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In this podcast, Motley Fool senior analyst Jason Moser discusses:
Dylan Lewis and Kirsten Guerra engage in a bull vs. bear debate over Pinterest.
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Chris Hill: Coming soon to a theater near you. It’s Bob Iger two, return of the CEO, Motley Fool Money starts now. I’m Chris Hill joining me in studio, Motley Fool Senior Analyst Jason Moser. Thanks for being here.
Jason Moser: Hey.
Chris Hill: Late Sunday night the Disney Board of Directors fired CEO Bob Chapek. Former CEO Bob Iger, is back in the corner office for the next few years In the statement from the board. Susan Arnold, who’s the Chairman, said, “we thank Bob Chapek for his service to Disney over his long career, including navigating the company through the unprecedented challenges of the pandemic. The Board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period shares of Disney up seven percent this morning.” We’ll get to the company, will get to the business and we’ll get to Bob Iger. Can we start with the board?
Jason Moser: Sure.
Chris Hill: Can we start with the board of directors that four months ago, five months ago, renewed Chapek contract for two more years and the statement behind that news was we’re lockstep behind Bob Chapek, this is our guy.
Jason Moser: Take a trip back in time with the grows because I think the very top I think read the quote, the statement from the board. I understand what they’re saying, but I mean, if you go back to just June when they reupped them like you said let’s read what they said then too and I quote,” Disney was dealt tough hand by the pandemic. With Bob Chapek at the helm, our business from parks to streaming, not only weather the storm, but emerged in a position of strength. In this important time of growth and transformation, the Board is committed to keeping Disney almost successful path is on today.
In Bob’s leadership is key to achieving that goal. Bob is the right leader at the right time for the Walt Disney Company and the Board has full confidence in him and his leadership team.” Wow, that escalated quickly. I don’t know what changed and all I can tell you, there is something here that we’re not getting. Something changed and I refuse to believe that it’s just this most recent quarterly results that could have been the straw that broke the Campbell’s back. But something else is going on here because this doesn’t fully add up.
Chris Hill: We were saying right before we started recording, there’s going to be a story that comes out later this week or later this year or at some point in the future that really gives more insight into this process. Reportedly, the board contacted Bob Iger Friday night, and by Sunday, they had a deal in place and the announcement went out at 10:00 o’clock Sunday night. But you’re right, it can’t just be this one. Now granted, the most recent quarter was bad. I get that but there has to be more going on there and I do wonder, when you think about Bob Iger skill, part of his skill, part of what made him a great CEO of this company for 15 years was his ability to build relationships with business partners, with talent, and his ability to sell Disney within Hollywood.
I think we said on the show at the time when there was the snafu, I think in 2020 or 2021 about the Black Widow movie and Scarlett Johansson’s compensation for that movie that blew up and went public. I remember saying at the time either here in the office or maybe I’m one of these episodes. This is one of those things that have Bob Iger was CEO. We never would have heard about. It would’ve been handled behind closed doors, they would’ve figured it out and Chapek you said this recently on the show, like Chapek made his bones in the parks, which is such a key part of the business. It’s probably a big part of why Bob Iger himself tapped him.
Jason Moser: I think I read reshaping, did have some experience in the media segment, but that’s back when like VHS rule the day so I feel like the landscape has changed significantly since then and, to your point, yes, Bob Chapek has definitely had a few stumbles along the way as a new CEO. Maybe the sentiment started to form after a little while that he wasn’t the ideal cultural fit. I really do believe there’s something cultural here that is part of what’s going on with this decision, it is not to say that’s good or bad. I just think that’s probably part of it but the modern-day media landscape is not his specialty, like we said, and given his background with a company. The modern-day media landscape is really, that’s the part of the business that’s in the biggest state of flux right now so you look at Disney, it’s in the middle of a generational transition and how it produces and distributes media.
These next few years are just utterly crucial, I do get that and I think we all agree with that. Bob Iger has been there for all the big deals, all the strategy planning over the past decade plus I absolutely understand if the board has a level of comfort with him navigating this terrain as opposed to Bob Chapek. But I will say, I don’t think these challenges are so easily solved, he definitely has his work cut out for him because everything that’s happened here just over the last 24 hours less. These all creates a whole new set of questions that just aren’t easily answered, I assume achieving streaming profitability is still the goal, the key, we didn’t know that for sure and they need to explicitly stated, is 2024 still the goal as well because Chapek had laid that out there. Whether he got they’re not that would have remained to have been seen, but he at least had a path to how to get there.
He he listed that out on the last call where he’s talking about three key things to help them get their focusing on increasing prices of the offering along with the ad-supported model. They said, the second realignment, other costs including a meaningful rationalization of their marketing spend and then third, ultimately leveraging all of their learnings and experience in developing a content slate that was just steady in high-impact that never left you wanting and that was something that we noted early on and Disney Plus’s rollout was, the content was somewhat limited. It was hit or miss and it wasn’t really a steady estate as I think they would like it to be. But those go to the things that Chapek was looking to in order to build he streaming offering. We’ll Iger guarantee this performance regardless of economic conditions, I think that’s one thing they got. They got the market a little bit he’s like that earnings call when Chapek thinks that, we’ll get to profitability in 2024 assuming there are no adverse economic conditions.
There’s that condition and I just think the market maybe isn’t looking for conditions there. What do we make of Chapek’s recent rigorous review and cost structure task force? He was looking to go through the entire business, maximize efficiencies, cut costs that weren’t really contributing to return. I think we all probably would agree that’s a good thing. Is that set to continue? I don’t know. How will Iger approach pricing for this? Because that was one of the big differences. Chapek was raising prices. Iger saw it as he was in favor of lower prices is a differentiator. Higher prices is going to be an easier way to get you to profitability sooner and so we’ll have to see how Iger approaches the pricing scenario there. It’s almost certainly going to result in more managerial musical chairs. It’s all to say that two years sounds like a long time for Iger to be stepping into this, but I think that time is going to go by very quickly and he’s going to have to deliver the goods.
Chris Hill: He is. I’m glad you mentioned the musical chairs because Bob Chapek has spent part of his time as CEO installing his team into leadership positions. I’m assuming that the board of directors knew when they made this decision over the weekend, that part of what they were signing up for is almost certainly a huge changeover in the executive ranks over the next 6-12 months as Iger looks to put his team in place. Part of his job, as you said, two years is going to go by quickly. Part of his to-do list is finding a successor and for all the things Bob Iger has been great at as CEO, I would argue the thing he has been abjectly bad at is succession planning.
Jason Moser: I think.
Chris Hill: He delayed his own retirement three times. He picked Chapek. There were other Tom Staggs at one point was the air apparent. I was thinking about this last week when we had our annual meeting and part of our annual meeting here at The Motley Fool was our CEO, Tom Gardner interviewed Indra Nooyi, the former CEO of Pepsi and it’s about four years ago that she stepped down. When you look at Nooyi’s time as CEO at Pepsi, part of what goes in the plus column is the very last thing like her successor, the hand she had in picking Ramon Laguarta, who’s been CEO for four years and that’s a business that’s done well under his leadership. I’m not routing against Disney. I’m routing for them. But this knee jerk reaction of, oh, Chapek’s out, Iger’s in, great. Let’s pop the stock. There is still so much work to be done here and Iger knows that. I just hope shareholders know it.
Jason Moser: Well, you’re right. Again, I go back to all of those questions. We talked about this over the last couple of weeks here at HQ. You and I and Bill Mann were chatting about it just the other day in thinking, it would be odd to see them get rid of Chapek so soon based on the kind words that they said about him when they reupped him. He clearly had a plan in place. He’s got goals set. Then we’re saying, well, if you get closer to that goal of 2024 and it’s becoming increasingly clear that he can’t achieve that, then he really is on the hot seat and you start to get it. But you take this and you say, well you kick Chapek out and you bring someone in, its Iger or whoever else. But what do they do? What do you do?
Because clearly you’re not going to come in and blow up the streaming offering. That’s like core to the business for the coming decades plus. What do you do? Maybe that is where some of the cultural stuff comes into play. I know there was a reorg that Chapek undertook as he got in there that took some power, I think out of the content executives hands. They didn’t like that that much. It seems like Hollywood didn’t really get it either. I suspect we would probably see Iger make some adjustments there as well. But yeah again it’s one thing to replace the individual if there’s just this long track record of not getting it done. But man, these guys stood up the streaming offering with 240 million subscribers in no time whatsoever. You got to tip your a cap to them and and clearly, the Board, not all that long ago was 100 percent on board. It’s a phenomenal change of sentiment in such a short period of time.
Chris Hill: Jason Moser thanks for being here.
Jason Moser: Thank you.
Chris Hill: Pinterest is a great place for finding ideas on everything from recipes to home decor. But it has been a rough year for the stock. Ricky Mulvey hosting Bull versus Bear debate over the social media platform.
Rick Mulvey: Welcome to Bull versus Bear. We get a stock, find some analysts and then flip a coin to see which side they’ll take today. The stock is Pinterest, the social media and image sharing site. We have two contestants making their bull versus bear debut. On the bull side we have Kirsten Guerra, thank you so much for joining the show.
Kristen Guerra: Thanks Ricky, happy to be here.
Rick Mulvey: On the bear side, it is Dylan Lewis. Dylan, good to see you.
Dylan Lewis: Happy to be here.
Rick Mulvey: Both of you own the stock,. I’m excited to hear the cases and we will start with the bull side. Kirsten, five minute is yours.
Kristen Guerra: Thanks Ricky. Pinterest for anyone who’s unfamiliar is an online platform for discovery, finding inspiration, collecting, and planning. It’s a half social media, half search engine. Pinterest attracts nearly 450 million monthly active users across the globe. Now, that user base has declined sequentially over three quarters before coming in flat in the most recent quarter. But Kirsten, you’re saying this is supposed to be the bull case. Let me finish. Here’s the thing. Growing the user base isn’t how Pinterest plans to grow earnings for investors. The growth story here is all about increasing monetization of those existing users. That monetization goal is best tracked in a metric called average revenue per user or ARPU. Before I share with you Pinterest’s ARPU, I want to give you some context for some other companies. [Meta‘s] Facebook, about 200 or about $49, ARPU, Twitter around $26, ARPU.
Now Pinterest, $6.13 in the US and Canada, only 72 cents in Europe, 11 cents across rest of the world. We can see that social media platforms have a lot of opportunity to monetize users and Pinterest is just getting started. Here’s why Pinterest is uniquely poised to generate a much stronger ARPU from here, Pinterest is an advertiser’s dream platform. One, users visit Pinterest with the mindset to discover and consume. They are primed to explore new clothes that they like, find their next travel destination or plan their wedding. That openness of users to Discovery is very attractive to advertisers. As is it’s trove of user data. Knowing user searches, saves, and pin board curation really helps advertisers to keep adds highly targeted and that’s very efficient ad spend for them. Pinterest is also just, it’s a really pleasant place to be with Facebook and Instagram parent Meta pivoting and a wildly different direction.
And Twitter melting down. Pinterest is looking more and more attractive to advertisers. We saw a ton of advertisers pull back from Twitter in response to fears that the platform will become less moderated, more politically charged, and Pinterest just doesn’t stir those same fears. It’s not built around controversy. It’s just a place for people to explore, to be inspired, and to create things that they like. Three, Pinterest is making a lot of moves to make the overall ad experience better for both advertisers and its end-users. With the acquisitions of video editing app boccie and AI powered shopping app, then yes, it’s never been easier to make modern content like videos on Pinterest and have that content find its way to the most interested users. How has this focus already played out over the last year? While international users, which represent Pinterest, biggest opportunity at nearly 80 percent of its monthly active users.
Their international average revenue per user is up 24 percent compared to a year ago. Us and Canada is up 15 percent. Now a quick note on management, because Pinterest did recently replaced founder Ben Silbermann with new CEO Bill Ready. Now, I really liked Ben Silbermann, but I think it says a lot when a company recognizes that a new lead is needed to take the company to the next level, and that’s where Pinterest is. Now. CEO ready did not step up from within the ranks of Pinterest, which could be concerning. But his background is strong for the task at hand. He was President of Commerce Payments and next billion users at [Alphabet‘s] Google. Finally, I could also mention that the company is profitable, free cash-flow positive, has a very respectable debt-to-equity position, but I don’t want to dilute the Pinterest argument too much. Again, the big story here is Pinterest’s massive opportunity to monetize its existing users in a way that’s beneficial to both advertisers and consumers.
Rick Mulvey: Kirsten Guerra, thank you for the bull case. But surely there’s a reason the stock has been more than cutting half. Let’s hear the bear-case. Dylan Lewis, five-minute is yours.
Dylan Lewis: There are reasons that this company has been cut in half and it’s tough to see. I’m a Pinterest shareholder. I love the academic exercise of this because it’s putting me in a spot to really question holding. I think it’s something that everyone should do with any company in their portfolio. I agree with a lot of what Kirsten said, and I will say my confidence in Pinterest has been shaken recently. Let’s get a little bit into why. The promise of Pinterest when it came public was we’re just beginning to effectively monetize a social media property that has a critical base of users and we have decent levers for growth. We’re going to go through a ramp-up in monetizing where we are increasing our ad inventory and expanding it overtime. We’re going to be exploring new ad products. We’re also going to be adding more users to the site and growing the monetizable activity that happens on it.
Now, I honestly think Pinterest could not have timed its public debut any better for people who were early insiders and early investors. The company came public at a time when it was putting a serious concerted effort into monetization and was pretty much guaranteed to show gaudy top-line growth. Increasing ad load is still showing user base. There’s a lot of things moving in the right direction. There’s a growth story and a monetizing story happening there. It was founded in 2009 and did not make significant progress on monetizing for a long time, and just to go back in the history of it across 500 million in trailing 12 month revenue in 2018, at a point where it had roughly 200 million users and had been around for almost a decade. When it came public in 2019, it had a one billion dollar annual run rate.
They then doubled their top-line again at the end of 2021, where they were a major beneficiary of the pandemic. Because there’s a lot of focus on DIY Cooking and home improvement inspiration. We have seen over the last couple of years, the year-over-year growth rate growth from the 50, 60, 70 percent year-over-year range in the last couple of quarters decelerate dramatically to single-digit growth. My concern with Pinterest is that over the last few years we saw the easy money get made with monetization. Because the site was barely monetize over the last couple of years, there was a lot of low-hanging fruit for this business. As a cautionary tale, I went through that period that we saw with Pinterest.
That growth story is very similar to what we saw with Twitter just a few years earlier. Explosive growth until the top line hit about 2.5 billion, and then for several years the company had a very hard time finding meaningful growth because the platform is not growing users in a big way in the most valuable ad market, which is North America. In Pinterest case, I worry that if they’re not showing growth on the user side, they’re going to have to focus on monetizing the platform effectively. And I think that that’s going to get a lot harder for them because as the economic outlook gets cloudier and budgets tightened up for advertisers. Ad budgets are going to be focused on where marketers get the highest ROI, and that is not Pinterest.
Hubspot put together a state of marketing trends report and they do this every year. They surveyed marketers to get a feel for trends in spend and performance. They asked the question, what channel has the best ROI on paid social media campaigns? Liters, Facebook, Instagram, YouTube, Twitter, TikTok, Tumblr, Reddit, all in front of Pinterest. That is a lot of numbers to go through and it’s a lot of names to go through for marketers. Just as a case in point for the profile at Pinterest has in the digital ad market. In a 50 page report, Pinterest gets named four times. Facebook, YouTube, TikTok, etc. gets name-checked dozens of times. I worried that they are going to face that same bottom-of-the-pile status when we’re looking at tighter ad budgets going forward over the next couple quarters.
Rick Mulvey: Dylan Lewis, he’s bringing Tumblr back to the mainstream. Thank you so much for the bear-case, Kirsten, thank you for the bull case. You can go to Motley, Fool Money on Twitter and decide who made a better argument, because today’s plucky winter will receive.
Today’s lucky winner will receive salt and pepper and storytelling. That’s right. Today’s winter will receive it easy weeknight asparagus recipe from chef Well. Sure, this recipe is the cook time if necessary, ingredients, which will also receive a lively discussion on the philosophy and family history behind this delicious side, you get the origin story for Chef Well’s roasted asparagus. First five bio graphs. This recipe includes some substantiated anecdotal evidence about itself that effect. Like to this web page could be yours if you win. Bull versus bear.
Chris Hill: As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. I’m Chris Hill. Thanks for listening. We’ll see you tomorrow.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Hill has positions in Alphabet (A shares), Alphabet (C shares), PepsiCo Inc., Pinterest, and Walt Disney. Dylan Lewis has positions in Alphabet (A shares), Pinterest, and Walt Disney. Jason Moser has positions in Alphabet (C shares) and Walt Disney. Kirsten Guerra has positions in Alphabet (C shares), Pinterest, and Walt Disney. Ricky Mulvey has positions in Meta Platforms, Inc. and Walt Disney. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Meta Platforms, Inc., Pinterest, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
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