WEBVTT - Evercore Analyst Mahaney's Guide to Tech Investing

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic from Bloomberg Radio. So let's get

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<v Speaker 1>to our next guest, because we've certainly been looking forward

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<v Speaker 1>to him. Twenty years ago we were in an environment

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<v Speaker 1>where he was tracking the new world of the Internet. Yeah,

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<v Speaker 1>well it doesn't seem so new now, No, it doesn't.

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<v Speaker 1>And you know, if you go back twenty years, footphones

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<v Speaker 1>are really popular. Through the two thousand's, BlackBerry was out there,

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<v Speaker 1>my Space was launched, an oh three Facebook and oh four.

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<v Speaker 1>I mean that was kind of the stuff he was

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<v Speaker 1>working around. We're talking about Mark Mahaney, Senior Managing Director

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<v Speaker 1>and head of Internet Research at ever Core. I s

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<v Speaker 1>I a familiar name to anyone who's listening right now. Mark.

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<v Speaker 1>In the book you talk about the hundreds of interviews

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<v Speaker 1>that you've done, the more than one thousand when it

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<v Speaker 1>comes to print. What made you want to write a book?

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<v Speaker 1>I had something I've actually been wanting to do for

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<v Speaker 1>a couple of years, just kind of a personal um journey,

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<v Speaker 1>if you will. I've been looking at the internet stocks

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<v Speaker 1>and tech stocks for twenty five years, and I wanted

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<v Speaker 1>to try to put some kind of big term, big

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<v Speaker 1>level thoughts, high level thoughts I had down on paper.

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<v Speaker 1>But there was two other things. One is that you know,

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<v Speaker 1>we saw this surge in new investors come into the

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<v Speaker 1>market in the last two years. I think it's something

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<v Speaker 1>like fifteen million accounts, a lot of a lot of

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<v Speaker 1>tho robin Hood, but other ways to other places too.

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<v Speaker 1>And I just I thought that there needed to be

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<v Speaker 1>kind of a book that would help them introduce them

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<v Speaker 1>to how to invest in tech high growth stocks, sort

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<v Speaker 1>of in the same way that Peter Lynches went up

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<v Speaker 1>on Wall Street did a phenomenal job of that forty

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<v Speaker 1>years ago. I thought there needed there was a need

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<v Speaker 1>for something more, more, you know, more up to date,

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<v Speaker 1>for for for newer investors. And then I guess the

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<v Speaker 1>last thing, my last drive here was I saw too

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<v Speaker 1>many institutional investors too, but also retail investors look to

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<v Speaker 1>trade in what I thought were high quality investible names

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<v Speaker 1>and um so I was in a way trying to

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<v Speaker 1>remind people there are there are hazards in investing and trading,

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<v Speaker 1>but there are you can get dramatic returns if you invest,

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<v Speaker 1>you know, with with luck and with skill and with

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<v Speaker 1>patients for the long term in high quality names, and

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<v Speaker 1>that was probably the most important lesson that I learned

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<v Speaker 1>from the last twenty five years. Some of the fundamentals follow.

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<v Speaker 1>Stock prices follow fundamentals. You get the fundamentals right, and

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<v Speaker 1>you can have a very good portfolio. So that that

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<v Speaker 1>was the last kind of real driver for me. Well,

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<v Speaker 1>it really is a great lesson book, playbook if you will.

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<v Speaker 1>And the title of the book nothing but net ten

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<v Speaker 1>timeless stock picking lessons from one of Wall Street's top

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<v Speaker 1>tech analysts, Mark Mhaney. So let's talk about some of

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<v Speaker 1>those lessons, because, uh, these are things that I feel

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<v Speaker 1>like we talk about day in and day out at

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<v Speaker 1>Bloomberg in terms of do you focus on revenues, you

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<v Speaker 1>talk about earnings, girls, you talk about margins. Tell us

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<v Speaker 1>some of the lessons. Well, I'm going to start off

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<v Speaker 1>with one one warning and then one good piece of news.

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<v Speaker 1>So the one warning is again, these markets are aorries faltil,

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<v Speaker 1>and even the best stocks, even the best franchises, can

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<v Speaker 1>underperform for periods of time. They will get dislocated. You know,

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<v Speaker 1>I think about these wonderful names that combined for this

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<v Speaker 1>acronym called fang, Facebook, games on Netflix and Google. You

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<v Speaker 1>look at those stocks, they've each had twenty to thirty

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<v Speaker 1>even as much as forty corrections over the last two,

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<v Speaker 1>five and ten years, despite being dramatic market performers. So

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<v Speaker 1>kind of lesson number one warning to us all. You know,

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<v Speaker 1>we've had a pretty robust equity market for the last

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<v Speaker 1>decade or so. So I just want to make sure

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<v Speaker 1>we highlight the risks. But now let me highlight the reward.

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<v Speaker 1>If there's one acronym, if there's one thing I want

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<v Speaker 1>people to get from the book, it's the acronym d

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<v Speaker 1>h Q. Now not dairy Queen d Q, but d

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<v Speaker 1>h Q, which stands for dislocated high quality companies. If

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<v Speaker 1>you're investing in the market, you want to do two things.

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<v Speaker 1>You want to mitigate valuation with risk, and you want

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<v Speaker 1>to mitigate fundamentals risk. Valuation risk is, you know, buying

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<v Speaker 1>a stock that is multiple is too high, and the

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<v Speaker 1>fundamental's risk is buying a company and then watching it

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<v Speaker 1>blow up a revenue growth sharply decelerate, margins collapse, etcetera.

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<v Speaker 1>The way to hedge that second risk, that fundamental's risk,

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<v Speaker 1>is to focus on high quality names. So I spent

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<v Speaker 1>a fair amount of time in the book looking at

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<v Speaker 1>things like to addressable markets, management skill especially a products,

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<v Speaker 1>successful product innovation, and really strong customer value props or propositions.

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<v Speaker 1>You put that package together, those four things that will

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<v Speaker 1>create a high quality company and which you want to

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<v Speaker 1>do and hedging both of those risks. Identify the high

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<v Speaker 1>quality companies and then wait for that dislocation, wait for

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<v Speaker 1>them to trade out twenty or and then buy or

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<v Speaker 1>add the positions. That's the single best piece of advice

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<v Speaker 1>I had in the book, right. I love the idea

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<v Speaker 1>about the volatility. I mean, I feel like we we

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<v Speaker 1>talk about that, we try to get our heads around

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<v Speaker 1>whether it's a name like Tesla, which can be it's

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<v Speaker 1>been on such a terror but yet can go through

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<v Speaker 1>a pretty significant correction. It sounds like, you know, sometimes

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<v Speaker 1>you just got to write it out. Yeah, you just

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<v Speaker 1>need to be patient long term investor and really focus

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<v Speaker 1>on fundamentals. And I want to get that nail across

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<v Speaker 1>that point. Stocks follow fundamentals. The bigger company gets in

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<v Speaker 1>terms of revenue and cash flows, the higher the stock

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<v Speaker 1>price over for long term investors to hire the stock

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<v Speaker 1>price and almost always has played out and even in

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<v Speaker 1>the most vaultil of sectors that you could look at,

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<v Speaker 1>which is what I've done consumer Internet mark. You start

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<v Speaker 1>out your book by writing that you're the oldest and

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<v Speaker 1>longest lasting Internet analysts on Wall Street? Where did what

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<v Speaker 1>has kept you in the job for this amount of

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<v Speaker 1>time because you've certainly could have gone and worked a

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<v Speaker 1>lot of places. M Well, I I enjoy the work

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<v Speaker 1>and uh, and I'm lucky to be covering a sector

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<v Speaker 1>that's extremely dynamic. If you were going to spend the

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<v Speaker 1>last twenty five years working on Wall Street, you know

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<v Speaker 1>you would want to to have either covered Internet stocks,

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<v Speaker 1>invested in Internet stocks, maybe software. Those are the kind

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<v Speaker 1>of the two areas that have been the most nonst

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<v Speaker 1>dynamic in terms of also new companies coming in. I mean,

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<v Speaker 1>the Internet created three of the largest world you know

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<v Speaker 1>cap companies in the world, Amazon, Facebook and Google, and

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<v Speaker 1>by the way, Microsoft and Apple. The reason that they

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<v Speaker 1>are where they are is because they've created wonderful services,

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<v Speaker 1>product devices for accessing and utilizing the Internet. So it's

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<v Speaker 1>really been I've been lucky to kind of stumble. It

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<v Speaker 1>was a timing thing. I got lucky and stumbled into

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<v Speaker 1>the Internet. Not at the very beginning. I was in

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<v Speaker 1>the smartest out goore, but I got in there really

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<v Speaker 1>kind of it near the beginning of the commercial Internet,

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<v Speaker 1>and it's been just phenomenal and fascinating to watch these

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<v Speaker 1>companies grow. Got thirty seconds and then we're gonna do

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<v Speaker 1>some more. But is the metaverse the next step of

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<v Speaker 1>the Internet in some way? I don't know, but I

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<v Speaker 1>absolutely think that you want to be long and name

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<v Speaker 1>like Facebook because of its core business, but because it's

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<v Speaker 1>also building what's likely option value? No, it is option

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<v Speaker 1>value in terms of its investment in the metaverse. Uh,

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<v Speaker 1>you know, Like I like to see large platforms have

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<v Speaker 1>these kind of long term bets like Google with autonomous

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<v Speaker 1>vehicles and weymo. This is Facebook's long term bet. Given

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<v Speaker 1>the amount of money that they're putting into it and

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<v Speaker 1>the resources. My guess is that there's a there there

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<v Speaker 1>and investors are going to appreciate it five years down

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<v Speaker 1>the road. All right, Mark, hang on for a second.

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<v Speaker 1>We're going to come back with you in just a moment.

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<v Speaker 1>Mark Mahaney over at ever Car i sis new book,

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<v Speaker 1>Nothing but net ten Timeless stock picking lessons from one

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<v Speaker 1>of Wall Street's top tech analysts he's going to continue

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<v Speaker 1>being our guests. In just a moment. He does have

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<v Speaker 1>an outperform on Facebook at four and thirty dollars. This

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<v Speaker 1>is Bloomberg. I want to get back to her. Guest

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<v Speaker 1>still with us is Mark Mhaney, Senior Managing Director, head

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<v Speaker 1>of Internet Research over at ever Core. I s I

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<v Speaker 1>he's got a new book out, Nothing but net ten

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<v Speaker 1>timeless stock picking lessons from one of Wall Street's top

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<v Speaker 1>tech analysts. He really is a top tech analysts. You

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<v Speaker 1>might remember. Institutional Investor for his research has included him

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<v Speaker 1>among their top analysts. Uh for many many years, top

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<v Speaker 1>three ranked analysts for I think thirteen years and five

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<v Speaker 1>years as a number one ranked analysts. So this is

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<v Speaker 1>why we care what he has to say. Mark, still

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<v Speaker 1>with us on the phone. So, Mark, one thing I

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<v Speaker 1>wanted to ask you. Um in your book, you talk

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<v Speaker 1>you talk about importance of management, You talk about you know,

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<v Speaker 1>having a product, You talk about revenues over earnings. Like,

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<v Speaker 1>how do we need to think about some of these

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<v Speaker 1>companies that are starting out. Uh? We look at Rivan

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<v Speaker 1>that I p o UM. Is it a car company?

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<v Speaker 1>Is it a tech company? Uh? It's not expected to

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<v Speaker 1>be profitable for some time or really ampa production for

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<v Speaker 1>some time. Um, how do we need to look at

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<v Speaker 1>these How do you look at companies like that? I

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<v Speaker 1>know it's not an Internet company, but that's right. So

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<v Speaker 1>I what I tried to do, Carol, is I really

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<v Speaker 1>try to focus on this framework. You know, there's three

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<v Speaker 1>or four five things I'm really looking for in a company. Now.

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<v Speaker 1>There can be plenty of trading opportunities, but to really

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<v Speaker 1>be kind of a good low core long term investment

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<v Speaker 1>that takes something else. And you know, by the way,

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<v Speaker 1>even these great assets like Amazon today, I don't think

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<v Speaker 1>that was a good core long term investments until something

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<v Speaker 1>like two thousand and six, two thousand and seven, when

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<v Speaker 1>they showed they could innovate in multiple areas, go from

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<v Speaker 1>being an online book retailer to generating or building or

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<v Speaker 1>really almost inventing could the commercial cloud industry and then

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<v Speaker 1>rolling out these kindle products. You look for those kind

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<v Speaker 1>of proof points. But you know, if I if I

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<v Speaker 1>check off the list, it's one look for companies that

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<v Speaker 1>are facing large tams total addressable markets. Uh. Secondly, you

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<v Speaker 1>look for companies with just great management teams. I know

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<v Speaker 1>that's a easy statement to say, So what does it

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<v Speaker 1>really mean? You're looking for companies with great vision, like

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<v Speaker 1>read Hastings into launching this company called Netflix, which kind

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<v Speaker 1>of conjures up streaming over the internet, except you couldn't

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<v Speaker 1>have streamed anything over the internet. At least it would

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<v Speaker 1>have taken you hours to download the first five minutes

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<v Speaker 1>of Terminator back then. But he had the vision to

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<v Speaker 1>know that ten years from then, you know, the business

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<v Speaker 1>would go streaming. People would stream video over the internet.

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<v Speaker 1>So you look at that kind of industry, of that

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<v Speaker 1>vision from CEOs, you look for companies. Third, that can

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<v Speaker 1>be successful with product innovation. There's a st there's a

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<v Speaker 1>saying in finance that past performances no indicator or future performance.

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<v Speaker 1>I don't think that's true when it comes to management

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<v Speaker 1>and UH and product innovation. Companies that show you a

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<v Speaker 1>track record or being able to do two or three

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<v Speaker 1>really good product innovations, you stick with them. And finally,

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<v Speaker 1>you focus on companies that have got compelling value propositions.

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<v Speaker 1>You know, companies that put customers ahead of investors. And

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<v Speaker 1>there's two examples I write about in detail in the book.

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<v Speaker 1>I'll just click on them here. One is grub Hub

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<v Speaker 1>versus door Dash and the others, and Muson versus eBay.

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<v Speaker 1>In both of those cases, the company with the inferior

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<v Speaker 1>business model, but the superior customer value proposition. In the

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<v Speaker 1>case of Amazon, price selection and convenience for consumers, that

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<v Speaker 1>company one. So you look for these companies that you

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<v Speaker 1>know are investing for the long term to satisfy customers,

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<v Speaker 1>even if that means disappointing Wall Street near term, they

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<v Speaker 1>can be better long term winners. Hey, Mark, you mentioned

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<v Speaker 1>in your book too that you've gotten to know a

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<v Speaker 1>lot of the executives that these companies over the less

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<v Speaker 1>twenty five years, some better than others. Which single person

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<v Speaker 1>is the most transformative when it comes to building and

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<v Speaker 1>leading a business? Well, it's kind of hard to argue,

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<v Speaker 1>uh with Jeff Bezos just um, you know what what

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<v Speaker 1>uh He's he is the entrepreneur of of that generation.

0:10:47.640 --> 0:10:50.240
<v Speaker 1>Let's say that that you know from two thousand to

0:10:50.360 --> 0:10:55.040
<v Speaker 1>two thousand twenty singularly most impressive entrepreneur. Now, Elon Musk

0:10:55.120 --> 0:10:57.800
<v Speaker 1>may well be the one of this next generation. But

0:10:58.160 --> 0:11:02.319
<v Speaker 1>for somebody to succeed in such different industries, and we're

0:11:02.320 --> 0:11:06.160
<v Speaker 1>talking about online retail, we're talking about on now, online advertising,

0:11:06.160 --> 0:11:08.840
<v Speaker 1>we're talking about cloud computing. I mean, those are industries

0:11:08.880 --> 0:11:14.400
<v Speaker 1>with dramatically different competencies, and so the ability of that person,

0:11:14.760 --> 0:11:16.600
<v Speaker 1>you know, the founder, and it's a management team, and

0:11:16.640 --> 0:11:19.600
<v Speaker 1>of course is the employee base. But to succeed in

0:11:19.720 --> 0:11:23.320
<v Speaker 1>those in businesses as different and diverse is that that's

0:11:23.440 --> 0:11:26.800
<v Speaker 1>truly impressive. So it's kind of hard not to not

0:11:26.880 --> 0:11:28.880
<v Speaker 1>to not to pick Bezos for that. No, I think

0:11:28.920 --> 0:11:30.439
<v Speaker 1>a lot of people would agree with you. So then

0:11:30.440 --> 0:11:32.360
<v Speaker 1>what do we do? Mark, So we know he's still

0:11:32.440 --> 0:11:35.600
<v Speaker 1>chairman of his company, but Andy Jesse is now in

0:11:35.679 --> 0:11:39.000
<v Speaker 1>charge as chief executive officers. So do we get a

0:11:39.080 --> 0:11:42.920
<v Speaker 1>little nervous that Amazon will not be the visionary company

0:11:43.000 --> 0:11:46.440
<v Speaker 1>that it's been because Jeff Bezos is stepping back. It's

0:11:46.440 --> 0:11:49.400
<v Speaker 1>a good question, Carol. I think we absolutely should be

0:11:49.440 --> 0:11:52.080
<v Speaker 1>at the margin a little nervous. Andy Jess We're gonna,

0:11:52.200 --> 0:11:54.520
<v Speaker 1>you know, judge him over the next five years. The

0:11:54.520 --> 0:11:58.640
<v Speaker 1>advantage that Amazon shareholders have is that Jass really worked

0:11:58.640 --> 0:12:01.959
<v Speaker 1>at at Basos aside for I think it was eighteen

0:12:02.040 --> 0:12:04.839
<v Speaker 1>or nineteen years. I met Andy along the way as

0:12:04.840 --> 0:12:07.080
<v Speaker 1>he was building up a w S. By the way,

0:12:07.120 --> 0:12:13.359
<v Speaker 1>the fact that he helped develop, deliver, build a WUS,

0:12:14.080 --> 0:12:16.360
<v Speaker 1>which is now probably half the value of Amazon. The

0:12:16.400 --> 0:12:18.920
<v Speaker 1>fact that he did that, I mean, he's essentially run

0:12:19.080 --> 0:12:22.240
<v Speaker 1>a company in the past, so I think his organizational chops,

0:12:22.280 --> 0:12:25.000
<v Speaker 1>his operational chops, are really well known. Whether he has

0:12:25.040 --> 0:12:29.240
<v Speaker 1>the ability that Basos had, which so few entrepreneurs really

0:12:29.320 --> 0:12:33.000
<v Speaker 1>have jobs a musk to really look around corners and

0:12:33.040 --> 0:12:35.640
<v Speaker 1>figure out new industries. Not new products, but I'm talking

0:12:35.679 --> 0:12:38.360
<v Speaker 1>about new industries. I don't know whether Jesse has that

0:12:38.840 --> 0:12:41.120
<v Speaker 1>or not. I don't think it matters to Amazon shareholders

0:12:41.120 --> 0:12:43.160
<v Speaker 1>in the next two to five years. It would matter

0:12:43.240 --> 0:12:45.319
<v Speaker 1>beyond that. So I think the jury is going to

0:12:45.360 --> 0:12:46.960
<v Speaker 1>be out for a while on Jesse. All Right, we

0:12:47.040 --> 0:12:50.320
<v Speaker 1>have to ask you, Zello, because man, this has been

0:12:50.320 --> 0:12:53.360
<v Speaker 1>an interesting story to watch. I know you cover it. Uh.

0:12:53.559 --> 0:12:56.840
<v Speaker 1>I believe you downgraded it from I think out performed

0:12:56.840 --> 0:13:00.360
<v Speaker 1>to inline um after the company said it's exiting it

0:13:00.440 --> 0:13:03.200
<v Speaker 1>basically it's house flipping business. How do you still like

0:13:03.320 --> 0:13:07.240
<v Speaker 1>it though? No? I I downgraded it and in fact

0:13:07.520 --> 0:13:09.760
<v Speaker 1>but didn't put a cell rating on it. No, No,

0:13:09.920 --> 0:13:11.920
<v Speaker 1>you're right, I did not care. If you're right, um,

0:13:12.040 --> 0:13:14.760
<v Speaker 1>the I think there is an interesting core business there.

0:13:15.040 --> 0:13:17.160
<v Speaker 1>You know, if you when you publish something at UM

0:13:17.480 --> 0:13:20.480
<v Speaker 1>all of a sudden, you've once it's out there, it's

0:13:20.480 --> 0:13:22.600
<v Speaker 1>all there. You can't retract it. Well. In that book,

0:13:22.600 --> 0:13:25.240
<v Speaker 1>I talked about the Zillo pivot, and I talked to

0:13:25.360 --> 0:13:27.800
<v Speaker 1>as example of a company that I thought was a

0:13:27.840 --> 0:13:30.040
<v Speaker 1>founder led company. They when they went into the I

0:13:30.200 --> 0:13:33.000
<v Speaker 1>binne market. The only reason they did that We're able

0:13:33.040 --> 0:13:34.600
<v Speaker 1>to do that is that they had the founder come

0:13:34.600 --> 0:13:36.480
<v Speaker 1>back and say we have to do this, even though

0:13:36.480 --> 0:13:38.440
<v Speaker 1>it was going to be punished near turn by Wall

0:13:38.440 --> 0:13:42.839
<v Speaker 1>Street for taking on excess risk. And UM, I really

0:13:42.840 --> 0:13:45.280
<v Speaker 1>thought that they had a shot at the I binne market.

0:13:45.720 --> 0:13:48.760
<v Speaker 1>It's rare I've seen a company sort of implode is

0:13:48.800 --> 0:13:51.360
<v Speaker 1>too strong before ward miss execute on a new business

0:13:51.400 --> 0:13:54.080
<v Speaker 1>initiative in the way that Zillo has in the last

0:13:54.080 --> 0:13:56.120
<v Speaker 1>six months. I'm not throwing shade at them. I mean

0:13:56.360 --> 0:13:58.960
<v Speaker 1>they deserve criticism. I'll criticized myself to ad to buy

0:13:58.960 --> 0:14:01.240
<v Speaker 1>in the stock, so I made a mistake there too.

0:14:01.880 --> 0:14:05.199
<v Speaker 1>I still think that the core business is is attractive.

0:14:05.520 --> 0:14:06.880
<v Speaker 1>I think that stock is going to be in the

0:14:07.000 --> 0:14:09.720
<v Speaker 1>in the wood shed for you know, six months, maybe

0:14:09.720 --> 0:14:11.880
<v Speaker 1>twelve months. I think out of that there will be

0:14:11.920 --> 0:14:14.560
<v Speaker 1>an interesting business. UM but that's the case of a

0:14:14.600 --> 0:14:16.599
<v Speaker 1>company that you know, Like, what was so impressive of

0:14:16.679 --> 0:14:19.680
<v Speaker 1>about Bezos is that he went into multiple different industries

0:14:19.720 --> 0:14:22.160
<v Speaker 1>and he did still tried to do the same thing,

0:14:22.440 --> 0:14:24.440
<v Speaker 1>and they didn't succeed in the second one. They're still

0:14:24.440 --> 0:14:28.400
<v Speaker 1>okaying that first one. It was overstretched and misse execution.

0:14:28.800 --> 0:14:31.520
<v Speaker 1>It's unfortunate and I got that call wrong, but it

0:14:31.600 --> 0:14:35.520
<v Speaker 1>was a fascinating example of of, you know, the pitfalls

0:14:35.560 --> 0:14:39.000
<v Speaker 1>of tech investing. Mark Mahaney, you have a open invitation

0:14:39.080 --> 0:14:41.000
<v Speaker 1>anytime you want to come back to talk more about

0:14:41.040 --> 0:14:44.080
<v Speaker 1>your book and just your philosophy and thoughts about your space,

0:14:44.080 --> 0:14:46.560
<v Speaker 1>because this has been so much fun. Mark Mhoney, ever

0:14:46.640 --> 0:14:48.760
<v Speaker 1>care I saw his book is nothing but net tent Time.

0:14:48.800 --> 0:14:50.720
<v Speaker 1>The stock picking lessons from one of Wall Street's top

0:14:50.720 --> 0:14:51.280
<v Speaker 1>tech Alice