Motley Fool Money - The Hidden DNA of Amazon, Apple, Facebook, and Google

Episode Date: October 13, 2017

Delta flies higher on earnings. Wells Fargo slips on higher legal costs. Domino's drops despite strong sales. And MercadoLibre sells off on concerns over Amazon. Plus, at the 20:23 mark, NYU business professor Scott Galloway talks about his new book, The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google. Thanks to Slack for supporting The Motley Fool. Slack: Where work happens. Find out why at slack.com.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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so you can be confident you're getting the right mortgage for you. To get started, go to RocketMortgage.com slash Fool. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Monly Full Money Radio Show. I'm Chris Hill, and joining me in studio this week for a million-dollar. portfolio, Jason Moser from Supernova, David Kretzman, and from Hidden Gems, Chief Investment Officer, Andy Cross.

Good to see you, as always, gentlemen. Hey, hey. We've got the latest headlines from Wall Street. Best-selling author, Scott Galloway is our guest, and as always, we'll give you an inside look at the stocks on our radar. But we begin with a tale of two banks. Wells Fargo's third quarter profits fell 18%, while Bank of America's third quarter profits rose 13%. Not surprisingly, B of A shares doing a little better on Friday, Jason. Wells Fargo, racking up some legal fees there? Discrete. Discrete fees. We'll talk about that.

It's been a little bit more than a year since the news broke of the fraudulent accounts. We talked about it when it happened. I think I basically came to the conclusion that we were going to make a lot of noise about it. Disprove of it. And then everybody was going to go about their business and the stock was going to be just fine. And I think that's because people, generally speaking, are lazy in relation to how sticky these bank accounts are. And fast forward today, the stock is up 20% since this news broke. So it seems like everything is going to be okay in regard to that. The metric we were looking at a year ago when this happened started following total average deposits because I think that would be a good indicator as to whether people were really

serious about closing their accounts and putting their money elsewhere. Total average deposits were up 4% from a year ago. A bit more modest on a sequential basis, but the bottom line is that people are not, in fact, closing their accounts. It figures that they're doing a good job of at least keeping people in there and apologizing, and I guess they're being taken somewhat seriously. I don't think replacing Stump with Sloan was the right move, honestly, because Sloan's been there since like 87, so he was part of all of this mess to begin with. But obviously they are recovering. Obviously, it doesn't matter. Apparently just doesn't matter, right? Wall Street's

going to give them a pass eventually. It is a stock that has done very well still over the last five years. Although, if you compare it to something like Bank of America, Bank of America has outperformed it handily. That has come, not surprisingly, over the past year. Let's move on to Domino's. Third quarter results were highlighted by the fact that Domino's grew same-store sales for the 26th quarter in a row, and somehow, David Kretzman, shares falling this week. Are they, are expectations maybe just a tad high for Domino's? Maybe just a tad high. And they actually have 95 consecutive quarters of international same-store sales growth. So that's almost 24 years now. So really incredible numbers for any company, let

alone a restaurant, in a time when a lot of restaurants have been struggling to grow traffic in sales over the past couple of years. And a lot of credit goes to CEO Patrick Doyle, who came in around the end of 2009, 2010, and he really transformed the brand, acknowledged that our product isn't that great. We need to reinvest in the brand, put more focus on technology and our digital efforts. And they're still opening a lot of stores. They've opened nearly 1,200 stores over the past year. They're rolling out a loyalty program called Piece of Pie. They'll be rolling that out more later this year and putting more focus on that. So a lot of things clicking for Domino's. And they still have relatively low market share

when you look at that global pizza market. So still room for them to grow. And two things, Chris, the stock has done really well this year. It's up more than 30%. So not too surprising when they come out with 8% comp stores growth versus, say, 13%. I mean, like, The stock may sell off a little bit. But what they're really doing well, Domino's in particular, but a lot of the pizza chains, are they are really embodying the best of automation, getting the technology right, and making sure people can get their food and get it very quickly and do it very simply and with great convenience.

That's hugely important in that business. And we're seeing this more and more in the casual food and fast food business. And one of the things we've talked about before with other restaurants, and we'll include Starbucks in that group, the challenge that a lot of them face the tradition. traditional ones is, as they ramp up their mobile ordering, it in some ways competes with the people who are actually coming into the stores. Domino's basically has never had that problem. No one's actually going to eat a pizza at Domino's. It's always been a delivery service. So their ramp up to mobile has been so much smoother than everyone else is.

Yeah, Domino's, most of their sales are either delivery or carryout. So very few people will go to the stores. They have done an entire remodel of their stores in North America. Now, they're doing a remodel internationally as well. So they are becoming a little bit more like a fast, casual operation where you can see the food being prepared. You can sit in the restaurant if you do. But most people, yeah, they're just eating this at home, and Domino's plays right into that. And can we recognize the fact that this is National Pizza Month? I mean, I'm just throwing that out there. Folks, get out there, support your local pizza joints.

Your local Domino's. And we'll go back here next quarter and see how they've been able to embrace this opportunity. Isn't Halloween something like second in terms of the day? that the most pizzas, or I think the Super Bowl, Super Bowl Sunday is usually number one. I think Halloween is second because parents don't want to deal with my family. My family does every year. We order pizza, have it delivered, and boom, we're done. Delta Airlines on the rise after third quarter profits came in higher than expected, which is pretty good when you consider the impact of the hurricanes, Andy.

Yeah, I mean, it would have been a little bit better had the hurricanes not unfortunately hit. I mean, 45% of Delta's revenues, U.S. revenues are tied to the southeast and 20% specifically tied to Florida. So, you know, overall, they're seeing some nice little gains. The big hurt is the fuel costs, the fuel costs, which are about 20 percent of total operating costs, were up 8 percent over the quarter, and they expect that to continue. So the fuel costs, which are a big part of the airlines picture towards profitability, that's going to hurt this year. But overall, like Delta in particular, but the airlines in general is one reason why Berkshire Hathaway and Warren Buffett bought into it, they own 7.5% of Delta stock. They're just finally getting the operations

right and getting the scale correct, and they're showing some nice dividends in that in both the stock and the business as well. It didn't get a lot of attention, but Delta rolled out the newest version of its app. And Delta now, if you have the app, it automatically issues your boarding pass 24 hours before your flight, so there's no more check-in process. I can't see how all the other Airlines don't immediately follow suit, although Southwest Airlines makes, I guess, a little bit of extra revenue by getting people to pay for that. Fifteen bucks?

It'll be interesting to see if they can continue with that. Yeah, it'll be really interesting because the check-in is a key touch-in point with travelers to be able to upsell them, maybe into an upgrade, buy more leg space, you know, whatever it might be. So if they are now automatically doing that, Delta is doing that. Lvstan's over in Germany has been doing this, I think, for a while now. So Delta is not exactly the first, but it'll be interesting to see how that plays out to those ancillary fees that they can get from passengers.

Macado Libre is often referred to as the Amazon of Latin America. Shares of Macada Libre fell 12 percent on Thursday on reports that the Amazon of the United States may be expanding its presence in Brazil. What do you think, David? Well, the funny thing here is that this shouldn't be all that surprising because these rumors have been floating around even from the same Brazil publication. since the summer. So in June is reported that the Amazon marketplace might be coming to Brazil in the future months. Another publication, the Brazil Journal has sort of speculated that that would

happen in 2018. So this isn't anything brand new, but obviously any time you're going head to head against Amazon, potentially, that's something to be, to have on your radar. But we can actually look at a case study of how Mercuttle Libre has fared against Amazon looking at Mexico, where Amazon has operated for the past three years. Mercado Libre has been there since 1999. So they have a bit of a head start in Mexico and pretty much everywhere else in Latin America, including Brazil. But over the past seven quarters, Mercado Libre's revenue has accelerated each quarter. So that's despite Amazon ramping up its efforts there, Amazon rolled out Prime Mexico in March this year. So despite the competition from Amazon, Mercado Libre is still doing well

in Mexico. And I think a key to that is that they have that head start with that e-commerce ecosystem. They have a payments platform, Mercado Pago. They have shipping and logistics through Mercado Envious, a lot of other services that go into that marketplace ecosystem. Yeah, I got a few questions about this on Twitter. I think you have to look at it from the perspective of you never want to dismiss competition from Amazon, right? I mean, they are formidable in virtually everything that they do. But by the same token, let's also not dismiss what Mercado Libre has built to this point using that very same blueprint and also with a founder leader that is still very much invested in the company. So again,

I mean, there's a lot to be said for getting sort of that first mover status in that part of the world. And Brazil really is what is going to dictate a lot of that company's gains for the foreseeable future. Yeah, Brazil makes up over half of Mercado Libre's revenue, but only 4% of total retail sales in Brazil come online. So that's still a market that's growing very quickly as more people in the region get access to the internet and start buying things online.

So I don't think it's even a winner-take-all market. There's not going to be just Mercado-Libre or just Amazon. I think there's room for both of them to compete. Do you think part of what we saw with shares of McCartley-Libray falling on Thursday has to do with the run that the stock has had in the same way that Domino's has had this great run? So falling just short of perfect means some people are going to pull back? Yeah.

The stock, even after this drop, is still trading for 10 times trailing sales. So expectations are high. The valuation is at a premium, so this kind of volatility should be expected. Coming up, the culinary innovations you've been waiting for have arrived. Stay right here. You're listening to Motley Full Money. I want to say thanks to Slack for supporting this week's episode of Motley Full Money. Slack is a messaging app that brings together all of your team's communication, giving everyone a shared workspace where conversations are organized and accessible.

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Find out why at Slack.com. 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 ourselves stocks based solely on what you hear. Welcome back to Motley Full Money, Chris Hill here in studio with Jason Moser, David Kretzman, and Andy Cross. This week, AT&T revealed the company lost 90,000 video subscribers in the third quarter. AT&T owns DirecTV.

And Andy, just one more data point for cord cutting. Yeah, another one, Chris, the hits in Comcastle, probably report the same when it reports probably lose about 150,000. And the trend is not good. I mean, this is a little bit worse than what they did, what 18T did last quarter when they had a drop of about 200,000 because if you add in what they got with DirecTV now, the drop would have been closer to 390,000, not just the 90,000. So this is a shift of consumer tastes, but also the big concern for these companies is that the profitability for those bundled subscribers is so high. I mean, just good revenue for those companies as we all start to shift to more over-the-top

opportunities and offerings from these companies, the profits just start to eat into the parent companies like AT&T and Comcast. And it's one reason why AT&T is going after Time Warner with that $85 billion monster deal to help distribute some of their revenues around. So, yeah, the trend is not good. And, you know, I don't think any of us are like that trend is over. That trend is going to continue for the foreseeable future. And for all we talk about ESPN, we should probably point out, not a great week for Fox Sports, which paid $425 million for the rights, the broadcast rights to the men's World Cup in 2018 and 2022. And here in the United States, I don't know if you noticed this.

Andy, the men's team won't be attending. Yeah, it's not, it's not good for Fox Sports. It's not good for men's soccer. It's not really good for soccer here in the United States, too, which is obviously so many of our kids play and enjoy. But this is the risk that when you start to do programming and content still is so key. Although distribution, as we've seen with Netflix continues to get more and more important across the board. Again, the Time Warner AT&T deal. But the content costs that these companies are laying out, and then you have the risk factor on the end. There's some big tail risk that investors have to concern themselves with when they think about investing in these content companies.

Shares of Coach fell on Wednesday with the fashion retailer announcing, it is changing the name of the company to Tapestry, Coaches the parent company of Kate Spade and Stuart Weitzman. I got to say, Jason, I don't think I hate this. Well, it's not tronk. It's not trunk. Let's start there. This is a low bar. drunk. I think that, honestly, I think you're right. I think I agree with you. I think this is as big of a deal as you want to make of it. And at the end of the day, for me, it was more about entertainment value than anything else. I mean, I got a lot of great gifts on Twitter sort of responding to initial reaction. Any of that you can share? Well, because this isn't a visual media. Maybe I'll catch you after the show about that. But when you look at Coach over the past five, six, seven years, and the way the company

has changed, I mean, this really actually does make sense when you consider their strategy. I mean, they're becoming more than just one brand. And they don't want to lever the company's ID to just that one coach brand. I mean, it's Coach Stewart, Whiteman, Kate Spade, and whatever else they buy in the future. And I'll bet you dollars to donuts that they do make another acquisition or two here in the near future as they become more of a brand house, so to speak. And management sees this ultimately as an $80 billion. market opportunity. They're bringing in less than $5 billion in sales annually. So, again,

I think there's plenty of opportunity there. This does not obliterate the coach brand. It's changing the name of the company. When I walk out of this office today, Chris, my coach briefcase, it's still going to be a coach briefcase. And I'm going to be feeling really good about that. Yeah, the company still produces over half a billion dollars in free cash flow annually. And there's one to half billion dollars of net cash on the balance sheet. So I would expect them to deploy that in future acquisitions and brand targets going forward. Well, and if nothing else, they'll have to spend some money on new stationery. Sure.

Do you already change the website? Arby's has the meat, and that now includes venison and elk later this month. Arbys is offering venison sandwiches nationwide and a limited edition elk sandwich at just three locations in Colorado, Wyoming, and Montana. So we're going to need our listeners in that area to do some research for us. Not to be outdone. Tim Hortons is offering a Buffalo latte at locations in Buffalo, New York, the drink. will be made with espresso, steamed milk, and buffalo hot sauce, topped with whipped cream, and I'm quoting here, and a dusting of buffalo seasoning.

I feel like for that sandwich, you got to cue in the Northern Exposure music. David, you got to eat one of these things. What are you going with? Well, I'm vegetarian, so I think I'm going with the Buffalo coffee latte. And it's a latte, so, hey, why not? Jason likes his chicken spicy, not his latte. I'm going sandwich. Yeah, I very rarely eat meat, but I'm not going anywhere near that latte, so I'm sicking with

one of the neat options. Let's go to our man behind the glass. Steve Brodow. Steve, are you hungry or you're thirsty? I'm neither. Can I be neither? I'm just glad this isn't Panda Express. That's all I can say. He's just glad to be alive. All right. Let's get to the stocks on our radar this week, and Steve will hit you with a question. David Kretzman, you're up first. What are you looking at? I'm going with Dave and Busters. Ticker is Play, P-L-A-Y. This is part restaurant, part sports bar. They also have arcading games, which now make up 57% of their total sales.

That's diversified business. And those arcade games, games are high margin as well. They have 100 stores right now, management things they can open up, 200 stores in North America in the coming years. So still some expansion opportunities there. The stock has come down after they last reported earnings a couple months ago. Even though they raised their guidance for revenue and earnings, like a lot of restaurants, they're lowering their same store sales guidance, their comps guidance. But now the stock is trading for a PE of about 18, a reasonable multiple, still opening new stores and growing sales and earnings. So I think it's worth a closer look. Steve, question about Dave and Busters? I'm actually going to Dave and Busters

for my kids' six-year-old birthday party. My question is, is this for kids or adults? I don't know what this store is for. I think it's a little bit of both. I mean, hey, everyone eats. Everyone plays some games, so mix it up. Bring your PRL. There you go. Jason Moser, what are you looking at? Yeah, taking a look at Teledoc. It's one I've talked about here before. T-D-O-C. Talking this week with my guy, Rory, over at Rubikoyne about this one. And this is the Internet. healthcare provider, right? They're basically taking health care to the internet, making a little bit easier to deal with than having just to go into the office. But they made a recent acquisition of best doctors, which I think is going to be very complementary to their businesses. It adds

a lot of value to their network of providers. So small but growing company, a lot of value in the network that they're growing. They're scaling health care, adding efficiency and privacy to a system that is just in dire need. And I think all of this kerfuffle here with the health care questions we're reading about this week. It might present an interesting opportunity here for the stock. Steve, question about Teledoc? Is there an opportunity in emergency areas like Puerto Rico, for example, where there's no electricity and perhaps Teledoc could serve some medical needs there? I think there is no question about that. And that really is, I think, the attraction of this

business is you're taking a network of providers and basically giving them the entire world thanks to the Internet. Andy Cross, what are you looking at? CSX, the third largest railroad company here in the United States. States reports earnings on Tuesday. New CEO Hunter Harrison, who came in in March under great fanfare, a huge pay package, did wonders at Canadian Pacific and Canadian National to turn around CSX. Stock reacted very positively. The company's been under a little bit of fire recently because some of the operations haven't worked as smoothly, and some customers are starting to complain

like Cargill. So I want to hear what he is saying specifically about what he's doing to fix some of those issues. Steve? We're hearing a lot about autonomous driving. Why aren't trains autonomous. It seems like they have very little turning to make it's one track. Can't they be automated? That is very true, and that will likely be a push going forward. The difference, though, is the person driving the train relative to a person driving a car is a much smaller part of the operations in a train. Three stocks, Steve. You got one you want to add to your watch list? Well, I'm literally going to Dave and Busters, so I'm going with Dave and Busters. All right. All right, guys, thanks for being here. Up next, Scott Galloway on the hidden DNA of some of the world's most successful companies.

Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. Google is God. Facebook is love. Apple is sex. And Amazon is consumption. So writes Scott Galloway, professor of marketing at NYU Stern School of Business, and author of the brand new book, The Four, The Hidden DNA of Amazon, Apple, Facebook, and Google. He joins me now from New York City.

Scott, thanks so much for being here. Thanks for having me. not just four of the biggest companies in the world, they are also among the most heavily covered by the media. And I'm curious when you set out to write this book, what did you think you were going to find? And what did you actually find? I'm a tremendous admirer like most people of these companies. I would say the biggest surprise, dominant they are. We know they're influential. We know they're great at what they do. But we actually add up the numbers. Their market capitalization combined is approaching the GDP of India. And when you look at the

perspective markets they're in, they literally are not only kind of dominating the markets they compete in, but they begin disrupting markets before they even enter them. And they're able to kind of dominate, or if you will, grab the mic away from every other business and have sort of co-opted old media into being there. You know, their outsource investor relations department. And I would say finally, it feels as if society we no longer worship at the altar of kindness and character. We worship at the altar of innovation in these companies. taken on almost like a Jesus-like status in the eyes of the consumer. So in terms of the competitive landscape, is the ballgame for all intents and purposes over?

Because we've certainly seen over the last 50 years various companies, and I'll just pick two from the tech industry, IBM and Microsoft, at various points, they were the dominant player. And not that they aren't still big companies, but they're not. no longer on top of the mountain, how much longer do you think the reign of these four companies will last? Yeah, it's a fair point. About the time guys like me saying these companies are becoming too dominant is usually about the time they start to go into structural decline. Having said that, I think each of these companies doesn't show really any signs of letting up or at least increasing their market capitalization. However, I think you can distinguish a little bit between the four.

If we were going to do a sequel and call the book The One, I think the company that is dominating, not only its respective sectors, but beginning to eat into the other three's businesses is Amazon. And that is, if you look at where Amazon butts up against Google and search, 44% of product searches were conducted on Amazon. That shares grown to 55%. If you look at where Amazon overlaps with Apple and streaming video during primetime, it's gone from the number seven player to the number three, $4.5 billion devoted to original content just behind Netflix.

If you look over, they compete with Apple and computer hardware. The most innovative products of 2015 and 16 weren't the Apple Watch or the Apple Pods, but Amazon's Echo device, and you can kind of go on and on and on. It looks like Amazon is literally running away with it, if you will, in terms of being the most dominant company in business. Now, having said that, if you have a child in a developed market, affluent household, I think a life expectancy now is near 100 years old. None of these companies will be around in 100 years of the Dow 100 from 100 years ago.

Only 11 have survived, and as the business cycle speeds up, so will the mortality rate. But in the short term, I don't see anything stopping these firms other than maybe regulatory intervention. I want to get to regulatory intervention, or at least the possibility of it in a minute. But I'm curious if at least part of what makes these companies so dominant right now, is the fact that if you look at each one of them, the journey to where they are right now in terms of their dominance is not this boulevard of unbroken green lights. They've all had pretty significant business challenges along the way. With Amazon, it was, well, they don't make any money and how can they make any money? And they pretty quietly were working on Amazon

Web Services and made that the financial engine of their business. With Apple, Right out of the gate with the iPhone, there were a lot of people saying, well, they're never going to be able to maintain the pricing power, and they have absolutely done that and more. Facebook, when it went public, was not making a dime off of mobile advertising, and they have answered that challenge. And with Alphabet, with Google, for so long, it was seen as a one-trick pony. And even though it was one heck of a trick, they've managed to turn YouTube into an incredibly

dominant search engine on its own. I almost think if you're any other business looking at competing with these four, it's got to be so dispiriting. Again, you bring up a lot of issues. A lot of people focus on how just aggressive these companies are in terms of taking big, bold bets, which they can do either because they're so incredibly profitable or because they have such access to so much cheap capital that what would be a devastating disappointing disappointment for most companies is barely even a speed bump. These guys are able to access, I mean, if you look at,

so you talk about Apple. Apple is pulled off the impossible. They've, they, companies are usually the low-cost producer and go for volume or the premium price product and go for high profits niche. What Apple has done, no companies pulled off in history, and that is they're both a low-cost producer. They have the best-selling phone. And as a result, they're able to extract the best value in the supply chain, at the same time it's the premium price product. So the auto equivalent would be an auto brand with the margins of Ferrari and the production volumes of Toyota. Most profitable company in history will do double the profits at this quarter than Amazon has done. It's in higher history as a company now. On the

converse side, Amazon purposely runs its company a break-even and has changed the, kind of changed the relationship between companies and the investment markets, and that it's train the market, or specifically investors, to value vision and growth over profits, and has been given sort of the mother-of-all-hall passes in the world of business, in that it doesn't have the profit expectation that other companies have to live up to. So as a result, it can reinvest 100 cents on the dollar in the consumer value proposition, as opposed to most companies have to get to reinvest 60 or 90 cents on the dollar in terms of the actual value to the consumer.

So different dynamics, but we have companies, you know, in the case of Apple, we've never seen a company that's profitable. And in the case of Amazon, we've never seen a company with this market capitalization that is this unprofitable. You mentioned the regulatory landscape. At this point in time, who do you think is the betting favorite in terms of the risk of being broken up? Again, a thoughtful question that is complicated.

From an antitrust perspective, the one that is most vulnerable is Google because it commands a 90-plus percent share in a lot of the markets, whereas the rest don't have nearly that type of dominance. And when you're talking about the search category where Google has a 90-plus percent share in a lot of its markets, the search market is now a bigger market by dollar volume than the entire advertising market. of every nation with the exception of the U.S. So from traditional antitrust standards, you would say Google. Now, having said that, what Amazon is now able to do in terms of looking at industries and disrupting them before it even enters, that is probably going to create a decent

amount of tumult or anxiety in Washington and Brussels. Between the time it announced the acquisition of Kroger's, the largest pureplay grocer in America, and when it closed, Kroger shed a third of its value. Just this past Friday, when Amazon hinted they were going into the, potentially into the pharmacy or drug business, you had not only drug store retail stocks, but also manufacturers' brands in the drug industry declined four and five percent, just off of a press release. When Nike announces that they're distributing through Amazon, Nike shares go up and all the other footwear companies and footwear retailers' stocks plummet. So we're headed to this weird singularity with Amazon where the entire consumer marketplace, experiences big moves based on what Amazon does or does not do. Facebook is the one facing the most regulatory anger right now, I would say, from Washington

because of the news that their platform had been weaponized by Russians. So to your question, who gets regulated is the honest answer is I don't know. What I'm more confident of is where the regulation will come from, and it won't come from where people think it's going to come from. It's not going to come from D.C. It's going to come out of Brussels. The U.S. registers tremendous upside from these companies with some serious concerns around privacy, job destruction, tax avoidance,

but we get tremendous upside in terms of national pride, economic growth, the largest recruiter from my class at Stern as Amazon. Europe registers a lot of the downside, but very little of the upside. And that is they're not a source of national pride in Europe. They don't recruit nearly as many students. out of the Baconi or University of Cologne, as they do from MIT or Stanford. And the regulators there, I think it's stiff in their backbone. And I think you're going to see the mother of all fines or regulatory intervention come

out of continental Europe. The war against big tech is about to break up, breakout in Europe. It's interesting because if you think back to 2000, 2001, and Microsoft was very much in the regulatory crosshairs as being a monopoly. talk of, should Microsoft be broken up? Should they proactively break themselves up and all that sort of thing? But if you think about it, there was no love lost with Microsoft. Even people who used it in their work every day just sort of did it because they felt like they didn't really have any other choice. And these four companies that you've written about, to varying

degrees are loved by consumers. And there's not nearly the same amount of animus towards them as there was towards Microsoft. And I'm wondering if that alone helps them, or at least guards them to some degree against regulatory risk. It's a great point. And your instincts are correct. They've learned from Microsoft that it's important. Your perception is really important, as it relates a regulatory intervention or the timing of regulatory intervention. These companies wrap themselves in a neon blue, a pink, or a rainbow blanket, and they're very open about their progressive values. And they'll fly Cheryl Sandberg around to talk about leaning in, Tim Cook, first openly gay, Fortune 500 CEO. And I'm in no way doubting their principles or that they, I believe

they do believe these things. I think they are all inspiring people. I think Tim Cook and Cheryl Sandberg are impossible not to like. But they purposefully put this image out there, as I believe that progressives are seen as in general as nice but weak, which is the perfect cover for companies that during business hours act more like the spawn of Darth Vader and Ayn Rand. So whereas Microsoft had sort of this conservative bent to it, and Steve Bomber and Bill Gates were seen as super smart, but kind of mean and cutthroat, which made it easier for elected officials and regulators to go after them because the public didn't have a good feeling. The public, until very recently, has had very warm and cuddly feelings about these companies. If Cheryl Sandberg was vehemently pro-life, I don't think Facebook would be setting up meetings and presentations for her for 500 industry executives and can to all the female executives there.

I think they purposely promote their progressive values to create an illusionist trick such that people think they're softer and cuddlier than they actually are. Coming up, more with Scott Galloway on Amazon, Apple, Facebook, Google, and what keeps those companies up at night? Stay right here. You're listening to Motley Full Money. Thanks again to our friends at Rocket Mortgage by Quicken Loans for supporting this week's Motley Full Money. Chances are you're confident when it comes to your work, your hobbies, your life in general. Well, Rocket Mortgage gives you that same level of confidence when it comes to buying a home or refinancing your existing home loan. Rocket Mortgage is simple.

It allows you to fully understand all the details and be confident that you're getting the right mortgage for you. That's what you want. It's a big deal getting a mortgage. You just want to make sure it's right for you. To get started, go to Rocket Mortgage.com slash Fool. Equal housing lender licensed in all 50 states and MLS Consumer Access.org, number 3030. Welcome back to Motley Fool Money. Chris Hill talking with Scott Galloway, author of The Four, the hidden DNA of Amazon, Apple, Facebook, and Google.

Jeff Bezos, Tim Cook, Mark Zuckerberg, Larry Page. What do you think keeps them up at night? Is it each other? Or is it something else that worries them on a business level? I think it was each other until a few months ago. Now I think it's Washington. I think the person they're most scared of right now. now is a woman named Margaret Vestager,

Marguerite Vestager, excuse me, who's the EU Commissioner on Competitiveness out of Europe. I think she has, if you will, I think she's the first regulator whose testicles have descended and is absolutely not afraid of these guys, and I think you're going to see the first $10 billion plus fine

come out of Europe. Again, I mean, look at it this way. If Italy or Belgium looks at the four and looks at what they've done, they've welcomed these companies, if you look at what's happened to their economy, their jobs, their media companies, their technology companies, and then they look at China, which basically stole the IP of these companies and then created their own version, their own copycat versions of these companies. Who's better off? Just think of the morality or trade agreements.

Who, what country made the better decision? And I think there's a decent argument that China made the better decision by stealing their IP and just ripping off these companies. Now, and I realize that's not how we do business in the West, but I think these companies in Europe are starting to say, you know, if there's job destruction here and they can be weaponized by a government that's an adversary of the West, and we're not recognizing a lot of upside, there aren't a lot of university buildings or hospital wings named after Facebook or Google Millionaires in Europe where there's a lot of them in the U.S., I think they're coming to the conclusion that, you know what, there's not a lot of down. downside to going after these guys because we're not getting the same upside as America's getting. I'm sure your publisher, even though your book has been out for just a week or so, I'm sure your publisher is already interested in a sequel. Let's just go ahead and assume it's going to be called the five. If you had to add a fifth company to the list that you put together, who would you add and why? So arguably there is five and the fifth would be Microsoft. They've performed exceptionally well the last two years. I think they now have the third largest market

cap in the world. Number two in cloud. They've just done a fantastic job on every dimension. I didn't include them because I think of them as more B to B, and I think of these companies is having more equity among consumers and being B2C. But what's fun is to say, well, who among the unicorns or the new guys could be the fifth horsemen? A year ago, I would have said it was Uber right now if you were to bet what company could get to $3, $500, $500 billion right now. I I would say it's probably Netflix. As at the end of the day, when you look at the four, they're really just operating systems for different key components of our life,

whether it's information, media, or retail, or operating systems. And Netflix is becoming an operating system for the joy in our lives, which is television or the operating system for the second most important screen in our lives, which is, again, the TV. Millennials watch more or spend more time on Netflix than they do on the rest of cable television combined, meaning arguably Netflix should be worth more. than all of the rest of the cable television combined. Their use of artificial intelligence, their momentum, recurring revenue business model,

Netflix is probably the good money for the next horseman. The mother of all battles or celebrity death match, everyone talks about Amazon versus Walmart, people starting to talk about Google versus Facebook. I think the real big battle, the Ali Frazier of the information age, is shaping up, and it's going to be Amazon versus Netflix. I think Amazon is lining its troops up and is about to invade Netflix's core business.

You have experience with Amazon, unlike your experience with these other three companies, in that you, once upon a time, competed directly with Amazon. You founded Red Envelope, a multi-channel retailer that went public in 2002. What's it like to compete with Amazon? Mickey Drexler, the former CEO of J. Crew in The Gap, summarized it perfectly. how do you compete with a large company that doesn't want to be profitable? And I maintain there is no such thing as a successful e-commerce company, and that is PurePlay e-commerce does not work,

and had predicted for several years that Amazon would open stores and was wrong for a long time, and finally they purchased Whole Foods. But PurePlay single-channel retail doesn't work. Consumers don't live in isolation of anyone medium, and when you choose that one medium to be e-commerce, you're competing against a company that can operate a break, break-even that has somewhere between 1,000 and a million times the scale that you have. So there is no such thing as a successful e-commerce company.

There are successful retailers that leverage digital and e-commerce as a channel. But we were slowly, like every other e-commerce company in the world, bled to death or the oxygen was slowly taken out of the room by a company that had access to much greater capital or a lower price. and outstanding execution. Effectively, Amazon can go underwater with the largest tank of oxygen. Everyone has to follow them and offer two-day-free shipping, offer something around the same type of value proposition,

but we all have smaller tanks of oxygen, and all of us are drowning, and there's one guy left in the water, and it's in Seattle. The book is The Four, the hidden DNA of Amazon, Apple, Facebook, and Google. It is available everywhere you find books. Scott Galloway, thank you so much for being here. Thank you. time. You can check out past episodes of Motley Fool Money and all of our podcasts by going to

podcast.com. Subscribe on Apple Podcast, Stitcher, Spotify, Google Play. Anywhere you find podcasts, you can find the Motley Fool. Just click the subscribe button. And if you like what you hear, please consider leaving a review. Our email address is Radio at Fool.com. And for investing commentary and analysis 24-7, go to our website, Fool.com. That's going to do it for this week's edition of Motley Full Money. our engineer is Steve Roido, our producer's Mac Career. I'm Chris Hill. Thanks for listening. We'll see you next week.