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Mark Mahaney explains how to pick the best tech stocks, the future of Amazon, and Uber's value

In this article:
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Mark Mahaney of Evercore ISI joins Yahoo Finance’s Julie Hyman and Brian Sozzi to discuss his new book "Nothing But Net," his bias for founder-led companies, the outlook for Big Tech companies like Amazon and Uber, and tips for the next generation of investors.

Video Transcript

[MUSIC PLAYING]

JULIE HYMAN: He is the oldest and longest-lasting internet analyst on the street. At least that's what he calls himself in his new book. It's Mark Mahaney of Evercore ISI. The new book is "Nothing but Net," and, "10 Timeless Stock-Picking Lessons from One of Wall Street's Top Tech Analysts."

Mark, it's a fun read. And it's obviously been a really interesting career for you thus far. You've had some really prescient picks, and you've had some not-so-prescient picks, although I have to say, looking through them, the ones that did better, I think, overweighted the ones that did not do so well. As you look at your career and where we are right now, maybe you can contextualize a little bit for us where we are in this internet lifetime trajectory or cycle.

MARK MAHANEY: OK, thanks, Julie, and thanks for the opportunity to talk about the book. It was a labor of love for me. But I think there's good a lot of good investing lessons, I hope, for the next generation of investors, or for this generation of investors.

And by the way, we had about 15 million people who came into the investing market over the last two years during the COVID crisis. That's sort of what I call the Robinhood phenomenon. And I don't think there's a good textbook out there, as there was generations in the past, that "One Up on Wall Street" book by Peter Lynch. So I'm hoping that this is what that provides.

Here's the context on the internet. When we started off in the internet 25 years ago, what I call the commercial internet-- you know, the IPOs, the public markets, the initial IPOs of names like Amazon and Yahoo and then eBay-- we didn't know whether there really was a there. Was there really gonna be a large internet market? We didn't know whether the business models that were being created to serve the internet-- serve the internet market-- could actually be profitable. And we didn't have a really good read on which of these management teams were gonna be really good.

We had a lot of very young entrepreneurs, you know, coming in, people like Jeff Bezos and Meg Whitman over at eBay. So there's a real-- and Jerry Yang at Yahoo. It was really uncertain which of these were gonna be great, you know, long-term management teams. And here we are, you know, 25 years later. And the internet turned out to be a massive platform that continues to grow. Mobile has just added to that dramatically.

We've had the rise of cloud computing, which is under-- which has reduced costs for anybody trying to operate on the internet. So it's really allowed profits to really scale up. And we've had some really proven management teams over time. So that's what the book tries to dissect and try to provide lessons on how to find the next Amazon, the next Netflix.

BRIAN SOZZI: Mark, I will follow my urge here and start talking stocks with you here because it's littered throughout this book. You note in there that you have held a buy rating on Amazon for 15 years. Do you think the stock is still a good buy and hold for the next 15 years, even with Jeff Bezos not at the helm?

MARK MAHANEY: Well, you're asking the right question, Brian, because one of the things I lean with is the importance of management in picking stocks. And I definitely have a strong bias for founder-led management companies. And you look at the biggest tech companies in the world-- really, the biggest market cap companies in the world-- and they've all had-- almost all have had dramatic founder involvement, you know, CEOs or founders who ran the companies as CEOs or co-CEOs for 15, 20, 25 years. So, you know, when you have one of those people step down, you should at least pause and think about the investment.

I think Amazon still works for the next 10 to 15 years, in part because it faces such a broad array of large markets. So one of the other characteristics-- factors I really dive into in the book and I really focus on as an investor day in and day out are TAMs, total addressable markets. And the bigger the TAMs, the better the growth opportunity is for the company, because at the end of the day, what really drives tech stocks is revenue growth. And what enables revenue growth, one of the major factors, is large addressable markets.

Amazon still has that, whether it's retail, advertising, cloud computing, and then the newer businesses that they're gonna get into, I believe-- things like business logistics and business supplies and business services. So the company that faces those kind of end market opportunities, I think, can still be a really powerful long part of an investment portfolio for the next five-plus years. That's about as far out as I can look.

JULIE HYMAN: And Mark, OK, so we've got strong management team, perhaps founder-led. We've got a large total addressable market. What are some of the other key criteria that you're looking for for some of these really long-term bets?

MARK MAHANEY: Yeah, so the step back when I-- if I was gonna try to get across one idea that's in the book, it's DHQ-- not DQ. That's Dairy Queen. DHQ, dislocated high-quality companies. And so that's, I think, the best way to make money in the market.

When you're investing, you're trying to mitigate, if you will, or minimize two risks-- fundamentals risks and valuation risk. Fundamentals risk is companies missing numbers-- oh, like Alibaba today, but that's just a small thing-- but, like, you know, sharp deceleration in revenue growth or margins coming under material pressure.

And valuation risks are these-- sometimes you see these sky-high multiples, especially across growth in tech stocks. And so the way to try to mitigate those is, on the fundamental side, buy high-quality names-- those with excellent management teams, large TAMs, excellent customer value propositions, and then high levels of and successful track record with product innovation, kind of those four factors. That's, I think, the consistent theme across some of the best moneymakers in tech over the last 10, 20 years.

And on the D part-- the dislocated part-- I look for stocks. You know, I want to-- I'm looking for those high-quality names. I think I can wait because almost all of these get dislocated from time to time. I'm talking about 20% to 30% corrections. Use that as a way to buy or add to positions.

BRIAN SOZZI: Mark, we've seen a tremendous rise in the number of people participating in the stock market this year. Help them understand who might be the next Amazon over the next 15 years. What is that next stock or company that's really going to blow everybody away?

MARK MAHANEY: Well, I don't know if it's gonna be blowing people away. And, you know, I always think that investing is kind of an iterative process. You know, you invest. You gain more confidence. The positions kind of build over time.

You wouldn't have gone all in on Amazon at the time of its IPO. The question is when should you have gone all in. I think that was, like, 2006, 2007, when they proved cloud computing and even something as simple as the Kindle, when they really showed that they had great management and great product innovation. I think that was the real tell.

So the one idea I find really interesting here is Uber. Here's a stock that's got a lot of controversy around it. The total addressable markets that Uber faces are truly massive. We're talking about ridesharing and delivery-- not just restaurant food delivery but all sorts of delivery.

I mean, I call those T TAMs-- trillion-dollar TAMs. So companies that face against T TAMs are-- I think, can be very powerful long. Another thing-- the four criteria I look for-- is a company with a compelling value proposition. One of the best tests of whether the value proposition is really compelling or not is if it has pricing power.

Netflix has been raising prices for eight years because they've got a compelling value proposition. And people are willing to spend more per month with Netflix. Amazon did that with Prime. I think what we've learned during the COVID crisis-- which really cut the knees out of the growth of the demand for ridesharing-- but that as it's come back, people have been willing to pay higher prices because the value proposition behind ridesharing is so strong, especially versus alternatives like taxis and public transportation.

So to me, Uber kind of fits the bill of-- are still an early-stage company, massive TAMs, not founder-led, so that's one negative here, but really compelling value proposition.

JULIE HYMAN: Well, I guess founder-led wasn't necessarily an asset for Uber. It came out. So just quickly, I got a bit of a goofy one for you, Mark, because FAANG, obviously, had been so dominant. Now Facebook isn't Facebook anymore. It's Meta.

One of our frequent guests on the program, Scott Sosnick over at Interactive Brokers, suggested GAMMA, perhaps-- Google, Apple, Microsoft, Meta, Amazon. I don't know. Do you have a choice for the new acronym?

MARK MAHANEY: I think, Scott, that sounds like a good setup to me. GAMMA sounds good, and it sounds memorable. You know, I was going with FAANGU last year when I was bringing Uber into that. I thought FAANGU very much. I thought that was kind of memorable.

But yes, Facebook screwed up my acronym here. So until I find something better, GAMMA sounds great.

JULIE HYMAN: I like FAANGU as well. Mark Mahaney, it's always great to talk to you, and it's really a particular pleasure to talk to you about this book, "Nothing But Net," about your time in this industry and your advice for folks as to how to pick the next big tech companies. Mark Mahaney with Evercore ISI. Thank you, Mark. Appreciate it.