Facebook's growth expectations may 'need to be revisited' as Microsoft confirms talks with Bytedance's TikTok

Chris Versace, Tematica Research CIO, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss what’s moving the markets on Monday morning.

Video Transcript

BRIAN SOZZI: Let's dive back into the markets here with Chris Versace. He is Tematica Research Chief Investment Officer. Chris, always good to see you here.

Top of mind, I think, for everyone in the market is TikTok, and its just entanglement with the Trump administration and Microsoft. We're seeing Snap Inc. shares down about 5% in the news. Do you go in there, and do buy Snap? Nowhere does it say that Microsoft will get TikTok, and if so, it will know what to do with it.

CHRIS VERSACE: No, Brian. You know, we understand the continued allure for some folks for social media, but for us, Snap isn't one that we really want to be into. We think, particularly now, where advertising is pulling back-- you know, between Twitter, between Instagram, and Facebook, Snap is probably the most vulnerable.

What we do find interesting about the whole transaction is that I think, to date, Microsoft has bungled social media, closing Google+ and doing other things. And then this is-- I wouldn't say this is a Hail Mary pass for Microsoft. They're clearly flexing their strength in office, their strength in cloud to, you know, perhaps re-engage on social. But it's going to be an interesting transaction to watch, especially if it gets approved.

BRIAN SOZZI: Chris, you mentioned the word vulnerable. Is Facebook vulnerable? They have dominated social media for going on over 10 years here. If Microsoft does get TikTok, how vulnerable is Facebook's bottom line?

CHRIS VERSACE: It's a great question, Brian. They, like Google, are predominately advertising-driven. So yes, on the one hand, there's the continued shift towards digital advertising that's pulling away from radio, TV, newspapers, and the like. So it's still growing, but the incremental growth-- there is going to be another alternative. And if it's backed by Microsoft, you know, people could have to indeed revisit growth expectations for Facebook.

- I want to talk--

CHRIS VERSACE: Keep in mind, too-- sorry, sorry. Keep in mind, too, it comes at a time when more key one advertisers are backing away from Facebook. So it's another reason to be leery.

INES FERRE: I want to get your thoughts on Apple last week out with gangbuster earnings. The stock blew past $400 a share. But are you concerned at all about their supply chain?

CHRIS VERSACE: You know, it's an interesting question. You know, we saw over the weekend that they're contemplating moving even more out of China into India and perhaps other markets. It's always a question as to whether they can, you know, deliver the products that people want at the time that they want, and particularly with the new ramp of the 5G products that are just right around the corner.

But I'll tell you this. I was at the Apple Store over the weekend. I had to enact a redundancy plan for myself, and I picked up a whole bunch of hardware. And it was lines out the door for Apple. So there is the demand there. There's no question about it. And I think they're going to be a multi-year beneficiary of this 5G upgrade for the iPhone. And I think that they will counter their supply chain issues. They are second to none. It's no reason to back away from Apple, in my opinion.

BRIAN SOZZI: Chris, you've digested all the big cap earnings. Which one is the best name to own? You're a value guy. None of these stocks are cheap.

CHRIS VERSACE: You know, it's a great question, Brian. So for me, I think the two you're really zeroing in on are Apple, and I just gave my comments about the 5G upgrade cycle. But the other one is Amazon, which candidly has been a beast. I mean, they simply crushed expectations. They did something they rarely do, which is not only raise expectations, but not signal, oh boy, we're going to be bogged down on the operating income line by massive investment.

You know, they tend to do that almost once every several quarters. So I think going into the back half of the year, holiday shopping season, prime day coming up. You know, people are, I think, going to embrace digital shopping even more so with the return of the virus and just overall caution.

And then there's cloud, which continues to grow. If I had to choose one, it's going to be Amazon.

INES FERRE: And because of what we've seen, how we're all now buying everything from cleaning products to clothing online, more retailers are filing for bankruptcy. Lord & Taylor did over the weekend. So did Men's Wearhouse. What's your exposure to retail right now, and what do you like in that space?

CHRIS VERSACE: So in the portfolios that we run, I mean, we're exposed to Amazon. The other one that we're exposed to, on the smaller cap side, is Farfetch, which is kind of an Amazon for luxury goods. And we just see those two, really, as dominating their spaces.

The other one is Costco, which remember, Costco is a very different business model. They continue to grow their warehouse footprint, which drives the all-important, high-margin, membership fee revenue stream, which is, you know, 70% 75% of their operating income. So we continue to like that. And you think about the conversation we're having about the extension of economic impact payments. You know, to the extent that they're lower than expected, I think people will flock to Costco, one of the few places you can actually stretch your disposable dollars.

BRIAN SOZZI: All right, let's leave it there. Chris Versace, Tematica Research Chief Investment Officer, always good to see you.