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@borrowed_ideas

2 Jun

@depop

1/ Thread on @depop acquisition by $ETSY

Etsy just announced to acquire Depop, a gen Z focused online apparel resale marketplace for $1.625 Bn (all cash). Optically expensive i.e. ~2.5x GMS or ~23x revenue based on 2020 numbers.

Here are my thoughts.

2/ Etsy coined an interesting term today “house of brands”.

After Reverb acquisition in '19 and now Depop, the strategy seems clear: keep penetrating vintage, handmade core marketplace AND acquire other niche marketplaces that you will have hard time building a connection with.

3/ Why is this important?

E-commerce is primarily behavioral in nature. Once you buy something from a marketplace, they have enough of your data to encourage you to buy again.
Once a marketplace grabs critical attention in a niche, it can be difficult to unseat the incumbent

Read 16 tweets

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@borrowed_ideas

28 May

1/ Thread: $ADSK FY 1Q’22 Update

ADSK had a pretty decent 1Q, comfortably beating high end of the revenue guidance. 98% of revenue are now recurring, and net revenue retention was in the range of 100-110%.

Topline guidance was raised by ~$40 mn. Here are my notes from the call

2/ Q1 is expected to be trough from growth standpoint and the rest of the year is likely to have some acceleration post-pandemic. ~75% of FCF of this year will be generated in the 2H.

3/ Billings from converting noncompliant users doubled YoY in Q1. In fact, a noncompliant customer converted into one of the largest premium customers.

But don’t expect hockey stick growth from conversion of noncompliant users. ADSK wants to gradually and naturally convert.

Read 11 tweets

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@borrowed_ideas

26 May

1/9 Thread: Retention rate illusions

With the rise of SaaS businesses, retention rate is often discussed and followed by investors.

Here are some of the notes I took from an academic paper discussing illusions/misconceptions when it comes to retention rates.

2/9 Issue #1: Reported retention rate may not be indicative of realized renewal rate. Let me give an example.

Let’s say a business reports retention rate is 95% which is, of course, awesome. What is less discussed, however, is the duration of the customer contracts.

3/9 To illustrate why it is important, imagine Company A, B, and C all report 95% retention rates, but customers only renew the contracts in every 1, 3, and 5 year respectively.

Here’s how the reported and underlying retention rate differs for these companies.

Read 9 tweets

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@borrowed_ideas

24 May

1/8 Thread: Changing your mind

It's easy to read Keynes' quote, "When the facts change, I change my mind - what do you do, sir?" and nod your head; but it doesn't make it any less difficult for anyone to change their opinions.

Why is that?

2/8 Murakami had a great quote that I try to remind myself every time I disagree with someone:

“Always remember that to argue, and win, is to break down the reality of the person you are arguing against. It is painful to lose your reality, so be kind, even if you are right.”

3/8 Unfortunately, one of the downsides of arguments/debates on twitter or any social media is it's mostly performative in nature.

You not only lose arguments that shatter your "reality", you go through the experience publicly which makes it even harder to accept and change.

Read 8 tweets

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@borrowed_ideas

22 May

@mjmauboussin

1/ Thread: Customer-based Corporate Valuation

@mjmauboussin and Callahan recently published a piece highlighting Customer-based Corporate Valuation (CBCV) which works particularly well for subscription businesses.

Here are my notes.

2/ Subscription based businesses’ topline grew 17.8% in 2012-2020 period whereas S&P 500 grew sales ~2% during the same time.

Digital subscription has also expanded TAM significantly for some businesses.

$NYT print subscription in 1996: 1.1 mn vs digital subs in 2021: 5.3 mn

3/ The CBCV framework appears simple: customer value comes from existing and future customers. Of course, the devil is the details.

Let’s get to it.

Read 22 tweets

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@borrowed_ideas

16 May

1/ Thread: Why I am an active investor

One of the questions most investors ask themselves at least at some point is whether they are indeed good investors, or all their past success are just random luck which by definition may not persist.

2/ My basic assumption is I am probably not a great investor. Even to be average, it will require a lot of work for me.

A common retort is why bother investing then? If I am so unsure of myself as an investor, shouldn’t I just index?

3/ This feels like equivalent of telling kids there’s no point in playing basketball because they’re never gonna make it to NBA.

I doubt most NBA players knew before touching the basketball that they are probably very good at it and it might be possible to make it a profession.

Read 15 tweets

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