VC Turmoil, Mobile Wallets, Mature Dating, Canned Boba, and a Greek Fisherman
Market Talk, Edition 51, June 5th 2022
Market Talk is a bi-weekly Sunday issue, where I curate the best things I have consumed during the last two weeks. Every second Sunday I will share the following segments:
• 6x Must-Reads: The 6 readings I found most insightful, with commentary.
• Intriguing Trends: Highlighting a few intriguing trends from Glimpse.
• Other Items of Interest: A collection of other readings I found enjoyable.
• Great Listens: Between 2-3 great podcasts, interviews, or videos.
• Something Interesting: A palate cleanser to round off the issue.
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Comments from Me
I decided to experiment with a new segment on Market Talk called ‘ intriguing trends’ {working title}. I often use a tool called Glimpse, as well as reading their trend reports, and had planned to include some findings in the ‘something interesting’ segment this week. But then I thought this might be a fun recurring segment, so will test it out over the coming months. Be sure to comment if you find it a net positive or negative to the newsletter.
Upcoming: Tomorrow I will be sharing a discussion I had with an ex-HF manager based in the LatAm region. We discuss several sectors and businesses within the region, as well as macro, and I am confident you will enjoy it as much as I did. Elsewhere, more write-ups are on their way.
Recent Publications: Memos I have shared since the last Market Talk.
• Guest Interview, Edmund Simms at Valuabl
• Fool Me Once, Shame on You, Fool Me Twice Can't Place the Blame on You
6x Must Reads
In every edition of Market Talk, I share a sizeable number of readings that I have consumed over the past two weeks. Here are the 6 that I found particularly enjoyable or insightful. Note, that these articles are not listed in order of perceived value.
To access the suggested article, click the purple link after the source subheading.
1) Adapting to Endure: Sequoia All Hands
Length: Moderate Read
Source: (Sequoia)
This was a presentation that Sequoia, the storied VC firm, sent out to their portfolio companies in May of this year. Echoing the sentiments of other VCs that have been aired on Twitter over the past couple of months (here is Dan Rose’s as an amuse-bouche), the presentation calls for a focus on survival, runway extension, conservatism, and some not-so-subtle advice to “prepare and get through the other side” in the wake of dwindling supply of capital.
We have seen big tech pause hiring, other VC funded companies like Klarna lay off 10% of their workforce, as well as Tesla cutting 10% of their executive roles, and a broad increase in layoffs from start-ups this year.
Point being, the tremors of this microenvironment are evidently rippling throughout both public and private entities. None more starved for capital than early stage businesses. After painting a portrait of ‘why’ this environment is to be feared (mostly discussing macro), Sequoia then (~page 21) break into the darwinian portion of the report, outlining which companies survive during these periods. The AirBnB segment, outlining how Brian Chesky handled the crisis of covid in April 20’ was particularly insightful.
As I have been working in an early VC-funded start-up for the better part of a year now, I naturally began to take an interest in how this VC thing works. Alongside the fantastic mentoring I have received from my colleagues, reports like this (and the ones I have shared here in the past) are furthering my understanding of this field. I must make it clear that my highlighting of this report is related to my own curiosity, and whilst the environment affects all companies, it’s not specifically related to the one I work for.
“Wishful thinking is a waste of time. Don't sit around talking about ‘the good ole days’ with hope they'll return.”
2) The Bill Gurley Chronicles: VCs, Marketplaces, And Early-Stage Investing
Length: Dense Read
Source: (Macro Ops)
Sickeningly slick work from Brandon over at Macro Ops. Compiling 25-years worth of Bill Gurley’s (below) work from the “Above the Crowd” blog into one document. The format follows a title & date with a link, a one-paragraph summary, and one favourite quote from each of Gurley’s memos. There is also a handy PDF version.
I can’t imagine how long this took to create, but it’s an excellent resource for those looking for quick snippets of insight from periods of time that span decades, or simply as an extensive blurb to discover some of Bill’s old memos. Fantastic effort, and an equally fantastic report that I will be reading for weeks to come.
“What if there was a way to distill all the knowledge that someone’s written over the last 25 years into one, easy-to-read document? And what if that person was a famous venture capital investor known for betting big on companies like Uber, Snapchat, Twitter, Discord, Dropbox, Instagram, and Zillow (to name a few)? Well, that’s what I’ve done with Bill Gurley’s blog Above The Crowd. Gurley is a legendary venture capital investor and partner at Benchmark Capital. His blog oozes valuable insights on VC investing, valuations, growth, and marketplace businesses.
3) Mobile Wallets: Southeast Asia’s New Digital Lifehack
Length: Moderate Read
Source: (McKinsey & Company)
An interview with three leaders in the South East Asian payment space, Martha Sazon of Mynt, Anthony Thomas of MoMo, and Chris Yeo of Grab Financial Group. Their experience spans Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—a total population of close to 600 million people. Given that 60% of people in SEA are ‘unbanked’ and only ~17% of transactions are cashless, there appears to be considerable scope to ‘digitise’ payments in the region.
Light reading, which covers a broad spectrum of important considerations such as; infrastructure, adoption, the playbook for monetisation, relationships with banks, merchant relationships, new entrants, cryptocurrency, and BNPL. A great read for anyone interesting in South East Asia, emerging markets or payments generally.
“The very notion of digital wallets has changed. Wallets are no longer simply a value store: they are a medium for every type of payment—and more. What started out as a closed-loop payments platform is fast becoming a front-end engagement channel, enabled by a multitude of open and semi-open payment networks. Wallets have greeted the rise of BNPL (buy now, pay later), cryptocurrency, and cross-border payments by enabling transactions through these modes too. Beyond this, digital wallets are becoming access points for gaming, commerce, and loyalty, in some cases emerging as “super apps” or financial superstores—hubs of financial connectivity.
Despite the surge in use of these tools, no Southeast Asian provider has replicated the success of Chinese giants such as Ant. It remains to be seen whether the industry can overcome the challenges of monetization, profitability, and a crowded field of competitors. Is a sustainable playbook in sight?”
4) Rational Price
Length: Light Read
Source: (Phronesis Fund)
I am always on the hunt for new resources to pool into my reading basket, and this piece from John Candeto at Phronesis Fund marks a new entrant to Market Talk. Part of the ‘role’ of Market Talk is to (a) share what I have been reading, (b) share interesting insights to readers but also (c) shine a light on those who are writing great content. This short piece covers the nuance of capital duration (the period over which performance is assessed and rewarded or punished), and how these time horizons can contract when uncertainty (an ever-present) is particularly prominent in the minds of market participants.
Much of our earlier understanding of market participants think is founded upon the belief that humans are rational beings. However, an investor will know this is rarely true. John attempts to outline why this disconnect occurs (markets pricing over/under rational value), as well as highlighting the options an investor has when faced with this reality.
“Imagine you were going to buy a business today that you were required to sell next month, next quarter, or next year. How much would you pay? Given the substantial uncertainty currently dominating capital markets, your answer would be much less than you thought the business was actually worth. This thought experiment describes much of what we are currently seeing in the stock market.”
5) Bull Market Rhymes
Length: Moderate Read
Source: (Oaktree)
I brought this one up in a memo I penned last week, outlining the beauty of Marks’ writing and reflection on Market Cycles, garnished with the reality that the man who wrote the book on Market cycles can oft do no more than communicate ex-post under the guise of hindsight.
Nevertheless, as much as having the foresight to predict when a bull/bear market might occur would be useful, it’s not something I feel I, nor most investors, have the ability to do. Furthermore, it’s not typically how I manage my capital. Thus, this post-mortem was great in its own right.
“In a bull market, favorable developments lead to price rises and lift investor psychology. Positive psychology induces aggressive behavior. Aggressive behavior leads to higher prices. Rising prices encourage rosier psychology and further risk-taking. This upward spiral is the essence of a bull market. When it’s underway, it feels unstoppable. The most important thing about bull market psychology is that, as cited in the final bullet point above, most people take rising stock prices as a positive sign of things to come. Many are converted to optimism. Relatively few suspect that the gains to date might have been excessive and borrowed from future returns and that they presage reversal, not continuation.”
6) Why Compounding is so Difficult
Length: Light Read
Source: (Akre Capital)
Super concise essay here, and one which succinctly describes how too often “investors are informed only by share price movements from which business fundamentals are then inferred”. Mostly serving as prose for pause, this article serves as a pleasant reminder to those who invest largely on the grounds fundamentals that sometimes the market overacts to the downside too.
“Examples of such counterproductive behavior are well known to all of us: trying to sell before the next recession, trying to buy just before the next bull market, “repositioning” portfolios based on what is supposed to do better in the new paradigm, dumping stocks during a downturn, which deprives oneself of the means to eventually recover. People do these things because they are intuitive, because these actions appear rational in the face of heightened concern and uncertainty. This is precisely why compounding over the long term is so challenging and rare: it demands counter-intuitive and seemingly irrational behavior.”
Intriguing Trends
A new segment I am testing out today will feature some commentary on intriguing trends, discovered using Glimpse. Today, I will provide an introduction as to what kind of data I may be commenting on, and in future editions of Market Talk, I will be diving in. Yuri over Snippet Finance told me about Glimpse last year, in a zoom call we had, and I have been using it to feed my curiosity ever since. Glimpse analyses hundreds of millions of consumer behaviour signals from across the web to surface the most important and fastest-growing trends that are under the radar. At present, Glimpse covers individual companies, industries, and products across healthcare, beauty, wellness, fashion & apparel, food & beverage, consumer goods, and entertainment.
For instance, whilst somewhat seasonal, search volumes for non-alcoholic beer have steadily grown over the last 5-years; a trend which has predominantly been ushered in by millennials, who IWSR believe account for ~48% of non-alcoholic beer drinkers in America.
Together, Australia, Brazil, Canada, France, Germany, Japan, South Africa, Spain, the UK, and the US make up ~75% of global consumption of no and low-alcoholic beverages, and in many of those countries, the composition of low to no-alcoholic beer takes up more than 10% of the total beer market. Anecdotally, I have connections in the alcohol industry here in the UK, as well as being an investor in a private low-alcohol beer start-up, and can attest that demand is strong. The data appears to support that, given that the UK ranks 2nd in global traffic volume, ahead of the States.
I personally see the greatest innovation (with respect to flavour) amongst smaller breweries, but perhaps unsurprisingly, companies that could be labelled ‘big beer’ such as Heineken and Budweiser top the brand categories because of their scale and awareness. For those who enjoy beer, you don’t really enjoy beer if you drink these brands.
Pretentious beer-snob comments aside, demand for alcohol substitutes, like Celsius energy drink, has also been somewhat of a success story. The product has experienced a considerable boost in demand since early 2019, a year when annual revenues stood at $75M. Today, trailing 12M revenues stand at $397M, a cool 430% greater in just two years.
Despite falling ~40% from November 21’ highs, Celsius Holdings (NASDAQ:CELH) stock has returned 1,200% since the end of 2019. Of course, the point of this is to find trends before they break, or are in the midst of breaking. This exercise in hindsight is just to show what kind of data Glimpse provides. Reports published by Glimpse dated more than 3 years ago would have shown you the early innings of demand for TikTok, Substack, Notion, and Onlyfans before they exploded.
In a recent report, Glimpse highlighted that the demand for elderly dating sites is driving down high school reunion participation, historically a great place to find love at an older age. As further evidence of this phenomenon, DateMyAge, a dating site tailored to “mature singles”, primarily buys their ads from a site called classmate.com, a social networking service which pre-dates Facebook, but tends to have an older userbase.
They also target AOL, another website which primarily houses an older audience. Whilst this segment is a smaller fraction of the overall dating market today, with the current crop of oldies being more opposed to online dating than those under 35s, one can only assume this market grows over time, as the 25-year-olds of today, enter their 40s or 50s, having already been accustomed to online dating as a means to find love. I don’t think Hinge and Tinder appeal to those who are a little further on in their lives. Companies like Matchgroup do cater to this audience with apps like ‘Our Time’, but this is currently an immaterial portion of their consolidated performance. Alternatively, we could see a future where those ageing users stick with the apps they are familiar with. Similar to the youth exodus of Facebook, young adults don't want to be surrounded by oldies, so some other app may take the young crowd's demand, and Tinder becomes a sess pit of middle-aged men. Personally, I find the latter outcome to be more likely. Whilst still a while away, I see few MTCH bulls consider the ramifications of ‘youth flight’ from Tinder and Hinge.
In other news, the global rise in search traffic for boba tea (the drink that is one part tapioca balls, five parts sugar, and two parts tea and milk), is a fairly well-established trend. I have noticed stores popping up everywhere, and the lines are typically down the street.
Perhaps similar to the boom of coffee in the mid-1970s, pioneered by Starbucks, customers eventually became so infatuated, that they wanted the product everywhere. The solution was to open up a secondary distribution channel for coffee, in cans and bottles, to allow for sale in supermarkets, and smaller outlets. After the popularity of boba tea has kicked off in the West, a similar path is transpiring, with canned boba witnessing a rise in popularity. Producing a shelf-stable version of this product is a great way to extend and grow a fast-growing market.
Being able to stock boba in the home, or take it with you on journeys, in the car, all enforce the pre-existing habit. Heck, it may even convert new addicts into the market. Glimpse cites that “boba’s popularity has outpaced retail infrastructure such that consumers in rural areas wanting boba are too far from trendy areas, forcing them to buy it online, in cans” as a reason why canned boba might be exploding. As the demand for boba, generally, has exploded, more consumers want to get their hands on it and, for some, canned is the way to do so if they don’t live near a store.
The reason I find this data interesting is that it can provoke thought in a nugget-sized format. The data may not directly relate to a company you own, but it may provide ideas for new areas of research, or prompt questions about companies you do own. At the very least, it will make you a more entertaining dinner guest. Will Starbucks’ reluctance to sell boba hurt them if the product begins to eat coffee market share? Are there any public companies with aspirations of a global boba empire? Could there be promising microbreweries focussing on low-alcohol beer that may be great acquisition targets? How will the migration of the next generation of mature daters affect the current industry leaders in the dating market?
These are the kinds of thoughts I wish to provoke in this segment going forward, as well as potentially sharing the outright weirdness of e-commerce trends. If you think this is a great idea, or a bad one, let me know in the comments. Moreover, if you think this should be a separate category of newsletter (outside of Market Talk), let me know.
Glimpse issues an array of intriguing reports on exponential and hypergrowth trends every month. There is a free version, as well as alternate packages which provide the reader with greater quantity, richer insights, and commentary. If you’d like to check out their reports, you can do so here.
They also have a handy chrome extension tool, which incorporates Glimpse’s tools into your research process, which you can find here.
Other Items of Interest
Note: ($) indicates there is a paywall on this content.
• The Diff: AWS for Industry, But Better: The Railroad Investment Case
• McKinsey & Co: The Next Frontier in Consumer Goods
• Dollars & Sense: How Not to Panic
• Calculated Risk: When will House Price Growth Slow?
• Morningstar: Lessons from 2022’s Tech Stock Collapse
• Insecurity Analysis: The Market Has No Memory. Should We?
• MacroOps: Lessons from a Trading Great: Paul Tudor Jones
• TKer: The U.S. economy is bending, not breaking
• Behind the Numbers: The Shortcomings of EBITDA
• ESG Hound: Elon’s Last Stand
• Forbes: Stripe Article
• Of Dollars & Sense: Rallies to the Bottom
• New York Times: SPACs Were All the Rage. Now, Not So Much
• A Wealth of Common Sense: Why Housing is More Important Than the Stock Market
• 🕵️ Company Related 🕵️
• Jareau’s Newsletter (SQ): Square & the Holy Grail of Payments
• Best Anchor Stocks (FIVE): Why Five Below Dropped So Much
• Yahoo Finance (AAPL): Michael Burry Reveals Short on Apple
• Yahoo Finance (META): Sheryl Sandberg Steps down as Meta COO after 14 years
• Entertainment Strategy Guy (NFLX): The Algorithm Is A Lie
• Giro’s Newsletter (AMZN): AWS is Unstoppable
• Giro’s Newsletter (STNE): StoneCo Q1 22 Earnings Write-up
• Special Situation Report (DIBS): A (Near) Net-Net Taken Out to the Woodshed
• Hindenburg (ENOB): Short report on Enochian Biosciences
• Rest of World (NFLX): Netflix’s first attempt at password sharing crackdown a mess
• Global Quality Investing (KWS): Keyword Studios Write-up
Great Listens
Here, I will share some audio/video materials I listened to during the last two weeks, that I feel are worth your time.
(1) Sean Stannard Stockton - Managing in a Volatile Environment
The Business Brew
Sean Stannard Stockton’s second stint as a guest on Bill Brewster’s Business Brew. Acting as President and Chief of Ensemble Capital (a firm whose work I have shared numerous times), Sean presides over the fund’s positions such as Chiptole, First Republic Bank, Google, Netflix, Home Depot, Landstrat, Illumina, and First American Financial, to name a few.
Whilst there is a great deal of discussion around individual names (Netflix and Google particularly), the greatest takeaways from the conversation are within Ensemble’s process. From spending months researching new companies, to how to reassess convictions during volatile markets, this was an excellent episode for those interested in Ensemble’s truly long-term focus.
Guest: Sean Stannard Stockton
(2) This is what the Bottom Sounds Like
The Compound
Michael Batnick and Josh Brown welcome Dan McMurtrie back to The Compound to discuss an array of subject matter. McMurtrie always makes for an exciting guest, and this time was no different. The intro opens up with a prologue about the theme that what seems to have been the most obvious outcome, is the one that is/has happening/happened over the past couple of years. Topics of discussion cycle through the dot-com era and 2022 with some great conversations about Peloton, the crypto market, market structure, earnings estimates, executive comp, and ESG.
Host: Michael Batnick and Josh Brown
Guest: Dan McMurtrie
(3) Making Sense of the Market with Aswath Damodaran
Invest Like the Best
I can never turn down a discussion with Aswath. As per every single discussion happening lately, there is a deal of talk about macro, mostly inflation, which then transgresses into the valuation of the FANGAM stocks, before moving on to discussing both how to acquire an edge, and why, in Aswath’s opinion, ESG is a pile of… expletive.
Some love Aswath, others don’t. I am not here to judge. Rather, share a range of works from different perspectives.
Guest: Aswath Damodaran
Something Interesting
In a memo last week I shared an anecdote about an Arab and his camel, relating it to the importance of learning from mistakes, as opposed to focussing on having made them. People seemed to dig it, so here’s another tale.
A businessman took a short trip to a small island on the coast of Greece. The evening he arrived he walked along the beach for some time. There, he met a fisherman, docking his boat at the pier with what appeared to be several large tuna inside. The businessman asks “how long did it take to catch them?”, to which the fisherman responds “all morning”.
“Why don’t you stay out longer and catch more fish?”, the businessman asked. As he unloaded the fish, the fisherman would remark that “I have enough to support my family and feed a few friends, it’s all I need”. Perplexed, the businessman would ask how the fisherman spends the rest of his time if he is not out catching fish. To which the fisherman responded, “I sleep a little, play with my children, nap with my wife, take strolls through the village, sip wine, and play a little guitar with my friends”.
Announcing his credentials to the fisherman, the businessman claimed that he could help him catch more fish. He would suggest that the fisherman “spend longer out in the sea, catch more fish, buy a bigger boat, increase the haul, and use the proceeds to buy another boat. Eventually, you will have a whole fleet of boats”. As the fisherman nodded along, the businessman continued; “then instead of selling to the market, you can cut out the middleman and sell directly to consumers, making more money by controlling the product, the processing, and the distribution. You could leave this village and build an empire”.
“How long would that take?” asked the fisherman.
“Oh, about 15 to 20 years tops” responds the businessman.
“And then what would I do?” asked the fisherman.
Rubbing his hands together, the businessman would remark that “when the time is right, you can sell your company and make millions”.
“Millions? Then what would I do?” asked the fisherman.
The businessman replied, “then you could retire, maybe move to a small coastal island, where you could sleep late, fish a little, spend time with your family, nap with your wife and take strolls through the village, sip wine, and play a little guitar with your friends”.
“I already do that” - the fisherman replied.
Chastise me for being corny, but I think this story demonstrates how society can chase the pursuit of riches, whilst simultaneously ignoring how rich they already are.
Conor,
Author of Investment Talk
