Thread by @puppyeh1

@hkuppy and I have been having a spirited disagreement about $ACND and the deal to buy Beacon. Kuppy thinks this is a 'mind-numbingly great' biz. I am FAR more skeptical. You know what that means...it's time for a THREAD

1/

https://twitter.com/puppyeh1/status/1366874032004505602

Issue 1) why are the incremental margins so low? Kuppy says this is an asset-lite 'better than SaaS' biz. Here is the rev/EBITDA progression last three years. Tell me when you find the op leverage.

I'll wait.

42% incrementals...true SaaS/platform incrementals are 80%+...

The fact this is happening despite aggressive growth in ARPU is further puzzling (normally ARPU growth is higher margin, all else equal).

Obviously, marketing expense is roofing it...this is basically the opposite of a typical SaaS biz...

...and more akin to chasing incrementally more expensive/lower value subs w more marketing dollars...

Issue 2): earnings 'quality.' This analysis does a great breakdown of how much of the biz actually comes from pumping crypto 'research':

https://twitter.com/PeckedXDucks/status/1366828013325873157

Their highest ARPU products - WAYY ahead of group averages - are crypto newsletters. Run by an SEC-barred individual, no less. These have (obvi) experienced massive growth lately...but would you bank on capitalizing that?

Insiders certainly aren't...

Let's push on this crypto point. Since crypto newsletters run $4-5k/yr (vs ARPU at ~$750), it stands to reason these are much much more profitable than other products (even w rev share/earnouts etc). Crypto is apparently 11% of revs historically (prob higher now):

Given the above i'd wager crypto is >20%, maybe 30% of EBITDA today...which to me is a fairly large problem. How many $4-5k crypto newsletter purchases would you consider sustainable or capitalizable? Would you pay 20x net earnings derived from these subs? I wouldn't...

...which brings us to issue 3: earnings quality part 2. Look at the add backs to get to adjusted EBITDA. Note that they define EBITDA vs billings (ie including deferred rev changes), not versus revenues:

There's nothing inherently wrong w this - except that billings includes (I think) at least some, if not a lot, of lifetime subscriptions (Tilson adverts these all the time). Anything lifetime obviously can't be capitalized as all the revs you'll get are already in def revs...

...of course we have no way of knowing how much this is (undisclosed) but even if its 10% of def revs it changes the valuation argument materially...

Meanwhile the stock comp line is pretty massive. Even if it comes down, a lot, it seems like all the profits went out the door...

...to insiders/content creators (as you might expect for a newsletter biz)...or, given the nature of the model, as earn-outs in acquisitions to acquired newsletters.

Summing up: you have a roll-up of newsletters, at a high multiple of perhaps peakish, low-quality earnings...

...of which a v large portion seem to be crypto (prob one-time) and some undisclosed portion is definitely one-time (lifetime) subs...where insiders are cashing out materially...and where incremental margins haven't really appeared. But they will going forward 😅

Oh its also coming via SPAC. From a bunch of unsavory characters (to say the least).

None of this is a shot at @kuppy. Just critiquing the thought process. No position in $ACND, DYODD, GLTA 🙏

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