Every single time my wife opens an $ETSY package, she sees a handwritten note from the seller. She goes "Awww. That's so sweet" and she posts a picture of the note along with the item on her IG stories. The number of times she has done that with an $AMZN package : 0.
Thesis : Internet has democratized entrepreneurship. That's the theme of last 2 decades and it's going to be the theme for next 2 decades as well.
That's a change I guarantee will never revert. $EBAY $AMZN $SHOP $FB continue to contribute and benefit from this theme.
All of them have carved their niches and so has $ETSY. Every one I know dreams of running a self sustainable business and $ETSY makes it possible by giving sellers a increasingly global audience. It gives buyers a wider selection of personalized items.
I've looked at it before. I saw a P/E of 80. Closed the tab and moved on. But I'm trying to extend my horizon here.
$220/share : Trading at $28B market cap & enterprise value.
2020 has certainly been a blessing for $ETSY. The mind share has increased and it's here to stay.
For the purposes of looking at past growth, let's excluded 2020's bump.
From 2014 to 2019,
* Revenue has grown from $200M to $820M at 32% CAGR.
* Gross profit has grown from $120M to $550M at 35% CAGR.
They have always been free cash flow positive. I'm a little surprised to see that they have generated $200M in free cash flows in 2018 and $2019. I'm also surprised that they have allocated a good chunk of that free cash flow towards buying back stocks --> 1% shareholder yield.
That's ~68% and ~23% gross and free cash margin respectively. That's comparable to $EBAY at ~75% and ~30% margins.
What do I have to assume for 10% IRR?
It's an increasing returns / internet economy business. Given their pre pandemic growth of >30%, it's not far fetched to assume they would grow revenues at 25% per year for next 5 years.
Assuming 75% and 30% in gross and free cash margins %.
$ADSK was THE software to learn when I was growing up. My dad showed off CAD to me 20 years ago when his employer was building a textile factory back in India.
The learning curve and high switching costs, combined with $ADSK's iteration on old products and introduction new products to students for free produces a wide moat and strong momentum in the user base.
Informative podcast :
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In the short term, their move into subscription/cloud model, might provide much more predictable revenues.
Looking at growth numbers :
* Revenue grew from $2.2B to $3.8B at 5.6%
* Gross profits from $2B to $3.4B at 5.5%
* Free cash flows from $510M to $1.3B at 10%
"This is the key part of Warren Buffett’s philosophy that folks overlook. He talks a lot about return on retained earnings. Whether keeping an extra dollar in a business tends to result in an extra dollar being added to the market cap."
Good read!
"If you buy into a leveraged company & it deleverages over the next 10 yrs, your returns would be very poor compared to what you'd expect, they'd be much lower than the business. Let's say you are paying a 5% interest rate on your bonds/loans, you're paying like 4% after tax."
"If you have a company, and they take 3/4/5 years in a row of free cash flow & dedicate most of it, while you own the stock, into paying down that debt, it's the same as if they went out & invested in a project that returns 4% after tax"
"It's hard to think of anything that's as unprofitable as paying down debt. Paying down debt is a very very low return use of cash, except for companies that are super heavily indebted and have incredibly high interest rates."
$CVS 2021 guidance -->
Cashflow from operations : $12B
Capex : $3B
Adjusted operating income across segments :
* Health Care Benefits : $5B
* Pharmacy Services : $6B
* Retail/Long-Term Care : $6.5B
3 segments of almost equal size.
Cue the cross selling / flywheel slide.
After Aetna acquisition, leverage ratio is now at 4x. Goal is to reduce it to 3x by 2022.
"We've hit the 2021 run rate and the synergies are fully embedded in the business."
"Millions of new customers will engage with CVS Health for the first time through testing and vaccine administration services. We will use this opportunity to shape a health experience that demonstrates the value we bring."
A neat little trick that I've been following lately to save my 'Coffee Can Portfolio' from my myself & my impatience:
I've two brokerages; one for my 'Working Capital Portfolio' and other for my 'Coffee Can Portfolio'. Both are long term oriented, but serve different purposes.
Working Capital Portfolio :
The is where I initiate a starter position in a stock. I initiate starter positions for 2 reasons : 1) Gain further conviction. 2) Wait for a right price on a company with fantastic economics.
I log into this account about once a week.
Coffee Can Portfolio :
Once I've reached the maximum allocation for a particular investment in my 'Working Capital' account, I initiate a transfer of the security to the 'Coffee Can' account.
I log into this account, like never. This brokerage contains my retirement funds too.