Some good sections from Chris Mayer’s 100 Baggers

1. The main job of an analyst is understanding how the company will create future value. 2. Average company life spans have been decreasing

Going back through “Measuring the Moat” by Mauboussin.

Here are some helpful things:

1. Industry Map

- Important to understand all of the players in an industry and how the whole value chain works. 2. Profit pools.

- Once you have the players, you need to understand which points in the value chain capture the most value. Profit pools are the factor of the excess returns on capital and the share of the industry’s total investment.

1/ Over the past 13 years, Apple has brought in $758 billion in free cash flow.

And it has returned 93% of that to shareholders, shrinking share count by 37%. 2/ In 2010, the company's market cap was under $300 billion.

At that price, the entire market cap was paid back in cash in just 6 years!

After year 6, your yield on original cost just from free cash flow would've been around 20%.

1/ Intuit is probably most well-known for TurboTax.

If you take the average cost of the Deluxe offering ($80), the $3.9 billion in revenue means that roughly 48 million people use the software... 2/ But Quickbooks still accounts for a greater piece of the business and for SMBs, Quickbooks is definitely the outright leader.

1/ Visa's network effect is crazy.

4.1 billion of its cards (pre-paid, credit and debit) have been issued and 100 million merchants accept these cards. 2/ Below are comps of the card networks.

In 2022, Visa did about $14 trillion in total volume with about 707 million transactions per day.

1/ McDonald's has $54 billion in gross PPE.

Now, that's a lot of real estate! 2/ Before Prologis bought Duke Realty, it had $56 billion in gross PPE.

That means McDonald's has as much real estate as one of the LARGEST holders of industrial real estate in the world.

1/ Amazon is the most ruthless "charity" in the world...

The gripe has always been that it hasn't been able to make money but that's because it's focused on something else...you! ⬇️ 2/ It turns out that focusing on your customers is good business. Who would've thunk?!

You can see, even from the early days, customers wanted what Amazon was providing.

This is data from the company's S-1, showing a doubling of sales every quarter...

1/ So why doesn't Netflix produce that much free cash flow?

Here's the answer and why it's key to understanding the company ⬇️ 2/ Accounting can be weird.

I think accountants get it right most of the time but it's important to understand the financials on a deep enough level to see if things square away with the economic reality.

As an example, let's talk about amortization, specifically for Netflix.

Kicking off the free re-launch of Business Breakdowns with the original breakdown...

...none other than Costco!

You can check out the updated post here and subscribe to receive future posts!

business-breakdowns.com/p/costco

https://twitter.com/RyanReeves_/status/1179974257779982336

Most people know this by now but Costco keeps gross margins as low as possible.

I mean just look at how consistent that is, right between 12-13%

📣 Announcement 📣

We are making our Business Breakdowns newsletter free. Yes, completely FREE.

So why would we willingly give up tens of thousands of dollars?

Since we study business all day, doesn't this seem stupid? Make something free that hundreds of people pay for? Short term stupid but long term, I believe this will pay off in spades.

One of my biggest business regrets is putting a paywall on Business Breakdowns too soon.

Even a $1 paywall is just enough friction to limit the funnel.

I believe this is a perfect time to make this free.

4 interesting slides from The Trade Desk’s investor day…

1. Rule of 40 comparisons 2. TTD is very efficient

1/4

Jeff Green being his usual self.

Here were three great sections in TTD's call: 2/4

Green (paraphrased):

Oh you think Netflix picking Microsoft is cool? Yeah, well I initiated that Xandr-Microsoft connection.

1/6

Will try to post 5 interesting sections from earnings calls as we finish out earnings season... 2/6 Progyny on why a recession won't hurt them:

I've probably read 1,000 annual reports (10-K's).

Here's how to read one efficiently and effectively.

[THREAD] ⬇️ 1/ The first step is finding them!

Use EDGAR (Electronic Data Gathering, Analysis, and Retrieval system): sec.gov/edgar/searched…

Then type in the company name.

Texas Pacific Land Corp. is the most profitable public business I've ever seen.

Over the past 12 months, the company had 83% EBIT margins and 86% EBITDA margins.

So why are they so profitable?

[THREAD] ⬇️ 1/ It all started 150 years ago.

In 1871, Texas & Pacific Railroad Company (T&P) was created through a federal charter to build a transcontinental railroad, extending west into what is now California, Texas, Arizona and New Mexico.

4 interesting sections from Cloudflare's investor day

1. Why they don't include Workers in the TAM
2. Why they are excited about Shopify as a partner
3. More optionality in connectivity down the road
4. Why Zscaler is inferior 1. They don't want to add Workers into the TAM for fear of "losing credibility"

Basically, the numbers get too big.

1/5

In July 2020, Nubank bought Cognitect, a software consultancy that created the programming language, Clojure.

Why does this matter? In Nubank's 1st earnings call, the CEO said:

"We build our own technology, including our proprietary core banking system using our own programming language & that ultimately gives us the ability to control our destiny, continuing to scale our platform with lower and lower cost"

A quick comparison of 3 semi capital equipment companies:

AMAT:
• Sales: $24 billion
• Gross margin: 48%
• EBIT margin: 31%
• FCF margin: 25%

LRCX:
• Sales: $16 billion
• GM: 46%
• EBIT: 32%
• FCF: 24%

KLAC
• Sales: $8 billion
• GM: 60%
• EBIT: 39%
• FCF: 31% A few observations:

• KLAC has the highest gross margins by quite a bit and that drops down to the bottom line as well.

• KLAC also has the smallest market share.

• Each of these companies spends about 3% of revenue on capex so it's pretty standard across the board.

Ok, here goes #4.

In this one, we're breaking down AMD, competitor to Intel and Nvidia ⬇️

https://twitter.com/investing_city/status/1502674425107333122

1/ AMD was founded in 1969 by Jerry Sanders after leaving Fairchild Semiconductor.

Interestingly, Sanders previously worked for Robert Noyce at Fairchild. Noyce founded Intel with Gordon Moore in 1968.

Continuing down the semiconductor path, let's break down ASML (Advanced Semiconductor Materials Lithography) ⬇️

https://twitter.com/investing_city/status/1501986188780965903

1/ In 1984, ASML was started from a joint venture between Phillips and ASM, a chip equipment manufacturing company.

The company makes lithography systems that are crucial for making semiconductor chips.

Here goes #2.

Yesterday we learned about how Nvidia doesn't actually make their own chips -- but that TSM and Samsung provide the manufacturing.

Going down the rabbit hole, let's break down Taiwan Semiconductor Manufacturing Company ($TSM) ⬇️

https://twitter.com/investing_city/status/1501625873320923137

1/ TSM was started by Morris Chang in 1987 as a joint venture between the Taiwanese government and Phillips Electronic.

Morris was born in China and graduated from MIT and then did a PhD in engineering at Stanford.