Motley Fool Money - Matchmaking, Break-ups, and a Survivor

Episode Date: September 27, 2023

It’s the antitrust case everybody saw coming – does it have merit?   (00:21) Asit Sharma and Dylan Lewis discuss: - The FTC’s antitrust case against Amazon, the case’s merits and how Amazon has forced innovation in e-commerce. - What Tinder’s new $500/month “Select” tier says about freemium business models. - Alibaba’s plan to spin out its first business unit – logistics segment Cainiao.  (16:02) The Motley Fool’s own Emily Flippen will be on the 45th season of Survivor – ahead of the show’s premiere tonight on CBS, Mary Long caught up with Emily about why she was excited to take on the challenge of being a castaway.  Companies discussed: AMZN, MTCH, BABA, LULU, WM, TXRH Host: Dylan Lewis Guests: Asit Sharma, Mary Long, Emily Flippen Engineers: Dan Boyd  Learn more about your ad choices. Visit megaphone.fm/adchoices

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We've got stories of matchmaking and potential breakups. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joining over the airwaves by Motley Fool analyst, Asit Sharma. Asset, thanks for joining me. Dylan, thank you for having me again. So today we are talking dating, split-ups, and trust, or I guess antitrust. We'll start with the antitrust. The FTC and 17 states allege that Amazon is monopolist and uses unfair and anti-competitive strategies to stop rival.

and sellers from lowering their prices, resulting in a worse experience for shoppers, overcharging for sellers, and something that may stifle innovation. Asit, Amazon is down 5% on the news. Are you surprised by this move from the FTC? Not really, Dylan. This is the history of U.S. commerce, right? Companies get big. They enjoy competitive advantages. They get to what some perceive as near monopolistic status. And then the government tries to step in and figure out if this is actually an unfair business, a business that isn't treating customers right. So we've seen big tech being a target of regulation over the past couple of decades. It's no surprise to me. It was just a matter of time.

I don't know a lot about antitrust and the way that these things tend to play out, but I know a lot of it tends to hinge on how you define a market. The FTC is alleging that Amazon's anti-competitive conduct occurs in two markets, in particular. their online superstore market that serves shoppers, and that is where Amazon, the FTC alleges, is burying postings for sellers that are offering prices lower than what Amazon offers. The second market being their online marketplace of services purchased by sellers saying that being prime eligible is basically a necessity for sellers, which requires them to pay for Amazon's costly fulfillment services.

I see some of the argument here. I think one of the things I have long wondered with Amazon is they manage to have a marketplace and also be a player in that marketplace, and that's a little bit of a precarious position to be in. It does muddy the waters a little bit, doesn't it, Dylan? Yeah, so the case is interesting. All of antitrust theory, a recent antitrust theory, disclaimer here, I'm no attorney, but all of it hinges on something called the Consumer Welfare Standard. And basically, to boil that concept down, a company can get more.

really, really large. But if it's not causing customers to pay unfair prices, it's not necessarily anti-competitive. So the FTC is going to have to prove here that Amazon's actions are actually hurting its customers, hurting its buyers. And I think there are cases where, as you point out, the marketplace that serves shoppers is rife with some manipulation by Amazon. Now, when you think of the hundreds of billions of commerce that flows over Amazon's online retail channels, what seems rife, maybe in actuality, an insignificant or immaterial amount of unfair business practices. And I think this is what's going to unwind in court, that Amazon's going to have a pretty

strong counter argument, which is to say, we have some practices that, sure, we can change if you deem those uncompetitive or noncompetitive. But overall, we've increased choice for consumers. We've made prices cheaper across the board. We've made it easier for consumers across channels, not just online, but across channels to buy merchandise. I as a consumer am not unsympathetic to what the FTC is saying here, but I also realize that Amazon's innovations have provided a lot of the world with the ability to order goods

into the house. if you don't want to go into a real-world physical channel. You don't have to be ordering from Amazon to benefit from that. As per their own platform, there is a little kink here that applies to the second point, as well as the first point. So this online marketplace that sellers use. Yes, Amazon tends to push its sellers to use their own services. On the other hand, Amazon has invested tens of billions into what's now the world's largest

logistics network that is consumer-facing. So they've made it easier for entrepreneurs to come with just an idea and create a business within a short amount of time without having to worry about keeping physical inventory or paying for their own logistics. So I think Amazon's attorneys are also going to have a point here that, okay, we've got some practices that may not seem on the par. We can shift those, change them a little bit, by and large. We have benefited the entire globe in making it easier for people to spin up business ideas and

use the network that we've invested the capital in and created. To your point there, Asset, Amazon essentially created the two-day shipping standard. With Prime, they created that expectation, and the industry followed. So it's not all necessarily negative stuff, but I do see a lot of the arguments here that the FTC is making. And I think this is probably one of those things that we can't be all that surprised by Current FTC chair, Lena Kahn, wrote in the 2017 Yale Law Journal, a piece Amazon's Antitrust Paradox.

So she has long been looking at this. Amazon actually looked for her to recuse herself from this case. There are no proposed remedies as part of this FTC announcement or any proposed breakup, but I think this is probably something we're just going to kind of have to be watching, along with a lot of the other FTC DOJ big tech conversations, awesome. I agree, and it's just a fascinating argument to observe on an intellectual level. If you've followed Lena Khan from her original paper, sort of a wonder kid with a novel theoretical basis in Amazon's antitrust issues, to her accession and FTC chair, I think

this is just really fun as someone who observes finance and modern-day commerce, any of us, just to watch as it unfolds. And if you're a shareholder, of course, you're a little nervous. But we'll see. Time will tell. In a lot of ways, it's a sign of strength, right? That's kind of what we come back to with some of these monopolistic conversations. From the theme of breaking up to matchmaking and getting together, Tinder unveiled its new Tinder Select product, an invite-only membership that will cost $500 a month. This is not an offering that they are expecting to be widely used by users.

They're only apparently inviting about 1% of users, but it builds on a tiered premium strategy the company has. has used for a while, including Tinder Plus, gold, and platinum. Is this just kind of the natural evolution of something that starts as a free app experience? In some ways, it is, I think, Dylan. We see this with a lot of platform businesses. I think of Etsy, which a few years ago decided to focus on its most valuable customers, those that were spending a few hundred bucks on its platform every year. PayPal, another platform business, did the same.

It decided to not just try to grow larger, but to grow with more quality. We've seen Match Group talk a good game about reigniting growth and re-accelerating its top line. But if you look at what they're doing on the ground, it's more about optimizing its current base. They had a pricing optimization, which is fancy talk for raising prices this year, and that caused its payers, the people who actually pay on their platform to decline a bit. But the upshot was that revenue increased. Match Group has pretty decent operating margins, 26% operating margin as of its last report. So if they get some people who are willing to pay this 500 bucks a month to be elite status,

I mean, it's probably decent for the bottom line. It's not going to be a monstrous impact, but it'll maybe result in a few margin points. And why not? If you have people who will pay for that, why wouldn't you eventually get it? go towards that. And I think that's where you're on point with this idea or observation that naturally you progress as a platform from maybe a premium funnel to having your paid subscribers, then trying to optimize that group that has the deepest pockets and the deepest interest.

Yeah, it's interesting. Match CFO, Gary Swindler, said the new select premium tier could have a relatively tiny amount of new payers, but a significant impact on revenue per player and ultimately on revenue, that seems to drive out what you were talking about there, some of the unit economics of some of their users. You get some people paying a very high amount asset that will shift some of the averages that we see. Whether it becomes material to the overall business, I think probably remains to be seen. Yeah, and I think this is smart on their part, because as you mature as a business,

you have to show shareholders what the value proposition is. If I buy shares today, am I looking at a growth story or am I looking at an earning story? maybe a rising positive free cash flow story. I think what Match is trying to signal is that we are going to extract more value out of this business. So if we can't grow at double-digit rates anymore, don't worry about that. Look, we're making money. We're squeezing money to the bottom line. So in some ways, I think this is along the lines of other little moves they've made in the recent past.

Some of the weekly subscriptions we've seen come out of that emphasis on trying to grow the Asia business. It's more of this sort of optimization, CFO type of tactical stuff. And shareholders love that over time, actually. More than anything else, I think it just makes me happy to be out of the dating scene. When I see stories here, yeah, same. All right, we have one more story, and it sticks with the theme. We're talking split-ups. Alibaba will list its logistics unit canal on the Hong Kong Stock Exchange

in a move that is part of the company's plan to split the tech giant up into six distinct business units. Asa, this seems notable because it is the first Alibaba company to file, but also because for as weak as the U.S. IPO market has been, it has been even weaker in Hong Kong over the past couple years. That's true, Dylan. I think Alibaba, if it had its struthers, would just wait until we saw a really strong markets in Hong Kong and a lot of IPO issuance.

But the story out of China is one of some of some of the story. growing growth, and their markets are not quite as robust as they were. Capital is flowing out, not flowing in, but they want to push this strategy and show shareholders that as sort of a divvied-up collection of businesses, there's more creation, ultimately more market capitalization that can be created from the different revenue streams. So it's almost like the timing isn't great, but they want to show the market that this is a very. going to be a better strategy under a regime that's not quite as freewheeling as it was. And I know you had some thoughts about that.

Yeah, I was going to say, I feel like when we've talked about companies based in China over the last, say, two years, there's been a little bit of a repricing in what the risk is, the institutional risk, and just kind of the local environment risk because of President Xi Jinping's crackdown on private enterprise that we've seen. Does that put a lot of what we'll see from these Alibaba issuances into the too hard bucket for you? Or do you look at this and say there may be some opportunities here? We kind of have to see what the individual businesses look like. It may get into a too hard bucket. It isn't right now. And I think that opposite of what we saw with Amazon, right? It's a company growing to monstrous scale,

and the government is trying to step in and hit the pause button. What we have in China is a very direct signal from increasingly authoritarian government. That's saying, look, guys get in line. And part of this is about business. And part of this also, the idea to split up into six companies is to appease the regulators to show that we aren't trying to become too powerful as a player in the Chinese economy. So that could be good for shareholders depending on which company you decide to buy into. Now, Canal, I noticed that Alibaba is going to retain like a 50% interest.

That's a lot of control. So, it isn't maybe an optimal scenario. To me, 20%, maybe 10%, 15%, is great, because then you know those decisions at the level of operations are going to be made by the management of that new team that has gotten the public's money. Here, you're not sure. And that might crimp down value creation. Now, having said that, I mean, this isn't the only business that we're going to be taking a look at in the near future. Yeah, I was going to say this is one of what could be six. We could be three or four. We'll see exactly how things shake out. I think more than anything,

the thing that's most interesting to me is, as Alibaba is one of the most known, recognized names from the Chinese-based businesses that we tend to follow, just what does this create for them in terms of value? Because even if you're not necessarily a shareholder of one of these new businesses, if you're a shareholder of Alibaba and they are retaining very large stakes in a lot of these businesses, it becomes part of the ownership structure for you, too. That's true. And a collection of focused businesses that can independently operate on somewhat of an untethered level could be greater than the whole. I mean, I'm looking at maybe the cloud business, the cloud intelligence group, which is one of the companies that we may get to invest

in in the future, to be a fun one to examine whenever that prospectus comes out, because they have a good part of the market in China and Asia. Artificial intelligence or generative AI is growing there as it is here, maybe a little bit behind the US, but that's going to be a big place to invest. So you would get a chance to invest in that directly. And also, Alibaba's always been really great at e-commerce. They actually turn a profit, and there are at least two groups in there that may give you a chance to just invest in that part of the business. Global Digital Commerce Group is one of them that I'm interested in. in looking at. So it could be that you can prosper by picking and choosing which of these business

units you want to invest in. But again, you know, Dylan, that overhang of the Chinese economy, which is slowing down, and I think is increasingly inflicted by governments meddling into the entrepreneurial spirit, that does make it seem like maybe it should shift to that too hard pile. I think the jury is still out there, at least for me. What I'm hearing, Asset, is logistics, not so interesting, but maybe have you back on the show when we start talking about the cloud and the e-commerce segments of this one. Totally. Well, I'll be happy to do it. And thank you for joining me to talk through this one.

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to take on the challenge of being a castaway. If you're a Motley Fool member, you probably already know Emily Flippen as an investment analyst on our TV. But you might not know Emily Flippen as the Survivor contestant, at least not until now. Tonight, you can see Emily attempt to outwit, outplay, and outlast 17 other castaways on the 45th season of Survivor. Emily, glad to have you. Thanks for taking the time to make this happen. Of course. Thank you for taking the time to talk to me.

We're not going to talk today about anything that happened during your time on the show. So let's start before then. Why did you want to go on Survivor? Oh, it's a good question. I still know if I have the answer. I think at some point I was looking at my life and was just interested in doing something new and exciting for members who are familiar with me. I have a chance taker or risk taker.

It's what got me into this career. It's what brought me to the Molly Fool. And Survivor is just one of those ultimate challenges. I think it's David Gardner who has a history of saying that we all should strive to live a more interesting life. And I think that's what brought me to Survivor. There are some parallels between investing in Survivor that don't end with the David Gardner stuff you just mentioned, how did your work as an analyst at the Fool inform how you thought about

the game? Yeah, it's so interesting because I do think there's a lot of overlap between what makes a good survivor player and what makes a good investor. In my experience, the number one reason why individual investors tend to underperform the market is because they make these emotional decisions, right? We have these long-term financial goals, and then something happens in the market that scares us. A stock goes down, a recession happens, and then you change your strategy. And that tends to be the worst thing that an investor can do is make these really emotional

decisions that sacrifice their long-term goals. And watching Survivor, I see it all the time where people make emotionally informed decisions as opposed to logical decisions that aim to get them to the very end to be that sole survivor. So I really sought to bring my experience, of managing those emotions, focusing on long-term goals to how I played the game of Survivor. Are there other life experiences outside of work that you think prepared you well for the show?

Investors who are familiar with me know that I probably are familiar that I went to school in China. So I like to say that my experience there, which was working with and competing against people of many different backgrounds and cultures, prepared me for the diversity that you get on the experience of Survivor, right? You never know who you're going to be playing with. So understanding how to connect and ultimately went out against people who are similar and dissimilar to yourself is important. Are there past contestants whose games you really admired going into this? I always like to say, you know, I like to make my own unique set of mistakes. Ultimately, I think I am and I will be my own player in the game of Survivor. But going through the casting process, I was told that my personality was very similar to a player, former player. Her name was

Cass. She did go by Chaos Cass. But I think that's just because I tend to be a little bit more direct, outspoken, and aggressive. It's great in the world of investing. But it probably matches most similarly to Cass's game when you're comparing it to the Game of Survive. So, listeners will have to tune in to Survivor to see if you do bring chaos to the island. Goodness gracious. Okay, so suppose you're back in Fiji, but this time you can bring three stocks with you. What are your desert island stock picks? This is such a good question.

So many things that I think you need if you're going to be abandoned on the islands of Fiji. But the things that are first coming to mind, maybe a stock advisor recommendation, an old David Gardner recommendation, waste management. I think if anybody is familiar with the game of Survivor, you lack a lot of those fundamental necessities for everyday life. We take the services that waste management provides us for granted, as I now know, here in the United States. I'd also say a company like Lulu Lemon. I have to call that Lulu Limit, of course.

You know, you're out there in an island. You want some comfy clothes to lounge in. And I've never once been let down by my very expensive but very worth it pair of Lulu Lemon leggings. And then my last, he said three, right? My last one? Oh, it's hard, but I have to go with a company like maybe Texas Roadhouse. Underappreciated restaurant change in my experience.

But again, out on the island, all you want to do is eat a good, you know, nice steak, probably would scratch a lot of itges. Wow, who needs reward challenges when you have waste management, Lulu Lemon, and Texas Roadhouse? It's all you need in life, right? Okay, now you're on Survivor again. Which are you voting off the island first? Oh, this is brutal. All three amazing, great companies, but two, I would say, a little bit more practical than another.

So let's boot Lulu Lemon. That's a luxury. We don't need it every day. I need the food. I need the waste management. You spoke earlier about parallels between gameplay and how you thought about it and the world of investing. So now here's the kicker. What's harder?

Playing Survivor or beating the market? Oh, two totally different experiences. I had to say, I think the game of Survivor is harder. I like to encourage individual investors. There's a lot of autonomy that we have when we're managing our financial futures. If you do opt to buy individual stocks, an attempt to beat the market, I like to tell investors that there's a lot of empowerment in making that decision, making decisions for yourself, taking control in a world that has thrived on telling investors that they're not capable of making their own financial decisions. The game of survivor, tends to be a bit more variable. A lot of the factors that impact your performance can be out

of your control. And that's okay, but you do have to accept it. So in a lot of ways, I think we just have more autonomy, more control over something like stock picking or attempting to beat the market. So for that reasons, I have to think that it's easier, at least for the people listening to this podcast. Well, Emily, thanks for the time today. We know this was a lot to squeeze in because you're actually getting ready for the premiere right now as we speak. So I really appreciate it. and know that you've got a bunch of fools rooting for you. If you're a fool and you're listening, know that Survivor kicks off with a 90-minute season premiere tonight at 8 p.m. Eastern on CBS. It's also available to stream live and on demand on Paramount Plus.

As always, people on the program may own stocks mentioned, and The Motley Fool may have four more recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis. Thanks for listening. We'll be back tomorrow.