Threading on $NYT which I'm starting to wrap my head around #s for. Let's imagine they hit their target of 10m digital news subs at some point. Let's take FY19 revs per digital sub of $124, true it up for the 13% price hike in March 2020 (to ~ $140) and leave it there.
1/ Let's assume non-news digital revs get to $100m per year (up from $60m LQA). Let's assume digital ad revs only flex up in-line with subs (so from $260m in FY19 to $550m). That implies total digital revs of $2,050m ($1.4b news subs, $100m other subs & $550m advertising).
2/ Cost base. Let's assume print subs only come with $100m of variable cost (on ~ $585m of LQA revs). That implies the FY19 cost base ex print was $1,535m. Then flex that higher for incremental Apple/Google tax at 15% of incremental subscription revs so +$85m or $1,620m.
3/ That's digital EBIT of $440m (~ 21% margin). Then if we take LQA print revs of $583m & deduct our $100m of allocated costs, that's $483m of contribution margin. If we assume that zeroes in 10 years, that's $2.4b of value. That's undiscounted but hey rates are zero so 🤷‍♂️
4/ Putting the pieces together. A $440m EBIT digital business worth (at least) 20x NOPAT is $6.5b. A $2.4b run-off cash flow stream from print. $800m of cash on the balance sheet today. That adds up to ~ $9b or ~ $60 per share.
5/ I honestly have no idea where subs eventually land but it feels like you can do pretty well here even if they only hit their 10m target which management VERY clearly think they can do MUCH better than in the LT. To me that makes sense. Yes news has become free online... cont.
6/ but it's also become an awful experience. So much of what Google spits back at you is SEO optimized affiliate marketing garbage. Apple threw its news product under the bus when they tried to charge for it. What's the point in clickbait if you can't click.
7/ The NYT meanwhile keeps getting better. Let this sink in. They hired the Editor in Chief of Buzzfeed to become a columnist. They just hired the co-founder of Vox to become a columnist. They might not have a monopoly on news but they're not far off a monopoly on talent.
8/ This (…) is a worthwhile take from @mattyglesias

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More from @HumewoodCastle

12 Oct
TCI has almost a quarter of their 13F book in the Class 1 rails (namely $CP $CNI & $UNP ). Competitively-advantaged, irreplaceable, well-run companies? Sure. But I just can't see how the math works out such that these are compelling investments at today's prices.
1/ Let's look at $CSX (because that's the one I have an up-to-date model for and because they're all pretty darn similar). In the last five years (2014 - 2019) CSX carloads shrunk at a ~ 2% CAGR, revenue/carload grew ~ 1% so total revenue shrunk at ~ 1%.
2/ Margins exploded, with EBITDA margins going from 38% in FY14 to 52% in FY19 while CapEx invensity shrunk with CapEx/Sales going from 19% to 14% over the same period. EBITDA - CapEx margins therefore more than doubled from ~ 18% to ~ 39%.
Read 9 tweets
11 Oct
Thoughts on and why despite the insane run the stock has had I think there's more to go. There are a fair few assumptions here so my numbers are going to be wrong but hopefully sufficiently close to right that the conclusions still stand.
1/ I think you have to look at the business as Azure / everything else. Not because there's some SoTP angle or anything but because the businesses are at such different stages in their life, agglomerating them together misses too much.
2/ Let's start with everything else. Last year did $143b of revs o/w ~ $20b was Azure, leaving ~ $123b for the rest. My guess is that Azure was modestly profitable, let's say a 5% EBIT margin or $1b of EBIT, last year. That leaves the rest doing $52b of EBIT / a 42% margin.
Read 12 tweets

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