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Tren Griffin
@trengriffin
, 9 tweets, 4 min read Read on Twitter
The future of any business (including Peloton) depends upon expected long-term cash flows discounted by the cost of capital. Software and SaaS tend to have higher margins but hardware can create effective distribution. Or not. This depends on many factors.cnbc.com/2019/09/26/pel…
Apple proves that hardware can be an excellent means of distributing software and SaaS and that the size of TAM really matters.

There are plenty of hardware businesses that haven't created any software or SaaS advantages that create a barrier to entry. You know who they are.
Some businesses can spend a lot on sales and marketing and yet show no earnings because they are creating annuity value. That annuity value depends on the churn assumption and a few others. Get the churn assumption wrong and you either:

1. Overpay; or

2. Miss an opportunity.
4/ To understand the power of getting the churn assumption right or wrong, the extreme case is instructional. Do you know a business where customers were acquired at ~$800 CAC? AT&T purchased DirecTV for $49B, or $67B including debt. What is it worth now? google.com/amp/s/arstechn…
5/ Another example of the importance of making a better churn prediction than other investors is Amazon Prime. What is monthly churn of Prime and how does that impact the value of that stream of cash flow? Here is one set of assumptions. What are yours? google.com/amp/s/25iq.com…
6/ One claim is DirecTV has a value of $40B. google.com/amp/s/www.cnbc…

Divide $40B by 17.9M subscribers as of Q2 2019 = a valuation of $2,235 a subscriber. Really?

Expected Q3 churn is ~1.1M.

What's the value of the discounted cash flow? Here's a model:dskok.wpengine.netdna-cdn.com/wp-content/upl…
7/ In the last episode, focus was on sensitivity of a DCF to changes in churn. In this episode, the mix includes different factors interacting like COGS and CAC. Why would AT&T say this? Anything to do with $1.5B a year in fees? Wholesale transfer pricing? bing.com/amp/s/www.wsj.…
8/ "DirecTV loses more than $500M annually on the football package, people with knowledge of the deal said."

Is that $500M COGS or CAC? Or is it some of both?

What do you need to know about the economics of bundles to manage this negotiation? google.com/amp/cdixon.org…
9/ Might AT&T hope the NFL terminates the Sunday Ticket deal early? Might AT&T be preparing the market for that? How much will churn rise if that happens?

"Tren’s view is that the variables of the LTV formula are interdependent not independent...." abovethecrowd.com/2012/09/04/the…
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More from @trengriffin see all

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Tren Griffin
@trengriffin
Podcasters who want to replace Blue Apron sponsorships rejoice!

“Wendy's will spend an additional $250M to promote its breakfast in ads over the next two years.”

"Must capture at least $1B in breakfast sales from fast-food competitors to break even.” businessinsider.com/wendys-vs-mcdo…
"A Detailed Look at Blue Apron’s Challenging Unit Economics" linkedin.com/pulse/detailed… "Good companies can acquire many customers cheaply, retain existing customers for extended periods of time, and generate a lot of revenue while those customers are alive."
“Certainly, a lot of companies will talk about their retention rates. We would prefer to talk about the whole retention curve.” knowledge.wharton.upenn.edu/article/findin…
Read 5 tweets
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Tren Griffin
@trengriffin
"Only three of 129 public plans tracked by the National Association of State Retirement Administrators have assumed rates of return at 8%. The median assumed rate dropped to 7.25% this year from 8% in 2010 and 7.5% in 2015." pionline.com/pension-funds/…
"The University of California board of regents lowered the expected rate of return for the $70 billion pension plan to 6.75% from 7.25%" pionline.com/pension-funds/…
"The endowment of Cornell University posted a 5.3% net return for the fiscal year ended June 30, matching the university's benchmark."
pionline.com/endowments-and…
Read 3 tweets
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Tren Griffin
@trengriffin
25iQuiz: Do you agree that's what changed?

"HP’s business model was to sell printers at a discount and make its money on ink cartridges—classic razor-and-blades. 'That model made sense when the goal was to penetrate more consumer homes and more offices'."news.google.com/articles/CAIiE…
Did a change in HP's goal require a new business model or did HP's ability to sell enough of a complementary product change?

From 2006: "The printer itself accounts for only 1/3 of the profit pool over its life, whereas cartridges account for 2/3s." bcg.com/documents/file…
"Absent customer lock-in, the marketer will be unable to make up for the price subsidy on the initial razor through higher margins on the blades."

"Rather than compete on price, the printer maker [Epson] is dropping the cartridge issue entirely’’ iranarze.ir/wp-content/upl…
Read 6 tweets

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rohan paul
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Thanks @braveproductguy for sharing this set of Cognitive biases in #software #engineering
A. 𝐀𝐧𝐜𝐡𝐨𝐫𝐢𝐧𝐠 𝐚𝐧𝐝 𝐚𝐝𝐣𝐮𝐬𝐭𝐦𝐞𝐧𝐭 𝐛𝐢𝐚𝐬 - work fills up the space you allot to it. Use budgets instead of estimates to build a quality feature
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John P. Hussman
@hussmanjp
1/ May not feel like it, but this week may be one of the most important in the lifetime of most investors. That's not so much a forecast, but a statement about current extremes, and the pressures weighing on them. I'll just share what I'm seeing, FYI. Do what you wish with it...
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eric boroian
@eboroian
A company's value is driven by one thing: risk adjusted cash flows

This depends mainly on:

-Growth
-ROIC
-Cost of capital

Outperformance requires anticipating revisions to cash flow estimates. If high returns (& growth) are maintained, there are likely to be revisions higher
To understand this deeply, it’s important to disaggregate cash flow into growth & ROIC, to see how they're linked

Growth=ROIC x Investment Rate

Cash Flow=Earnings x (1–Reinvestment rate)

Rearranged, Investment rate=Growth/ROIC

Cash flow=earnings x (1–Growth/ROIC)
This has important implications. Let’s take an example.

Imagine if a company has very attractive growth opportunities over a 5 year period. Say it can grow at 20% annually. But this growth requires quite a bit of investment (in working capital and capex for instance)
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Abhishek Murarka 🐂💹
@abhymurarka
1/n
A tweet thread on my key takeaways and learnings from the book "Of Long Term Value and Wealth Creation from Equity Investing" by the brilliant Bharat Shah. The book is a repository of condensed wisdom from 3 decades of his investing career – a must read!
[RT if helpful]
2/n
Essential principles of investing have largely remained unchanged over history of organized investing. What has changed is the interpretation and application by investors, as deemed convenient or expedient at a particular point in time.
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 Investing is simple, but not easy.
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Gaurav Sharma
@Gaurav1105
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And yes, distribution of lending/credit products is a ‘feature’ in some platforms/products.

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#long #fintech #thread #lending
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There’re lot of tweets (within the FinTech community in India) about Whether 'lending is a feature' or not? So, let’s unpack that a bit..
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Amit Mantri
@amitmantri
Bull markets are a great time for fraudster promoters to make money. If you are a fraudster and also want to benefit from this bull market, here's a thread that explains how you can defraud shareholders and get rich.
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