I wish I had spent more time analyzing Amazon in earnest years ago. But late is better than never. I’ll console myself with the fact that e-commerce penetration in the US is still <10% of all retail sales…and relative to that statistic, even the word “late” seems a bit premature.
Having spent a number of months learning more about Amazon’s history, assets, business model(s), and philosophy, one thing I’ve realized is that Fulfillment by Amazon (FBA) affords the company immense advantages on the supply side that I think are largely glossed over in mainstream media and investor dialogue.… Read the rest “Supply Side Advantages of Fulfillment (by Amazon)”
Two months ago I wrote The Bitcoin “Penny Stock”, detailing what I believed were the conditions that created Bitcoin’s incredible run through September. Although the piece sounded cautious given Bitcoin’s 30-40x 1 year return up until that point, I noted that the prevailing conditions allowed far more than that, perhaps another 50-100x. I highly recommend reviewing that piece since I continue to believe those conditions remain true.… Read the rest “Bitcoin and Cryptocurrencies – The Mother of All Bubbles”
For almost a decade, Bitcoin has periodically captured the attention of the public. Sometimes for its technological potential, sometimes as an object of ridicule, but often times for its boom / bust cycles that have fueled the limitless imaginations of speculators.
Since the start of this year, Bitcoin and alt-coins have once again captured the attention of the public.
Not only has Bitcoin risen dramatically in price, potentially minting hundreds of millionaires and possibly a few discrete billionaires, the blockchain, alt-coins, and ICOs appear to be carrying us at light-speed into a radically democratized and de-centralized future.… Read the rest “The Bitcoin “Penny Stock””
Andrew Ng (former Chief Scientist at Baidu, Co-founder of Coursera) is fond of referring to AI as the “new electricity”. Similar to how electrification ended up transforming every single industry during the 20th Century, AI is broadly expected to have similar (if not greater) impact in the coming years.
Finally catching up on some reading: Bloomberg published an excellent profile on Tencent and the co’s strategist, Martin Lau. I highly recommend the article as it not only goes through the history of the company, but reveals the type of thinking and mentality that has helped Tencent become one of the most successful companies in the world.
What would you pay for a well-regarded, branded business that is expected to grow revenues and net income around 10% CAGR for the next 3-5 years with industry leading margins, high returns on capital, and low capital intensity?
And better yet, given that this business has low capital intensity, the company generates and distributes high free cash flows back to shareholders in the form of dividends and share buybacks, bringing total shareholder returns to 15%+ per year?… Read the rest “Pandora – Fast Fashion or Fad Fashion?”
This question is clearly of interest to clients of asset managers, but it is also an increasingly important question for industry professionals as well. It’s hard for industry professionals to do good work if they do not believe in the work they do, and for clients, it is dangerous to be invested alongside managers that are distracted.… Read the rest “Value Creation in the Investment Management Business”
The last post, How Airlines Generate Float, compared the similarities between airline mile programs and insurance companies. I argued that airlines are now essentially generating float through their miles programs. Turns out it’s not that original of an idea (as much as I wish it was!) as there are at least two publicly-traded mile program managers in Brazil.
Recently, I’ve been spending quite a bit of time pondering airlines. Perhaps out of concern that someone could violently drag me down United’s tiny aisles! Good thing I don’t fly United…but I kid, of course.
What has caught my attention is Buffett. He now owns approximately $10 billion of airline stocks. And for anyone that has followed Buffett over the years, this is unusual not least because he’s never minced words with respect to airline industry economics:
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, then earns little or no money.
Lately, there’s been no shortage of positive coverage on Amazon – and for good reasons. The vast majority of retail is struggling with declining same-store-sales, yet, Amazon continues to post a torrid pace of growth despite its size. In FY16, Amazon grew North America segment sales by 25%, and that growth came at the expense of the rest of the retail industry.… Read the rest “Amazon’s Capital Market Dependence”
Judging from market multiples, it’s clear the market is skeptical of Apple’s ability to continue to succeed and has been for many years (currently, 1-yr forward P/E of ~15x despite recent re-rating), while holding limited concern for Google and Facebook (both 1-yr forward at ~26x).
“A further related lesson: Easy does it. After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.”