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Mostly Borrowed Ideas

23 Dec, 14 tweets, 6 min read

1/ Thread: $AMZN Marketplace in 2020

I read an interesting piece on marketplaces today which reviewed the best year for marketplaces in a decade.

I came across some very interesting data points for $AMZN marketplace which will be the focus on this thread.

2/ Before we dive deep into $AMZN, broadly the marketplace winners in 2020 are: $TGT, $AMZN, $WMT, and $ETSY.

Losers are: $GOOG, $WISH, and $EBAY.

3/ $AMZN, in fact, added GMV this year that's equivalent of $EBAY's entire GMV.

It's funny because during 2000-2010, $EBAY was ahead of $AMZN in terms of market cap most of the time.

It's incredible how the fate changes in just a decade.

4/ $AMZN global GMV in 2020 is $475 Bn. 3P GMV grew ~48% in 2020 after it grew 25% in 2019.

Was there anyone who imagined AMZN 3P would grow at 25% or higher in 2019/20 5-10 years ago?

Such staggering growth at this scale is just astounding.

5/ "Nearly $1 billion in fresh capital was committed in 2020 to firms looking to acquire Amazon sellers and brands."

Access to capital for 3P sellers is probably just getting started. If they become better capitalized, the 3P machine might continue to post eye popping numbers.

6/ Many of these 3P sellers are being bought at 2.5-4x EBITDA multiple.

Buyers are trying to do rollup strategy betting that these business can be eventually sold at much higher multiple.

7/ $AMZN marketplace is even more concentrated than what Pareto principle would suggest.

Top ~12% 3P sellers contribute 80% of GMV.

Just the top 852 3P sellers (.05% of sellers) contribute 10% of GMV.

8/ ~18% of current year GMV in the US came from 2015 (or earlier) seller cohort, implying longevity of some sellers.

84% of top 10,000 sellers remained active in 2020. So the churn rate is pretty low compared to some other online marketplaces.

9/ The marketplace, however, is extremely Schumpeterian. Once something becomes popular, there is a rat race to copy that product.

~42% of top sellers are based in China.

10/ Anker, an $AMZN native brand and founded by ex-Google engineer Steven Yang, went public in Shenzen Stock Exchange in Aug, 2020.

It surpassed $1 Bn sales in 2020. Market cap? $11 Bn.

11/ $AMZN made $20 Bn from advertising this year.

Avg CPC on AMZN ads $0.85
Avg. conversion rate 12.5%
Advertising cost of sale (ad spent/sales) 22%
62% sales are organic

@chamath

12/ $AMZN almost made the same amount from ad revenue in 2020 as it spent on its own marketing expenses.

This reminded me of this famous chart by @chamath

13/ Success of AamazonBasics has seemed to flatlined in recent times, indicating 3P sellers remain very competitive.

End/ Here's the link to the original piece if you want to explore lots of interesting other tidbits of $AMZN and other marketplaces: marketplacepulse.com/marketplaces-y…

All my twitter threads are here: mbi-deepdives.com/twitter-thread…

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More from @borrowed_ideas

Mostly Borrowed Ideas

@borrowed_ideas

21 Dec

@mjmauboussin

1/ Thread: Valuation with Real Options

Today @mjmauboussin and Callahan published a short paper on how volatility and falling WACC has affected valuation in 2020.

Here are my key notes from the paper.

2/ What is "Real Options"?

It is a right, but not an obligation, to make an investment in a new line of business/distribution center/product expansion etc.

There are parallels to financial and real options.

Here's a classic example of Real Options for extractive industries.

3/Where do we look for real options?

Here's a short checklist:

1. Quality of management
2. Position of the business
3. Evolution of uncertainty.

For more clarity, see the image.

Read 10 tweets

Mostly Borrowed Ideas

@borrowed_ideas

20 Dec

@ckaiwu

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.

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.

Read 10 tweets

Mostly Borrowed Ideas

@borrowed_ideas

17 Dec

1/5 Thread $ETSY valuation

I've received a couple of DMs on how I'm thinking about $ETSY valuation after the recent strong rally.

Since my guess is as good as yours, I'm sharing my model publicly. You can play with the assumptions as you see fit and come to your own conclusion

2/5 I would like to mention some caveats before sharing my model.

This model was shared with the subscribers of "MBI Deep Dives" when I wrote the deep dive on $ETSY.

To keep it consistent with the writeup, I'm uploading the same model but some things have changed since then.

3/5 For example, my GMS estimates* was $8.6B in 2020, but as per the Q4 GMS mid-point management guidance, it's likely to be $9.6B

So you'll have to make these adjustments in the model based on recent numbers/guidance

*I try to build reverse DCF, so not necessarily my views

Read 5 tweets

Mostly Borrowed Ideas

@borrowed_ideas

16 Dec

@InvestLikeBest

1/8 I was listening to Sam Hinkie episode today at @InvestLikeBest, and paused here for a while.

Writing is not only one of the best leverage tools in the age of internet, it is also a great way to talk to yourself across time without the biases of selective memories.

2/8 One of the things that excites me most about building "MBI Deep Dives" is the trail of deep dives I will hopefully be writing in the next 5-10 years.

Will I be able to spot some of the big winners? Can I identify the long-term losers?

3/8 I will most certainly miss some of the big winners. I would love to figure out if there is a particular pattern among the companies I miss.

Will there be anything that I can do to reduce my errors of omission?

Read 8 tweets

Mostly Borrowed Ideas

@borrowed_ideas

15 Dec

1/9 Thread: Long-term return expectation

I ran a poll yesterday here asking the following question:

"What level of IRR would you be happy/satisfied with 10 years from now for your portfolio?"

~3k people responded, and ~54% of them said >10%.

2/9 I thought it was surprising that people are still expecting >10% IRR when ~$20 trillion bonds are trading at negative yield.

I understand people might have interpreted the question differently. Some might be "okay" with 7-8%, but would require >10% to be "happy".

3/9 At one hand, permabulls might be just extrapolating the recent equity returns. The narrative of roaring 20s has perhaps been permanently imprinted in their minds.

Read 9 tweets

Mostly Borrowed Ideas

@borrowed_ideas

13 Dec

@dhmeyer

1/7 Notes from @dhmeyer episode at @InvestLikeBest

Danny Meyer is the founder and CEO of Union Square Hospitality Group as well as the founder and Chairman of $SHAK.

Here are my notes.

2/7 How do you make a restaurant a favorite one?

"We had to make you feel like we were on your side, which is hospitality, but then to take it a step further, we had to really make you feel like you belonged."

3/7 ABCD =Always Be Collecting Dots.

The desire to belong really resonates.

I found out fintwit last year. I used to lurk around here a lot, and thought this is SO cool. I wished I could be part of fintwit community. And I just started writing, and never stopped.

Read 7 tweets

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