Speedwell Research
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📖 Free Newsletter & Memos: 🎧 The Synopsis Podcast: ⬇️ for Research. By Drew Cohen & @kevg1412
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Starting at GS research and migrating to the buy-side was a first hand experience in how lacking 3rd party research is.
Speedwell just released a short piece on how we differ.
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Gary Friedman asked his team at $RH to analyze their $GOOG spend efficacy.
The result? 98% of key words were “Restoration Hardware” and the 21 ways to spell it wrong.
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Page 166 of KKR’s 10-K
Their public equities dropped -57% vs private investments -1%
Seems like a fair valuation
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Here Munger asks why some markets with 5-6 competitors like cereal have good industry profitability, while others like airlines are horrendous.
He says he doesn’t fully understand it, but lists brand as a factor.
What other factors are there?
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1/ Junkyards, wrecked cars, a duopoly, 30% operating margins, and two self-made billionaires: this is the story of Copart.
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*Just released our Evolution Podcast episode*
In this 2 hour podcast we cover:
- History
- Grey & Black Markets
- Competitive Landscape
- How Evolution Differentiates
- Acquisitions
- Bear/ Bull Case
This is the most in-depth $EVO podcast you will find!
(Links in next tweet)
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Sometimes investors read too much into Form 4s.
Even some of the best managers are in it for the money. $TDG
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“The only companies that have created truly significant value from the dot-com era are Amazon and Google”
Pretty wild stat. Is that right?
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🎧 *Coupang Podcast episode just released*
In this >2 hour podcast we cover:
- Business pivot & the pulled IPO
- Korean Retail Landscape
- Flywheel
- Naver
- Eats, Play, & Farfetch
- Taiwan
- & more!
This is the most in-depth $CPNG podcast you will find!
(Links next Tweet)
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1/ $CPNG is -10% since reporting 4Q22.
This unprofitable “growth” company grew revenues just +5% y/y.
And active customers growth slowed to just +1%.
It looks bad… well, until you actually look…
⬇️ Coupang business update ⬇️
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You keep buying things that will pay for themselves in 3 years.
And after 20 years, somehow you've earned a return of only 4% annually.
The cost reductions came through, but the benefit didn't go to the guy who bought the equipment.
It’s a simple idea, yet often forgotten.
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Charlie Munger on why buying great companies doesn’t always work.
As much as we talk about Buffett’s shift to quality, he rarely buys something that trades above a 15x multiple looking a few years out.
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“There is no greater alignment of interests than the fact that your Founder, CEO, and Chairman owns approximately 65% of outstanding shares”
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1/ $CSU reported 4Q22.
Full year 2022 review below.
We touch on key financial metrics and adjustments, concluding with a valuation framework.
⬇️ ⬇️ ⬇️
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$CPRT spent $29mn to develop an ERP system.
It didn’t work.
So they wrote it all off and simply explained,
We thought it be right, but it wasn’t.
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A greatly under estimated driver of the stock market: career risk
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📄 *𝐍𝐞𝐰 𝐑𝐞𝐬𝐞𝐚𝐫𝐜𝐡 𝐑𝐞𝐩𝐨𝐫𝐭 𝐨𝐧 𝐂𝐨𝐮𝐩𝐚𝐧𝐠*
🔸
It wasn’t born with 7-hour delivery, box-less returns, or 21 million active customers in a country of 22mn households.
It started with impulsion, countdown clocks, and one of the most copied business models in
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*New Company Podcast Episode Released*
In this 90 minute discussion we cover everything Constellation Software,
From Mark Leonard’s key insight he learned at Venture West
To an in-depth discussion on capital deployment
And much, much more!
Links in Next Tweet! 👇
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1/ $RH reported 4Q22
Full year 2022 review below.
We provide a business update, high level investment thesis, and valuation commentary below.
⬇️⬇️⬇️
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Ben Graham refused to even look at photos of CEOs for fear it would bias his analysis.
Yet today many investors think they are benefited from closed door meetings with management.
Someone is mistaken.
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Negative working capital financed growth
Only company I’ve seen that quotes A/P as a % of inventory (and it’s usually well over 100% giving them a source of funds)
What are the key reasons why AutoZone has been a 300-bagger for shareholders? $AZO
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Hundreds of hours of research goes into every report we write.
We sell the reports for $400 each, but our Podcast is FREE.
We now have released *seven* in-depth company episodes that draw on our reports.
Here is a short thread of each episode with links!
👇
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$CPRT made a strategic investment in heavy equipment auction company Purple Wave.
Ritchie Bros, who recently acquired IAA, is the largest player in this market.
Jeff Liaw notes Copart already sells $100mn+ of “yellow metal.”
Will they get more serious about this market? ⬇️
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70% of anticipated revenue synergies prove to be illusory.
One of the reasons Mark Leonard’s $CSU doesn’t use revenue synergies to justify acquisitions
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A lot of attention is spent on CAC
But more often than CAC, it is the spend to 𝐫𝐞𝐞𝐧𝐠𝐚𝐠𝐞 existing buyers where problems show up.
Below we estimated that Wish spent almost half of S&M to 𝐤𝐞𝐞𝐩 𝐞𝐱𝐢𝐬𝐭𝐢𝐧𝐠 buyers.
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The reason it is hard to compete against $FND is competitors are unwilling to copy these two decisions.
These two decisions are necessary to optimize for pro’s and consumer’s preferences.
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$ETSY just reported 4Q23.
Another year down, another year to stretch that comp range.
2021: GMS +154% on a two-year basis
2022: GMS +145 on a three-year basis
2023: GMS +142% on a four-year basis
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🚨*New $CSGP Extensive Research Report Released*
What changes when one of the oldest industries—real estate—gets swept up in the PC revolution?
🧵 👇
(1/x)
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1/ This accounting convention is the root of much confusion.
The distinction between 1P and 3P is critical to investing in many businesses, especially in Ecommerce.
Learn a key accounting concept in this thread and how it applies using $SE as an example.
Accounting 🧵⬇️
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No one would lend to a Korean company to build ships, until the bankers saw their money had ships on the back.
Everyone need a narrative.
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$CPRT stock repurchase history
In 5 years time went from never buying back stock to using all their cash on repurchases and issuing debt to further shrink the share count
In one year alone they bought back 20% of the company
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This is a very common sentiment among the successful:
“It is only natural to think that a person who works ten times more than others would be ten times more tired.
Yet, I've found that those who complain of being tired and bored are the lazy ones.”
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The $MTCH conundrum:
If you are attractive you’ll never need to pay and if you aren’t, paying won’t do much.
@CCM_Brett
It’s a little more philosophical than analytical, but I’ve never like the uneven value transfer between the people who pay for the service compared to those who get the most value for the product.
Said differently, if are good looking you’ll never need to pay and if you aren’t
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Munger on Capitalism:
The extreme success of capitalism owes much to its prevention of bad effects from incentive-caused bias.
Free-market activity creates a strong incentive to prevent waste.
Replace owners by salaried employees and you will get a reduction in efficiency
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Thank you for having us on again!
Really think Bom Kim is a greatly understudied founder…
Who else has pulled an IPO after the prospectus was printed to pivot to a capex-heavy model?
They became the
#1
ecomm player in Korea with a 2 decade late start!
It’s worth a listen!
Today we get into the weeds of South Korean e-commerce.
Our guest
@Speedwell_LLC
is back to cover Coupang
When we create our Business Pivot Hall of Fame, we have a spot saved for the CPNG transition from a Groupon clone to the Amazon of South Korea.
Enjoy!
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Thiel set up PayPal to avoid competition
Tencent’s Pony Ma pitted teams against each other to increase competition.
It’s ironic bc Thiel talks about the inability to draw lessons from failure.
Seems to apply to success as well.
No one knows anything.
H/T
@david_perell
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Speedwell Memos just surpassed 4,000 readers! 🎉
Thank you to everyone who supported us and helped share our work. We are deeply grateful for each of you. 🙏🏻
For those that are unfamiliar with Speedwell Memos, it is our free newsletter.
Below you can find our top 8 pieces 👇
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Mark Leonard on hurdle rates being magnetic.
An investor might be at the same risk— if they lower the discount rate (or required return) for one stock, perhaps the whole portfolio gravitates there overtime.
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Mark Leonard on Sell-side price targets:
They aren’t projections, but rather back solved from the current stock price.
It’s sort of like changing your answer after seeing what everyone else put down.
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More homes were built in the 1980s than in the 1960s despite double digit interest rates.
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In 1986 Xerox acquired a property and casualty insurer… then an investment advisor… and then a brokerage house.
They would lose $2.8bn and exit the financial services business a decade later.
Capital Allocation is everything.
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In our $META diligence we found a potential cause of over-hiring.
And in $CSU is a solution.
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From near bankruptcy selling Mayonnaise spreaders and Moon Pies to incredible showrooms that generate well over $100mn, $RH is one of the greatest business turnarounds.
Had a great time discussing with
@ReustleMatt
on
@bizbreakdowns
their epic story!
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Just release our first FREE Exploratory Research Report on home builder $DFH
🔸Trades at a HSD multiple (7x when published for members 3 weeks ago)
🔸Founder Patrick Zalupski continues to run the company and owns >60%
🔸Copies NVR’s capital-light model
🔸ROIC ~20%
⬇️(1/12)⬇️
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It’s worth remembering, most great companies will trade near their all time highs most of their lives.
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Mark Leonard on why move the AGM to virtual:
“You're much less likely to
have a gathering of private equity guys
who are trying to learn from any manager they can corner any of the secrets that Constellation has.”
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The late billionaire Larry Miller backs up Warren Buffett’s comments on reputation.
“A reputation for integrity and honesty is desirable for its own sake, but it also will reap opportunities.
I've seen it happen again and again in my life.”
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Lock yourself in a room doin 3 cyclones a day for 5 years
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@SleepwellCap
@borrowed_ideas
Agreed.
We modeled this explicitly in our report.
It gets pretty hard to assume FCF deployed can be anywhere near 100% for longer than a ~decade unless they lower hurdle rates.
Even then you are looking at ~$5bn of annual acquisitions which quickly scales up to $10bn+
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*New Synopsis Podcast released*
We had a great talk with Best Anchor Stocks’ Leandro (
@Invesquotes
) on:
🔸 Valuing great companies like $CPRT & $CSU
🔸Nintendo, Deere & transitioning businesses models
🔸Hermes, Ferrari, & durability of Luxury
🔸More!
(Links below)
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🎙️ Speedwell just released our 3rd podcast of “The Synopsis”.
This week we cover Copart in great detail, drawing from our 85 page report!
The Synopsis Podcast links below!
Apple:
Spotify:
More on $CPRT ⬇️
1/ Junkyards, wrecked cars, a duopoly, 30% operating margins, and two self-made billionaires: this is the story of Copart.
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🎙️ *New Podcast*
Today we released a 90 minute in-depth podcast on Floor & Decor.
We cover everything from single store concept to becoming the “Costco” of flooring.
Apple:
Spotify:
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I don't use formal projections.
I don't let people do them for me because I don't like throwing up on the desk
Once, Warren and I bought a company, and the seller had a big study done by an investment banker.
We just turned it over as if it were a diseased carcass.
-Munger
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@borrowed_ideas
allowed us to share his pushback on our recently published Podcast episode (links in next Tweet)
*Tomorrow* we will publish an interview with MBI, who’s our first guest!
We talk more about $Meta, $Goog, $Msft, the investment process, and much more!
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*New Report Released*
Everyone says the house always wins.
But that’s because they haven’t encountered the world of online gambling.
1/11
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When most graduates of Harvard Business School have announced they wish to become investment bankers, the end is near.
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Thank you for all you have taught us in business, investing, and life.
You were more than just a teacher though, you were a model.
Your wisdom will be missed dearly.
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Gary Friedman took Restoration Hardware from near bankruptcy to 25%+ operating margins and grew revenue 40x.
Under his leadership, the company has grown from a $20mn market cap to $15bn at peak.
⬇️ Here are 10 lessons from his Playbook 📚 ⬇️
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Nothing worth forecasting can be forecasted
Anything that can be forecasted, isn’t worth forecasting
Michael Mauboussin on pattern recognition.
Take a look at Exhibit 2 and consider where you think the next two data points should appear. Now look at Exhibit 3, which reveals the underlying system: Cisco’s quarterly sales growth from early 1998 through early 2002. Our strong
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Is there a higher risk now that where the search journey starts changes?
$AAPL $GOOG
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📄 *New Research Report*
1/ From down -50% to up +800% to back down -80%, Etsy’s stock had a volatile past few years that left them at the same valuation level as 2019.
But while the stock is basically where it was 3.5 years ago, the business isn’t.
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Businesses invest on an “inside basis”,
Investors buy in on an “outside”
The difference will dictate whether an investment is successful for the investor.
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15/ much much more in Speedwell’s most comprehensive report ever–spanning over 160 pages. Check out the full contents below. ⬇️
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Interesting counterfactual.
Lego Group leaders had thought that delivering great products for kids would mean profits follow…
But that ethos also left them with no granular way to monitor product financials.
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“The lifespan of men is similar, yet some work 10 or 20 times more than others.
It is only natural to think a person who works 10 times more would be 10 times more tired.
Yet, I’ve found those who complain of being tired and bored are the lazy ones.”
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I think
@borrowed_ideas
makes a very good point here on how hard it is to achieve even what most investors would consider mediocrity.
While every investor is free to set their hurdle rate wherever they like, I’d add that the ~10% nominal return the market has historically
I often receive pushback whenever I mention I'm starting to buy a stock because I can draw a path to ~10% IRR. If I want to steelman their arguments, they point out this approach necessitates a potentially uncomfortable higher hitting ratio.
You must be right very, very often,
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Mark Leonard on frothy valuations creating irrational competition $CSU
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We’ve done a slight rebrand
*All our Memos are now 𝗮𝘃𝗮𝗶𝗹𝗮𝗯𝗹𝗲 𝗳𝗿𝗲𝗲 through 𝗦𝗽𝗲𝗲𝗱𝘄𝗲𝗹𝗹𝗠𝗲𝗺𝗼𝘀.𝗰𝗼𝗺*
Latest on:
- $GOOG & AI Risk
- Modularization: $AMZN vs $AAPL
- Buffett’s Cost of Equity
- Pricing $HD
- Piton Network Framework
- Lessons from $CPRT
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$CPNG
“𝐈𝐭’𝐬 𝐚𝐛𝐨𝐮𝐭 𝐛𝐮𝐢𝐥𝐝𝐢𝐧𝐠 𝐚 𝐫𝐞𝐥𝐚𝐭𝐢𝐨𝐧𝐬𝐡𝐢𝐩 𝐨𝐟 𝐫𝐞𝐥𝐢𝐚𝐧𝐜𝐞”
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We walk through how to value Home Depot (a “growth stock”) in 1999
𝙏𝙝𝙚 *𝙠𝙚𝙮* 𝙞𝙨 𝙠𝙣𝙤𝙬𝙞𝙣𝙜 𝙖 𝙝𝙞𝙜𝙝 𝙥𝙧𝙤𝙨𝙥𝙚𝙘𝙩𝙞𝙫𝙚 𝙧𝙚𝙩𝙪𝙧𝙣 𝙞𝙨 𝙢𝙖𝙩𝙝𝙚𝙢𝙖𝙩𝙞𝙘𝙖𝙡𝙡𝙮 𝙩𝙝𝙚 𝙨𝙖𝙢𝙚 𝙖𝙨 𝙖 𝙢𝙖𝙧𝙜𝙞𝙣 𝙤𝙛 𝙨𝙖𝙛𝙚𝙩𝙮.
(Links in next Tweet)
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1/ $META just reported 2Q23 and the the stock is up +7% after hours, putting YTD gains over 150%
This quarter is a strong indication that Meta has hit an inflection point in key areas.
Full earnings recap below ⬇️ ⬇️
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*New Memo Released*
We go in-depth into ecommerce company Wish to see what went wrong:
🔸Wish Business Model
🔸LTV Analysis
🔸Apple, Lego, Crocs Turnarounds
🔸S&M Breakdown
🔸Where Pinduoduo Differed
🔸Estimating Churn
(Links in next Tweet)
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Happy to announce the launch of Speedwell’s own podcast, The Synopsis
Each episode will be a “Synopsis” of a public business, informed by our multi-hundred hour research process
First up is Meta where we cover key points from our 47,000 word report!
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Like spending money frivolously, people ignore the compounding effect of procrastinating.
“If you procrastinate all the time, this adds up to an enormous amount of wasted time.”
- Hyundai Founder, Chung Ju-yung,
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We just released the first 10 pages of our RH research report below for free.
It covers the founding history and the beginning of the RH turnaround story once Gary Friedman took over.
Like or share so we know to release more content like this!
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1/ A big thank you to
@borrowed_ideas
for taking the time to read the entire report + provide such thoughtful feedback! Not easy to get through 160pgs in one day!
Cool to hear even someone covering the company for >5yrs learned some stuff :)
Some thoughts on his thoughts below
The good folks at
@Speedwell_LLC
shared their thorough and thoughtful work on $META with me. Sharing my detailed comments on their work.
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You thought those Costco samples were a loss leader, little did you know…
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Charlie Munger: “common stocks generally have generated returns of 10 to 11 percent after inflation for many years and that those returns can't continue for a very long period.
And they can't. It's simply impossible.”
What are the factors of stock market growth?
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Almost all business strategy can be boiled down to (1) selling a lot for a little or (2) selling a little for a lot.
But how do you know if a retailer is making the right trade-off between price and turns?
The Inventory Value Capture Index explains all.
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1/ $FND is +22% YTD.
They reported 4Q22 last week, guiding to their first ever negative sales comp.
And management sees 2023 EPS potentially dropping y/y, but still will open >32 new stores.
What’s going on?
⬇️ FND business update below ⬇️
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We spend thousands of hours a year doing nothing but researching businesses
Our core product is Equity Research Reports we sell to investment funds, but many important concepts & learnings we summarize in our weekly memos
Get all of all memos for free at
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Apple:
Spotify:
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Not wrong…
Copart on SAP circa 2014
Everyone knows what SAP does: it sells software that takes at least 3 years longer than expected to deploy and causes every customer to catastrophically miss earnings multiple times during implementation. It actually says that in their SEC filings.
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Buffett’s investing approach focuses a lot on customer psychology.
See’s Candy doesn’t compete on price or taste, its leading attribute is eliciting a feeling when gifted.
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"A high prospective return and a margin of safety are mathematically the same thing"
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This accounting-centric piece showcases how a footnote can totally and investor’s analysis.
Maybe they thought $BABA had a take-rate of 6%, but found out it was really ~50% higher after digging in.
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Great businesses do not think how to optimize a response to mitigate a competive threat.
They think how can we offer the best consumer value prop?”
Really enjoyed this interview on $CPNG with
@chitchatstocks
Thanks for having me on
@CCM_Brett
and
@CCM_Ryan
!
(Links next Tweet)
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Really enjoyed this interview with
@scuttleblurb
and
@LibertyRPF
Below David talks about how macro can stress investment assumptions and help an investor understand the quality of a business better, but warns not to mistake macro trends for guidance.
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Buffett’s Washington Post investment is usually held up as a hallmark of market inefficiencies.
But the truth isn’t so simple.
There was existential risk.
And there is only one way to account for that.
(Memo link in next tweet)
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There is our businesses’ moats and then there is our moat—most investors confuse the two.
In 2014 Mark Leonard clarifies Constellation’s competitive advantage. $CSU
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Bubbles aren’t about high valuations, but expectations to get rich quick.
Great reframing h/t
@morganhousel
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“It’s about the lack of imagination in retail.
Most retail stores are archaic windowless boxes that lack any sense of humanity.”
Before and after photos of RH transforming a Saks Fifth Avenue.
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Only investors have the luxury of ignoring Mr. Market
Business operator have to placate him.
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Many think about leverage in terms of increasing financial returns, but Leonard points out it decreases the willingness to take risk in business.
$CSU
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Chipotle vs Taco Bell is not a trivial matter.
Early investors passed on Chipotle because there already was a “fast food Mexican chain”
Their analysis ultimately boils down to a misunderstanding of TAMs and preferences.
We introduced a better framework.
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"There is no better teacher than history in determining the future. There are answers worth billions of dollars in a $30 history book."
-Charlie Munger
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