1/ Thread: The Platform Economy
I read a thoughtful research note on platforms by @ckaiwu today. I will share my notes in this thread.
Number of platform companies has increased from 40 in 2008 to 100 in 2020 in $SPY.
I read a thoughtful research note on platforms by @ckaiwu today. I will share my notes in this thread.
Number of platform companies has increased from 40 in 2008 to 100 in 2020 in $SPY.
2/ Not just public markets, there are ~500 private unicorn platforms many of which are likely to go public soon.
3/ Wait, I know it's a cliché, but how do you define a "platform"?
The image provides a brief context how Sparkline used Natural Language Processing (NLP) to define and score platforms.
Platform score isn't fixed for a company e.g. see how $AMZN score changed over the years.
The image provides a brief context how Sparkline used Natural Language Processing (NLP) to define and score platforms.
Platform score isn't fixed for a company e.g. see how $AMZN score changed over the years.
4/ How have platform stocks done in the market?
On mcap basis, they have outperformed per annum by +8.7% in last 12 years. Even on equal weighted, that number is +8.1%.
From 10% in 2008, currently 37% of $SPY mcap is platform stocks.
On mcap basis, they have outperformed per annum by +8.7% in last 12 years. Even on equal weighted, that number is +8.1%.
From 10% in 2008, currently 37% of $SPY mcap is platform stocks.
5/ What were the drivers for such outsized return?
Sales growth.
Multiple expansion wasn't, in fact, a contributor until 2020. You can laugh at those sales multiples all you want, but this graph is rather compelling.
Sales growth.
Multiple expansion wasn't, in fact, a contributor until 2020. You can laugh at those sales multiples all you want, but this graph is rather compelling.
6/ How do these platforms create value?
"Platforms have been most successful disrupting industries with the following characteristics:
1. Inefficient gatekeepers
2. High fragmentation
3. Untapped supply"
"Platforms have been most successful disrupting industries with the following characteristics:
1. Inefficient gatekeepers
2. High fragmentation
3. Untapped supply"
7/ Of course, network effects play a huge role in driving value which was eloquently explained by Brian Arthur in his seminal work on "increasing returns on scale"
If this is the first time you are reading this, read twice.
The endgame for increasing returns is (quasi)monopoly.
If this is the first time you are reading this, read twice.
The endgame for increasing returns is (quasi)monopoly.
8/ Network effects don't exhibit mean reversion, but they do face the risk of obsolescence.
Given the significance of scale for the platforms, TAM is much more relevant discussion than old economy stocks.
Given the significance of scale for the platforms, TAM is much more relevant discussion than old economy stocks.
9/ Is the platform heyday behind us? The Pollyannish time of lax regulation and less responsibility are perhaps unlikely to persist.
End/ Here's the full piece: sparklinecapital.files.wordpress.com/2020/12/sparkl…
And give @ckaiwu a follow. I have been following his work for the last few months, and have consistently found their work insightful.
And give @ckaiwu a follow. I have been following his work for the last few months, and have consistently found their work insightful.
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