My presentation on short selling today; The Twitter Revolution; Mark Cuban 'Hit' by Titan Crypto Crash; Bill Ackman Sent a Text to the CEO of Mastercard. What Happened Next Is a Parable for ESG

1) A final reminder that I'm speaking on the Long/Short Value Strategies panel at the virtual Ben Graham VIII Annual Conference from 12:00-1:45 pm Eastern today. My presentation follows my friend Joel Greenblatt of Gotham Asset Management, speaking from 11:05-11:50 am. I'll be discussing "The Art of Short Selling" and sharing my favorite short ideas.

Four other speakers will be joining me:

• Christopher Brown, Founder, Aristides Capital
• Andrew Left, Founder and Editor, Citron Research
• Mitch Rubin, J.D., CFA, Chief Investment Officer, Portfolio Manager, RiverPark Funds
• Kurt Feuerman, Chief Investment Officer, Select U.S. Equity Portfolios, AllianceBernstein

To see the agenda and register, click here. The cost is normally $75, but you can save 50% by using the code "WHITNEY."

2) I'm following up on Tuesday's e-mail about one of my favorite stocks, Twitter (TWTR). Here's an insightful report by Edwin Dorsey of The Bear Cave, a young Stanford graduate I wrote about in my January 5 e-mail: The Twitter Revolution: Why Twitter Will Dominate the Creator Economy. To read the full report, you must be a subscriber (which costs $44/month or $440/year). So here's an extended excerpt:

"The best business is a royalty on the growth of others, requiring little capital itself." – Warren Buffett

Twitter is becoming a royalty on the growth of the creator economy. Twitter is the best way for online creators to stay close with their customers, and Twitter is going to start monetizing this relationship with "Super Follows" later this year. In addition, Twitter recently rolled out a number of engagement-focused products (Spaces, Topics, and Tipping), which are A+. Wall Street does not know it yet, but in the near future artists, photographers, streamers, celebrities, podcasters, educators, and newsletter authors like myself will be paying sizable royalties to Twitter.

(Full disclosure: 50% of my portfolio is Twitter stock and call options expiring in 2022 and 2023.)...

In addition to Super Follows, Spaces, and Topics, Twitter has rolled out smaller incremental features that will add value to the platform. For example, Twitter now allows creators to accept tips from users, which is a new incentive for creators to post meaningful content on the platform. On a similar note, Twitter is testing Twitter Blue at a $3/month subscription that provides additional features and perks. Assuming 10% of Twitter's ~300 million daily 2023 users sign up, the service could add an incremental $1.1 billion in annual recurring revenue. Finally, Twitter has been improving its direct message inbox, which could act as an e-mail inbox for creators to send premium content directly to followers.

Despite the best growth prospects, Twitter trades at one of the lowest revenue multiples of its social media peer group (Twitter ~12.1x revenue, Facebook ~10.1x revenue, Pinterest ~23.2x revenue, and Snapchat ~32.8x revenue).

Taken together, Super Follows, Spaces, and Topics create an experience where the sum is greater than its parts. This new direction has tremendous potential that the market is missing.

3) What a cautionary tale on the perils of cryptocurrencies – and rank speculation in general: Mark Cuban 'Hit' by Titan Crypto Crash As Coin's Price Falls to Near Zero. How ironic that this coin was created by a group that "aims to avoid price volatility"! Excerpt:

Billionaire investor Mark Cuban has claimed he was "hit" by a cryptocurrency token market crash on Wednesday.

The token, known as the IRON Titanium Token or TITAN, fell from over $60 on June 16 to a fraction over zero on Thursday morning, CoinGecko data shows.

The token is linked to Iron Finance, a group that runs the wider IRON Stablecoin project, which aims to avoid price volatility.

On Thursday, Fred Schebesta, founder of the Finder.com finance site and Iron Finance investor, told CoinDesk the sudden crash in TITAN was caused by panic-selling by "whales" – individuals who hold large amounts of a certain token.

He said: "TITAN's price went to $65 and then pulled back to $60. This caused whales to start selling."

4) I had to chuckle when I read this article about Pershing Square's Bill Ackman: Bill Ackman Sent a Text to the CEO of Mastercard. What Happened Next Is a Parable for ESG. Even though Bill and I have never spoken about the three powerful articles New York Times columnist Nicholas Kristof wrote about the evils of the Pornhub website, we both had the same reaction. (No doubt this is partly because we have seven daughters (and no sons) between us.) The outrage is not only at the site but at the large public corporations that enable its business model, such as Alphabet (GOOGL) and credit card companies Visa (V) and Mastercard (MA).

Here's what I wrote in my December 7 e-mail:

Blasting business leaders who do the wrong thing in order to profit (typically by boosting their stock prices) is a regular theme in my e-mails.

Pornhub is perhaps the most extreme example I've ever come across, as New York Times columnist Nicholas Kristof documents in one of the most powerful, important, and – I suspect – policy-changing articles of the year, The Children of Pornhub.

Three days later, I added:

I'm pleased to say I was right about the "policy changing" nature of Kristof's article, as he reports in yesterday's follow-up column: An Uplifting Update, on the Terrible World of Pornhub.

Lastly, I linked to Kristof's third column on this topic in my April 20 e-mail:

Cheers to New York Times columnist Nicholas Kristof for exposing this horrific exploitation, and jeers to the many companies engaging in/enabling it: Why Do We Let Corporations Profit From Rape Videos? Boy, talk about the dark side of capitalism...

But my efforts to effect change pale in comparison with Bill's, as the article above notes:

On a Saturday morning last December, Bill Ackman was scrolling through Twitter when an article in The New York Times caught his eye. "The Children of Pornhub," by Nicholas Kristof, told how unauthorized sex – and rape and torture – videos were being spread across the internet on a website called Pornhub, one of the most popular in the world.

Ackman, who has four daughters, was outraged when he read how one teenager ended up a Pornhub victim after sending a naked video of herself to a boy she had a crush on. Harassed and humiliated, the young girl attempted suicide.

"In your mind, replace the victims with your daughter or son," the hedge fund manager and CEO of Pershing Square Capital Management wrote when he retweeted the article. "We could fix this problem."

Then he swung into action...

... Ackman had noticed a salient fact buried near the end of Kristof's story: Mastercard and Visa were payment processors for Pornhub, and search engines were also part of the corporate apparatus that allowed the world's largest porn empire to flourish. MindGeek might be privately owned, but those companies are not.

An influential shareholder activist, Ackman immediately thought about the growing interest in ethical, or ESG, investing.

And that's where the billionaire hedge fund titan – who has unseated several corporate CEOs in his career – saw an opening. In this case, he wasn't an investor in any of the publicly traded companies that he knew were profiting from Pornhub's content, which is often uploaded from users the same way individuals post videos on YouTube.

But he was friendly with Mastercard's then-CEO Ajay Banga, whom he had met through a mutual friend. Ackman texted Banga, providing a link to Kristof's story with his tweet: "Amex, Visa and MasterCard should immediately withhold payments or withdraw until this is fixed. PayPal has already done so." (Ackman was unaware that American Express already did not allow its card to be used on adult sites.)

Banga quickly wrote back: "We're on it."

Then things began to move. Within days, Mastercard announced it had "instructed the financial institutions that connect the site to our network to terminate acceptance" of Pornhub charges, saying it had found evidence of illegal activity and was continuing to investigate.

Visa also stopped processing Pornhub payments, at least temporarily, and launched an investigation. Within 24 hours of the credit card companies' actions, Pornhub said it had taken down 10 million videos, or 80% of those on its site.

Since then, the Parliament of Canada and the U.S. Congress both have held hearings, legislation has been proposed, lawsuits have been filed, and there have been calls for a criminal investigation.

As it turns out, the backers of MindGeek come from the pinnacle of the worlds of finance and academia, and Pornhub has had business ties with some of the most well-known corporations on the planet.

"It's shareholder money that fuels this activity," says Ackman. He points out that while the environmental and governance efforts of ESG – or environmental, social, and governance investing – get a lot of attention, the "S" part "has come in third."

He notes, "Lots of companies say that they're really great with ESG issues, but they've got to look a little deeper."

To be sure, Ackman is only one player in the grand scheme of Pornhub's reckoning – which might not have occurred without Kristof's shocking exposé. But the involvement of the high-profile financier drew more attention to a campaign for accountability that activists had been waging for almost a year – with little success.

While there's been some progress, more still needs to be done, especially by Google, as this article notes:

Ackman is still watching events closely. Although he applauds Mastercard for taking the lead in the battle over Pornhub, the hedge fund manager remains incensed that more hasn't been done to stop similar abuses elsewhere.

After Kristof wrote a follow-up piece in April outlining how another site, XVideos, was profiting off Pornhub's woes, Ackman was back on Twitter, shaming every search engine company he could think of and trying to rouse investors' ire.

"How can ESG investors invest in @google @Bing @Microsoft @Yahoo @Twitter when they facilitate and profit from the distribution of child rape porn?" he tweeted.

And then Ackman asked the investment world a simple question: "How can this continue?"

Kudos, Bill. Keep up the fight!

Best regards,

Whitney