Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic from Bloomberg Radio. So let's get
Speaker 1: to our next guest, because we've certainly been looking forward
Speaker 1: to him. Twenty years ago we were in an environment
Speaker 1: where he was tracking the new world of the Internet. Yeah,
Speaker 1: well it doesn't seem so new now, No, it doesn't.
Speaker 1: And you know, if you go back twenty years, footphones
Speaker 1: are really popular. Through the two thousand's, BlackBerry was out there,
Speaker 1: my Space was launched, an oh three Facebook and oh four.
Speaker 1: I mean that was kind of the stuff he was
Speaker 1: working around. We're talking about Mark Mahaney, Senior Managing Director
Speaker 1: and head of Internet Research at ever Core. I s
Speaker 1: I a familiar name to anyone who's listening right now. Mark.
Speaker 1: In the book you talk about the hundreds of interviews
Speaker 1: that you've done, the more than one thousand when it
Speaker 1: comes to print. What made you want to write a book?
Speaker 1: I had something I've actually been wanting to do for
Speaker 1: a couple of years, just kind of a personal um journey,
Speaker 1: if you will. I've been looking at the internet stocks
Speaker 1: and tech stocks for twenty five years, and I wanted
Speaker 1: to try to put some kind of big term, big
Speaker 1: level thoughts, high level thoughts I had down on paper.
Speaker 1: But there was two other things. One is that you know,
Speaker 1: we saw this surge in new investors come into the
Speaker 1: market in the last two years. I think it's something
Speaker 1: like fifteen million accounts, a lot of a lot of
Speaker 1: tho robin Hood, but other ways to other places too.
Speaker 1: And I just I thought that there needed to be
Speaker 1: kind of a book that would help them introduce them
Speaker 1: to how to invest in tech high growth stocks, sort
Speaker 1: of in the same way that Peter Lynches went up
Speaker 1: on Wall Street did a phenomenal job of that forty
Speaker 1: years ago. I thought there needed there was a need
Speaker 1: for something more, more, you know, more up to date,
Speaker 1: for for for newer investors. And then I guess the
Speaker 1: last thing, my last drive here was I saw too
Speaker 1: many institutional investors too, but also retail investors look to
Speaker 1: trade in what I thought were high quality investible names
Speaker 1: and um so I was in a way trying to
Speaker 1: remind people there are there are hazards in investing and trading,
Speaker 1: but there are you can get dramatic returns if you invest,
Speaker 1: you know, with with luck and with skill and with
Speaker 1: patients for the long term in high quality names, and
Speaker 1: that was probably the most important lesson that I learned
Speaker 1: from the last twenty five years. Some of the fundamentals follow.
Speaker 1: Stock prices follow fundamentals. You get the fundamentals right, and
Speaker 1: you can have a very good portfolio. So that that
Speaker 1: was the last kind of real driver for me. Well,
Speaker 1: it really is a great lesson book, playbook if you will.
Speaker 1: And the title of the book nothing but net ten
Speaker 1: timeless stock picking lessons from one of Wall Street's top
Speaker 1: tech analysts, Mark Mhaney. So let's talk about some of
Speaker 1: those lessons, because, uh, these are things that I feel
Speaker 1: like we talk about day in and day out at
Speaker 1: Bloomberg in terms of do you focus on revenues, you
Speaker 1: talk about earnings, girls, you talk about margins. Tell us
Speaker 1: some of the lessons. Well, I'm going to start off
Speaker 1: with one one warning and then one good piece of news.
Speaker 1: So the one warning is again, these markets are aorries faltil,
Speaker 1: and even the best stocks, even the best franchises, can
Speaker 1: underperform for periods of time. They will get dislocated. You know,
Speaker 1: I think about these wonderful names that combined for this
Speaker 1: acronym called fang, Facebook, games on Netflix and Google. You
Speaker 1: look at those stocks, they've each had twenty to thirty
Speaker 1: even as much as forty corrections over the last two,
Speaker 1: five and ten years, despite being dramatic market performers. So
Speaker 1: kind of lesson number one warning to us all. You know,
Speaker 1: we've had a pretty robust equity market for the last
Speaker 1: decade or so. So I just want to make sure
Speaker 1: we highlight the risks. But now let me highlight the reward.
Speaker 1: If there's one acronym, if there's one thing I want
Speaker 1: people to get from the book, it's the acronym d
Speaker 1: h Q. Now not dairy Queen d Q, but d
Speaker 1: h Q, which stands for dislocated high quality companies. If
Speaker 1: you're investing in the market, you want to do two things.
Speaker 1: You want to mitigate valuation with risk, and you want
Speaker 1: to mitigate fundamentals risk. Valuation risk is, you know, buying
Speaker 1: a stock that is multiple is too high, and the
Speaker 1: fundamental's risk is buying a company and then watching it
Speaker 1: blow up a revenue growth sharply decelerate, margins collapse, etcetera.
Speaker 1: The way to hedge that second risk, that fundamental's risk,
Speaker 1: is to focus on high quality names. So I spent
Speaker 1: a fair amount of time in the book looking at
Speaker 1: things like to addressable markets, management skill especially a products,
Speaker 1: successful product innovation, and really strong customer value props or propositions.
Speaker 1: You put that package together, those four things that will
Speaker 1: create a high quality company and which you want to
Speaker 1: do and hedging both of those risks. Identify the high
Speaker 1: quality companies and then wait for that dislocation, wait for
Speaker 1: them to trade out twenty or and then buy or
Speaker 1: add the positions. That's the single best piece of advice
Speaker 1: I had in the book, right. I love the idea
Speaker 1: about the volatility. I mean, I feel like we we
Speaker 1: talk about that, we try to get our heads around
Speaker 1: whether it's a name like Tesla, which can be it's
Speaker 1: been on such a terror but yet can go through
Speaker 1: a pretty significant correction. It sounds like, you know, sometimes
Speaker 1: you just got to write it out. Yeah, you just
Speaker 1: need to be patient long term investor and really focus
Speaker 1: on fundamentals. And I want to get that nail across
Speaker 1: that point. Stocks follow fundamentals. The bigger company gets in
Speaker 1: terms of revenue and cash flows, the higher the stock
Speaker 1: price over for long term investors to hire the stock
Speaker 1: price and almost always has played out and even in
Speaker 1: the most vaultil of sectors that you could look at,
Speaker 1: which is what I've done consumer Internet mark. You start
Speaker 1: out your book by writing that you're the oldest and
Speaker 1: longest lasting Internet analysts on Wall Street? Where did what
Speaker 1: has kept you in the job for this amount of
Speaker 1: time because you've certainly could have gone and worked a
Speaker 1: lot of places. M Well, I I enjoy the work
Speaker 1: and uh, and I'm lucky to be covering a sector
Speaker 1: that's extremely dynamic. If you were going to spend the
Speaker 1: last twenty five years working on Wall Street, you know
Speaker 1: you would want to to have either covered Internet stocks,
Speaker 1: invested in Internet stocks, maybe software. Those are the kind
Speaker 1: of the two areas that have been the most nonst
Speaker 1: dynamic in terms of also new companies coming in. I mean,
Speaker 1: the Internet created three of the largest world you know
Speaker 1: cap companies in the world, Amazon, Facebook and Google, and
Speaker 1: by the way, Microsoft and Apple. The reason that they
Speaker 1: are where they are is because they've created wonderful services,
Speaker 1: product devices for accessing and utilizing the Internet. So it's
Speaker 1: really been I've been lucky to kind of stumble. It
Speaker 1: was a timing thing. I got lucky and stumbled into
Speaker 1: the Internet. Not at the very beginning. I was in
Speaker 1: the smartest out goore, but I got in there really
Speaker 1: kind of it near the beginning of the commercial Internet,
Speaker 1: and it's been just phenomenal and fascinating to watch these
Speaker 1: companies grow. Got thirty seconds and then we're gonna do
Speaker 1: some more. But is the metaverse the next step of
Speaker 1: the Internet in some way? I don't know, but I
Speaker 1: absolutely think that you want to be long and name
Speaker 1: like Facebook because of its core business, but because it's
Speaker 1: also building what's likely option value? No, it is option
Speaker 1: value in terms of its investment in the metaverse. Uh,
Speaker 1: you know, Like I like to see large platforms have
Speaker 1: these kind of long term bets like Google with autonomous
Speaker 1: vehicles and weymo. This is Facebook's long term bet. Given
Speaker 1: the amount of money that they're putting into it and
Speaker 1: the resources. My guess is that there's a there there
Speaker 1: and investors are going to appreciate it five years down
Speaker 1: the road. All right, Mark, hang on for a second.
Speaker 1: We're going to come back with you in just a moment.
Speaker 1: Mark Mahaney over at ever Car i sis new book,
Speaker 1: Nothing but net ten Timeless stock picking lessons from one
Speaker 1: of Wall Street's top tech analysts he's going to continue
Speaker 1: being our guests. In just a moment. He does have
Speaker 1: an outperform on Facebook at four and thirty dollars. This
Speaker 1: is Bloomberg. I want to get back to her. Guest
Speaker 1: still with us is Mark Mhaney, Senior Managing Director, head
Speaker 1: of Internet Research over at ever Core. I s I
Speaker 1: he's got a new book out, Nothing but net ten
Speaker 1: timeless stock picking lessons from one of Wall Street's top
Speaker 1: tech analysts. He really is a top tech analysts. You
Speaker 1: might remember. Institutional Investor for his research has included him
Speaker 1: among their top analysts. Uh for many many years, top
Speaker 1: three ranked analysts for I think thirteen years and five
Speaker 1: years as a number one ranked analysts. So this is
Speaker 1: why we care what he has to say. Mark, still
Speaker 1: with us on the phone. So, Mark, one thing I
Speaker 1: wanted to ask you. Um in your book, you talk
Speaker 1: you talk about importance of management, You talk about you know,
Speaker 1: having a product, You talk about revenues over earnings. Like,
Speaker 1: how do we need to think about some of these
Speaker 1: companies that are starting out. Uh? We look at Rivan
Speaker 1: that I p o UM. Is it a car company?
Speaker 1: Is it a tech company? Uh? It's not expected to
Speaker 1: be profitable for some time or really ampa production for
Speaker 1: some time. Um, how do we need to look at
Speaker 1: these How do you look at companies like that? I
Speaker 1: know it's not an Internet company, but that's right. So
Speaker 1: I what I tried to do, Carol, is I really
Speaker 1: try to focus on this framework. You know, there's three
Speaker 1: or four five things I'm really looking for in a company. Now.
Speaker 1: There can be plenty of trading opportunities, but to really
Speaker 1: be kind of a good low core long term investment
Speaker 1: that takes something else. And you know, by the way,
Speaker 1: even these great assets like Amazon today, I don't think
Speaker 1: that was a good core long term investments until something
Speaker 1: like two thousand and six, two thousand and seven, when
Speaker 1: they showed they could innovate in multiple areas, go from
Speaker 1: being an online book retailer to generating or building or
Speaker 1: really almost inventing could the commercial cloud industry and then
Speaker 1: rolling out these kindle products. You look for those kind
Speaker 1: of proof points. But you know, if I if I
Speaker 1: check off the list, it's one look for companies that
Speaker 1: are facing large tams total addressable markets. Uh. Secondly, you
Speaker 1: look for companies with just great management teams. I know
Speaker 1: that's a easy statement to say, So what does it
Speaker 1: really mean? You're looking for companies with great vision, like
Speaker 1: read Hastings into launching this company called Netflix, which kind
Speaker 1: of conjures up streaming over the internet, except you couldn't
Speaker 1: have streamed anything over the internet. At least it would
Speaker 1: have taken you hours to download the first five minutes
Speaker 1: of Terminator back then. But he had the vision to
Speaker 1: know that ten years from then, you know, the business
Speaker 1: would go streaming. People would stream video over the internet.
Speaker 1: So you look at that kind of industry, of that
Speaker 1: vision from CEOs, you look for companies. Third, that can
Speaker 1: be successful with product innovation. There's a st there's a
Speaker 1: saying in finance that past performances no indicator or future performance.
Speaker 1: I don't think that's true when it comes to management
Speaker 1: and UH and product innovation. Companies that show you a
Speaker 1: track record or being able to do two or three
Speaker 1: really good product innovations, you stick with them. And finally,
Speaker 1: you focus on companies that have got compelling value propositions.
Speaker 1: You know, companies that put customers ahead of investors. And
Speaker 1: there's two examples I write about in detail in the book.
Speaker 1: I'll just click on them here. One is grub Hub
Speaker 1: versus door Dash and the others, and Muson versus eBay.
Speaker 1: In both of those cases, the company with the inferior
Speaker 1: business model, but the superior customer value proposition. In the
Speaker 1: case of Amazon, price selection and convenience for consumers, that
Speaker 1: company one. So you look for these companies that you
Speaker 1: know are investing for the long term to satisfy customers,
Speaker 1: even if that means disappointing Wall Street near term, they
Speaker 1: can be better long term winners. Hey, Mark, you mentioned
Speaker 1: in your book too that you've gotten to know a
Speaker 1: lot of the executives that these companies over the less
Speaker 1: twenty five years, some better than others. Which single person
Speaker 1: is the most transformative when it comes to building and
Speaker 1: leading a business? Well, it's kind of hard to argue,
Speaker 1: uh with Jeff Bezos just um, you know what what
Speaker 1: uh He's he is the entrepreneur of of that generation.
Speaker 1: Let's say that that you know from two thousand to
Speaker 1: two thousand twenty singularly most impressive entrepreneur. Now, Elon Musk
Speaker 1: may well be the one of this next generation. But
Speaker 1: for somebody to succeed in such different industries, and we're
Speaker 1: talking about online retail, we're talking about on now, online advertising,
Speaker 1: we're talking about cloud computing. I mean, those are industries
Speaker 1: with dramatically different competencies, and so the ability of that person,
Speaker 1: you know, the founder, and it's a management team, and
Speaker 1: of course is the employee base. But to succeed in
Speaker 1: those in businesses as different and diverse is that that's
Speaker 1: truly impressive. So it's kind of hard not to not
Speaker 1: to not to pick Bezos for that. No, I think
Speaker 1: a lot of people would agree with you. So then
Speaker 1: what do we do? Mark, So we know he's still
Speaker 1: chairman of his company, but Andy Jesse is now in
Speaker 1: charge as chief executive officers. So do we get a
Speaker 1: little nervous that Amazon will not be the visionary company
Speaker 1: that it's been because Jeff Bezos is stepping back. It's
Speaker 1: a good question, Carol. I think we absolutely should be
Speaker 1: at the margin a little nervous. Andy Jess We're gonna,
Speaker 1: you know, judge him over the next five years. The
Speaker 1: advantage that Amazon shareholders have is that Jass really worked
Speaker 1: at at Basos aside for I think it was eighteen
Speaker 1: or nineteen years. I met Andy along the way as
Speaker 1: he was building up a w S. By the way,
Speaker 1: the fact that he helped develop, deliver, build a WUS,
Speaker 1: which is now probably half the value of Amazon. The
Speaker 1: fact that he did that, I mean, he's essentially run
Speaker 1: a company in the past, so I think his organizational chops,
Speaker 1: his operational chops, are really well known. Whether he has
Speaker 1: the ability that Basos had, which so few entrepreneurs really
Speaker 1: have jobs a musk to really look around corners and
Speaker 1: figure out new industries. Not new products, but I'm talking
Speaker 1: about new industries. I don't know whether Jesse has that
Speaker 1: or not. I don't think it matters to Amazon shareholders
Speaker 1: in the next two to five years. It would matter
Speaker 1: beyond that. So I think the jury is going to
Speaker 1: be out for a while on Jesse. All Right, we
Speaker 1: have to ask you, Zello, because man, this has been
Speaker 1: an interesting story to watch. I know you cover it. Uh.
Speaker 1: I believe you downgraded it from I think out performed
Speaker 1: to inline um after the company said it's exiting it
Speaker 1: basically it's house flipping business. How do you still like
Speaker 1: it though? No? I I downgraded it and in fact
Speaker 1: but didn't put a cell rating on it. No, No,
Speaker 1: you're right, I did not care. If you're right, um,
Speaker 1: the I think there is an interesting core business there.
Speaker 1: You know, if you when you publish something at UM
Speaker 1: all of a sudden, you've once it's out there, it's
Speaker 1: all there. You can't retract it. Well. In that book,
Speaker 1: I talked about the Zillo pivot, and I talked to
Speaker 1: as example of a company that I thought was a
Speaker 1: founder led company. They when they went into the I
Speaker 1: binne market. The only reason they did that We're able
Speaker 1: to do that is that they had the founder come
Speaker 1: back and say we have to do this, even though
Speaker 1: it was going to be punished near turn by Wall
Speaker 1: Street for taking on excess risk. And UM, I really
Speaker 1: thought that they had a shot at the I binne market.
Speaker 1: It's rare I've seen a company sort of implode is
Speaker 1: too strong before ward miss execute on a new business
Speaker 1: initiative in the way that Zillo has in the last
Speaker 1: six months. I'm not throwing shade at them. I mean
Speaker 1: they deserve criticism. I'll criticized myself to ad to buy
Speaker 1: in the stock, so I made a mistake there too.
Speaker 1: I still think that the core business is is attractive.
Speaker 1: I think that stock is going to be in the
Speaker 1: in the wood shed for you know, six months, maybe
Speaker 1: twelve months. I think out of that there will be
Speaker 1: an interesting business. UM but that's the case of a
Speaker 1: company that you know, Like, what was so impressive of
Speaker 1: about Bezos is that he went into multiple different industries
Speaker 1: and he did still tried to do the same thing,
Speaker 1: and they didn't succeed in the second one. They're still
Speaker 1: okaying that first one. It was overstretched and misse execution.
Speaker 1: It's unfortunate and I got that call wrong, but it
Speaker 1: was a fascinating example of of, you know, the pitfalls
Speaker 1: of tech investing. Mark Mahaney, you have a open invitation
Speaker 1: anytime you want to come back to talk more about
Speaker 1: your book and just your philosophy and thoughts about your space,
Speaker 1: because this has been so much fun. Mark Mhoney, ever
Speaker 1: care I saw his book is nothing but net tent Time.
Speaker 1: The stock picking lessons from one of Wall Street's top
Speaker 1: tech Alice