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Mostly Borrowed Ideas

20 Jun, 9 tweets, 2 min read

1/9 Thread: No Slam Dunk in Investing

I was recently speaking with someone and we both somewhat lamented how Buffett did not bet big on Google.

Google IPOed in 2004; it may not be clear then that they would win search. But surely by 2014, Buffett should have known it, right?

2/9 Following our conversation, we both explored a bit whether it really was that obvious that Google was an easy buy in 2014 when it was trading at ~$500.

Let me share two quotes.

3/9 "The growth rate in Internet penetration is set to peak in 2016. Were Google’s revenue and profit continues to track Internet penetration, then those metrics would peak as well"

4/9 "A great number of Internet users today were not raised with computers; it’s fair to question how many of those clicking on Google ads falls in this group. As a new generation comes online, will ads continue to be effective at the scale Google needs them to be?"

5/9 Those two quotes are by Ben Thompson from a piece in 2014.

How about Wall Street? Allow me to share a quote from a SS initiation.

stratechery.com/2014/googles-n…

6/9 "We initiate at EW with a $600 PT as Google fends
off a “law of large numbers” issue in core search
by ramping investment spend. Google is a LT
secular winner, but estimates appear high and
diversification is proving expensive."- MS initiation (Nov 03, 2014)

7/9 In ~2015, there were concerns around whether the rise of apps would seriously drive browser traffic down hurting search growth.

In 2016, Google added 4th mobile ad unit in its search result which would increase revenue in ST, but LT growth sustainability was a question mark

8/9 To be clear, I'm certainly NOT mocking anyone. I can only imagine how many of my current takes will turn out be downright terrible in 5 years.

But the fact that even Google wasn't quite a slam dunk 5 years ago should give us a pause just how difficult long-term investing is.

9/9 The people who live and breathe tech had plenty of reasons to worry, so it doesn't feel quite right to lament about Buffett missing out on Google.

Well, at least he got Apple right. Thankfully, we just need to be really, really right on few things to forget other "mistakes"

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9 Jun

1/5 Thread: Income inequality gimmick

ProPublica's "leak" on wealthy individuals' taxes reminded me of some of the studies related income inequality I read a few years ago.

A short thread.

2/5 University of Michigan did a study from 1975 to 1991 following a group of individuals who initially started in the bottom 20%.

95% of these people were found not to be in the bottom 20% in 1991. 29% actually reached the top 20%.

Link: (page 8) scribd.com/document/88651…

3/5 IRS later did a similar study from 1996 to 2005, and found people who started in the bottom 20% in 1996 saw their income increase by 91% over the decade and people who started at the top 1% actually saw their income fall by 26%.

Read 5 tweets

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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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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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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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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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