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Mostly Borrowed Ideas

28 Jun, 10 tweets, 3 min read

1/8 quick thoughts on $ETSY's acquisition of Elo7

Etsy just announced acquisition of Elo7, marketplace for handmade items based in Brazil, for $217 mn cash.

Elo7, founded in '08, is also known as Etsy of Brazil and was backed by Accel ('11), Insight Venture Partners ('12).

2/8 56k active sellers, 1.9 mn active buyers.

My first impression is liquidity of the marketplace is still not quite there yet.

Etsy didn't disclose GMV/revenue of Elo7. Quick google search shows $4 mn revenue (not sure of veracity). Assuming $50 mn GMV, Etsy paid >4x GMS.

3/8 As per an IFC study, 85% buyers and 80% sellers are women on Elo7.

Interestingly, ~75% of the women in the IFC study responded they became seller on Elo7 after becoming a mother.

4/8 One underappreciated aspect of online marketplaces is how it unlocks not only entrepreneurship but also capitalizes on the traditionally underutilized human capital.

Link to the IFC study: ifc.org/wps/wcm/connec…

5/8 8 mn items are listed on Elo7 (vs ~90 mn on Etsy)

40 retail categories, but 50% GMV comes from wedding, baby, home decor, and children's parties.

Here's Etsy's strategic rationale for the acquisition.

6/8 I understand the macro rationale. I think US has ~15 years of e-commerce growth left after which it will start growing at tandem with overall retail sales.

Latam likely has longer runway and Etsy thinks it is a good use of capital to try to have a stake in this growth.

7/8 Elo7 will remain an independent brand and will be run by current management. Acquisition will have neutral impact on GMS and topline, but modestly dilutive to EBITDA margin.

8/8 Obviously, too early to have any opinion. I think I would prefer if Etsy takes it slow for the NTM in terms of acquisitions so that we get some data points and evaluate these deals.

If you are from Brazil and used Elo7, I would love to hear your thoughts/experience.

My deep dive on Etsy (Oct, 2020): mbi-deepdives.com/etsy-a-handmad…

You can also find my earlier twitter threads on Etsy here: mbi-deepdives.com/twitter-thread…

@adaptor_nate

P.S. GMS is likely to be ~$140 Mn, not $50 Mn. I feel better about the acquisition now, haha. This is why I tweet. Thanks, @adaptor_nate

https://twitter.com/adaptor_nate/status/1409508854392659971?s=20

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25 Jun

@mjmauboussin

1/ Thread: The impact of intangibles on base rates

@mjmauboussin and Dan Callahan published a new piece couple of days ago. As an ardent student of Mauboussin's work, I am leaving my notes here.

2/ There are two ways to forecast the future.

a) The Inside View: You study the company of interest, understand the economics, and project operating metrics based on the narrative.

b) The Outside View: You think statistically, find reference class of the company of interest...

3/ ... and evaluate what happened to that reference class. You get your base rates from the reference class which influences your forecasted numbers.

Read 12 tweets

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@borrowed_ideas

20 Jun

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"

Read 9 tweets

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@borrowed_ideas

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

Mostly Borrowed Ideas

@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

Mostly Borrowed Ideas

@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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