeah, absolutely. And it's interesting because I am a person who I really like influencers. I really like creators. I am an advertiser's dream because if I like someone, I'll probably buy whatever they're selling me. And so it is kind of, it feels excessive with so many people they have. You see the first time that they kind of test out a joke, it'll be on Twitter and then they'll maybe make a TikTok about it. And then maybe they'll make a longer form bit

about it on YouTube. And so it's kind of interesting. I think we're seeing within the creator economy, like the backstage look at how these things are made. And with YouTube shorts, I think that's also going to be another kind of tool of saying, okay, where in the life cycle of if it's a comedian, where in the life cycle of this joke, are they with YouTube shorts versus maybe a longer YouTube video? That's just kind of like a sketch. So it's, I just think it's another kind of interesting way to look at how this creator economy is evolving. What was the last thing you bought as a result of being influenced by someone on TikTok or YouTube? I bought vitamins that were really weird, that this influencer I liked swears by. It's like a

probiotic vitamin that made my stomach hurt. Okay. We'll move on to the mailbag then. Our email address is podcastatfool.com. We got a question from Sophia in San Diego who writes, who is the CEO you would most hate to see leave the company that they're running? I know Craig Jelinek is 70 years old, but I am a happy Costco shareholder and really hope he doesn't retire anytime soon. Thank you for listening and for the question, Sophia. Great question. I'm reminded of Craig Jelinek got the job because longtime CEO Jim Sinegal stepped down in the most unceremonious way, which was they put out their quarterly earnings report. And then at the bottom of that report, it was basically like, and Jim

Senegal is stepping down and longtime Lieutenant Craig Jelinek is taking over. So whenever Jelinek leaves, I'm expecting it'll be that. It's not going to be what we've seen out of say Starbucks and their CEO transition recently. But to Sophia's question, who's the CEO that you would really hate to see leave the company? I think this is kind of a tricky question because you want a CEO to create a company in which when they leave, things are okay. So, it's kind of a tricky question. But I would say one of my favorite CEOs is probably Lisa Su at AMD. So, she came in in 2014 and really turned the company around. She decided the company would really go big on building tech for these high-performance

computing applications. And so, this set them up to power cloud computing, data centers, AI, gaming. And with these types of companies, it's really in kind of a three to five-year life cycle. So you need a CEO who has really good foresight. And so I think that that's actually pretty rare to have someone who can see the trends that far in advance and say, this is what we're going to focus on. Because she said, listen, we're not going to focus on phone sensors for internet of things. We're going to focus on this other portion. And so I really admire her. And I think she would be hard to find someone who's as good as she is. You're right. Whoever is the next CEO of AMD has a very tough act to follow. But you're also right that that really should be part

of the job, right? Just making sure that the transition to the next leader is as smooth as possible. Yeah. Everyone talks about key man risk. You don't want to really have that so interwoven with the performance of your company because that's not a great long-term sustainable strategy. Keep the e-mails coming, podcast.fool.com. You can also call The Motley Fool Money hotline, 703-254-1445. You can leave a question on the voicemail and you may end up hearing your voice on the show. Call us, 703-254-1445. Maria Gallagher, always great talking to you. Thanks for being here. Thanks so much for having me. Unlike gymnastics or Olympic high diving, you don't get style points in investing,

which means some investors might be making it too difficult on themselves. Ricky Mulvey has more. Bear markets are already hard enough to deal with. It's easy to make these periods even more difficult on yourself. Joining us now to talk about how you can make your investing life a little easier is Motley Fool Senior Analyst, Contributing Learner, Asit Sharma. Asit, good to see you. Ricky, good to see you, man. so i actually i just got back from uh australia which was it was a good time and i i started thinking about this because on the flight back people wear all kinds of just weird stuff onto the plane and the guy seated behind me this is a 14 hour flight from sydney to lax was in a full

suit and tie for the entire time and when we landed in los angeles i looked back and not even the tie was loosened. And I started thinking, you get style points, but that doesn't necessarily count for anything. And maybe the same is true in investing. I mean, I think it is true in investing also, Ricky. Now, you and I love to flip things over. So, we are going to spot this gentleman, this thought, hey, I'm a business person. I'm a suit. So, I don't feel comfortable if I'm not dressed in full business regalia with my tie knotted, even if it's a 14 hour flight, I just wouldn't be comfortable. I was taking him seriously the entire time. Yeah. Well, that's, that's actually where, where I'm landing. I think he could have loosened his tie during the

flight rather than get up and stretch and loosen it then and say, wow, what a flight. Just a touch. I hope, I hope he's doing all right. But I was thinking like, what are some of the ways that we just make life unnecessarily difficult on ourselves? I mean, the first one's easy for me. It's time management. If I could manage my time better, I think my life would be easier. Knowing this, though, I don't spend a lot of time trying to get better at managing my time. Now, speaking of time, Ricky, sometimes we don't stop to analyze how we can optimize a certain process that's become like routinized in our lives. Um, for me, example, um, I have this lamp, the light wasn't right in

my working environment. And I went weeks and weeks before I rearranged it. Anybody who's lived in a home with a skateboard or a misplaced pair of dumbbells probably has experienced the same thing after a while, the aggravation level will catch your attention or you'll get a little bit of an injury. Then you finally want to make an optimization at that point. You could do it earlier. It's called metacognition. It's like thinking about how you think and it's easy to go down some odd paths doing that. Speaking of making things more difficult and investing, I think there are a lot of ways that investors just make their lives more difficult. For the past few years, I look

at e-mail inboxes where investors often send questions. Before this, I worked on a call-in radio show. One of the thoughts that always came to my mind as reading these questions is like, why are you making this just so difficult on yourself? What are some of the ways you think investors are putting, let's say, the weight in front of their toe? First comes to mind something that you shared with me, which I totally agree with, it's when you're checking your brokerage account all the time. The other thing you had mentioned to me, trading on the news cycles, trying to stand or sit in front of a big screen and watch CNBC and trade that news. That's really difficult. For me, I guess, when you put all

the work on the back end versus the front end, you're just making it difficult for yourself. By that, I mean, we've all done this. I've done this in my career many times. Let me be honest for once. I've done this many times. You buy a stock, you're not really paying much attention, your portfolio is doing well, the market's doing well, sounds like a good idea, you buy it without much thought. Then the market turns on you, suddenly the stock is down 50%, 60%, 70%, and then you're doing a whole lot of work on the backend. All of a sudden, you want to know, what does management think about this company's future? When will cash flow turn positive? What is their competitive position? Do they have a moat? All the things that might

have been well-applied in one hour or two hours on the front end, now you're spending weeks and months trying to figure out in many cases. That's making things difficult on yourself. I think a lot of investors are going through that right now. Yes, unfortunately. What are some of the ways you can make investing easier on yourself? Some ways that you can, let's say, take that rack of weights away from your foot so you don't stub your toe so much. Oh, and by the way, Ricky, the research backs me up on that phenomenon. If you look at urgent care nurses, their commentary and stand-up comedians, well-documented. Yeah, I think long-term holding is something you and I have discussed,

diversification. These are bedrock principles, but they make so much sense when you've diversified your portfolio out to at least 25 positions, and they go up to 40, 50. I've got basically 70 securities that I hold. You begin to become more adept at position sizing. Suddenly, it makes sense to put 1% to 2% to 3% in any given position and keep adding to positions that are rising in your conviction. Business results are coming in well. That's a lot easier than, again, working backward where you put 60% of your available capital into one idea. Another which you've pointed out to me, and I so much agree with this, is just focusing on business. When you're researching the stock, after you've bought the stock, keep focused on the business results because eventually,

the stock price will catch up. Even if the market is this big weight compressing all values, compressing all multiples, eventually things normalize. The investor who spends time studying and understanding great businesses just has to buy those companies and hold onto them. They'll eventually be proven right. Focusing on the weighing machine instead of the voting machine. Exactly. Then I think I've also heard some Motley Fool analysts give themselves behavioral rules for buying stocks and index funds. One thing that Jim Gillies mentioned a few weeks back was that he buys stocks only on down days. Do you apply any similar rules for yourself?

I've got one which I use in good markets and bad markets, which is I won't buy a stock until a weekend has crossed. If it's Monday, I have to wait until the next Monday to buy a stock. This is working for me because I love Saturday mornings, I love Sunday mornings. They're my leisure and creative times. My mind floats and wanders. I think about the week that went past, I think about the future, I read some fiction, I do house chores. In that frame of mind, I find I'm most receptive to make investing decisions. It takes away some of the angst in a down market that I might be experiencing, or some of the FOMO in an up market that makes me want to just buy a stock before I've done my homework and

rational thinking about it. Here's a second one that I use in a market like the one we're in, which is just tough to deal with. I didn't mean to laugh so sarcastically earlier when we were talking about the markets. I'm suffering too a bit here in my portfolio. But I give myself permission to sit out a few weeks if I need to. Sometimes we think that we as investors must be pretty active in the markets. Even if like myself, you're investing every paycheck, a little bit of the money that comes into your checking account, you could sit that out. I did that this spring. It must have been, I don't know, four or five weeks where I didn't make any investments, even though I'm a dollar cost abridger by nature. That

good for me. Those couple of rules come to mind. You mentioned active trading makes investing more difficult. I think that's why you see so many professional investors lose money. Morgan Housel in a recent blog post pointed out that it was 80% of them. That's compared to the S&P 500. He pointed out two reasons. One of which is that professionals need other people's money to invest. Then number two, entry barriers are low. The stat he pointed out that shocked me was that there are more mutual funds in the United States than Starbucks locations, which maybe that shouldn't be shocking because it's easier to open a mutual fund than a Starbucks, but I still found that surprising. What is your takeaway from that 80% number and what do you think that means for

individual investors who are making this game even more difficult? So, Charlie Ellis is this famed investment consultant to big institutions, endowment funds, pension plans, etc. These guys manage hundreds of billions of dollars collectively. And he's expressed some similar sentiments in an article called The Loser's Game, which he later made into a book. The idea is, you've got all these hordes of smart, well-educated managers being churned out every year, and they've got a wealth of information right at their fingertips, it makes it harder for all but a few to beat each other at the same game. And he also mentions the high costs that are associated with active funds versus passive

funds. Sure, they may show a low fee, like a 1% fee, but they've got operational costs that create a hurdle for their investment returns. Now, here's the interesting thing, Ricky. Charlie Ellis wrote this article in 1975. These insights he gave us about 50 years ago, coming on 50 years ago. This has been apparent for some time, and it's going to be apparent, I think, even going forward. Active investing is a hard game. That's why if you look at our investment principles, Motley Fool's investment principles, they mirror and borrow from passive ETF style hold for the long-term investing. But we do like the individual companies. As we close out, investing isn't just

difficult for yourself, it's difficult for the companies you own. One way that the investing life of the companies you own can be a little bit easier is by having a great balance sheet. When you think about a company that's making its life easier on itself right now, who do you think of? First, I want to hear from you because you gave a great example when we were talking about this episode, and then I'll give mine. I'm not the analyst here. My job is supposed to be easy, Asit. Let me talk about your example then. Go ahead. I was thinking about the trade desk going into a tough advertising market environment, but they have a fortress-like balance sheet. We were talking about working capital

earlier, and I think that makes it easier for them to weather this storm versus some of the other high-flying tech companies we often talk about. I agree. I mean, spot on. They've got $1.5 billion of net working capital on their books, no long-term debt. So what if they have a couple of quarters where all kinds of companies are pulling back their advertising budgets and they don't do well? That hasn't been the case, actually. They've been thriving. But you sleep well at night as a shareholder. And the company that I wanted to talk about but has a little bit weaker balance sheet with some good reasons than it's had in previous years, but it has monster free cash flow and that's Adobe. Now, I know a lot of you investors

were taken aback by Adobe's offer to buy a company called Figma for about 50 times its annualized recurring revenue. It's a $20 billion deal, half cash, half stock. The thing that occurred to me about Adobe over the weekend, Ricky, is they are going to generate $50 billion rough in free cash flow over the next five years. Even if they totally whiff on this deal, they've made it much easier on themselves in a very uncertain macroeconomic environment to pull up a smaller competitor. If they have to write off some goodwill, it's not going to be a huge deal to them. So, monster-free cash flow, strong balance sheets, they make it easier on these companies in times of stress and duress.

That's a charm. Always a pleasure. Thank you for your time. Thank you so much, Ricky. This was so much fun. 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.