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A.B. Mendez, CFA's  Instablog

A.B. Mendez, CFA
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I am a research analyst at a tech-focused private equity boutique. My background includes experience on the sell side, managing and trading a hedge fund's TMT portfolio, and designing and implementing large databases and reporting systems. I have over twelve years of experience in the fields of... More
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  • A.B. Mendez, GreenCrest Capital - Groupon Analysis and Valuation Report
    Here's a press release about the Groupon report and valuation analysis GreenCrest Capital and I just released. I've been working on this project with GreenCrest for the past month and will be continuing to work with them on some additional private company research projects in the future, hopefully for a long time to come.

    Please check out the press release, I'll soon be publishing some key points from the report, probably as a "Premium" SeekingAlpha article, it would be my first.

    http://www.prweb.com/releases/greencrestcapital/groupon_inititiation/prweb8238382.htm

    If any other SA authors have used Premium articles, please drop me a line and let me know about your experience with them thus far.

    Will probably move on to LivingSocial next. By the time I'm done, who knows, maybe I'll write a book.

    Thanks!
    AB

    Mar 25 2:48 PM | Link | Comment!
  • Is the Groupon IPO Valuation a Joke?
    AMENDING this earlier instablog post. So... based on my numbers, Schonfeld and TechCrunch probably weren't far from the truth. They have Groupon at $60mn for Feb, I get to $65mn; the interesting thing is that they still grew ~1000% Y/Y because thier international biz adds so much growth.

    GreenCrest Capital and I just published on 3/25 a 50-page research note with valuation tomorrow on Groupon. Any interested should contact me at my SeekingAlpha inbox, or otherwise.

    Please have a look at this article, where Erick Schonfeld of TechCrunch publishes a blatantly representation of TechCrunch US revenue. It may be breaking trend in February, and it may be slowing down, but it this is not Groupon's economic reality:

    tinyurl.com/4z8d2huThose interested in Groupon, LivingSocial, Facebook, Google and others in the space should stay tuned to this station, there will be a lot more to come.I value the thoughts and comments of the SeekingAlpha community tremendously, so please do be in contact and leave comments wherever you have thoughts. Thanks.BTW, in the midst of IPO negotiations/preparations... now is not the best time to have your President and COO walk out the door, even if you did ask him to do so...
    Mar 23 4:00 PM | Link | Comment!
  • Tilson Closes Out NFLX Short
    WOW. Whitney Tilson's T2 Partners has closed out their short position in NFLX, which Tilson and Netflix CEO Reed Hastings publicly debated on the pages of SeekingAlpha recently, in December and January.

    I came to more or less the same conclusion after the 4Q call for some of the same reasons:
     
    - Canada/international could be a lot of upside to rev growth/impossible to quantify at this point.
    - Increasing content costs will certainly be an issue, but NFLX has arguably grown past the point of critical mass where the media companies cannot/should not just crush NFLX by pricing them out of the market. NFLX has so many loyal subscribers that the content owners should be incented to work out deals with NFLX that work for both sides (all 3 including consumer), not the alternative.
    - Bandwidth less of a problem than some think, because I think the CDNs (FFIV, etc.) are less dependent on the cable networks than many understand -- they own much of their own transport infrastructure, and only move data over the cable nets for the "last mile," which I think will become less burdensome as the compression/transmission technology continues to improve.

    Also, on a valuation basis, it's not expensive at all relative to the growth rate and ongoing margin expansion, so it makes no sense (nor has it to date) to get in front of it on the short side. Long if anything, given a decent entry point.
     
    From Tilson letter to shareholders dated 2/9/11:
     
    In mid-December, we published a lengthy article on why Netflix was our largest bearish bet at the time. With the stock up nearly 25% since then, one might assume that we’d think it’s an even better short today, but in fact we have closed out our position because we are no longer confident that our investment thesis is correct. There are three primary reasons for this:
     
    1) The company reported a very strong quarter that weakened key pillars of our investment thesis, especially as it relates to margins;
     
    2) We conducted a survey, completed by more than 500 Netflix subscribers, that showed significantly higher satisfaction with and usage of Netflix’s streaming service than we anticipated (the results of our survey are in Appendix A, attached); and
     
    3) Our article generated a great deal of feedback, including an open letter from Netflix’s CEO, Reed Hastings, some of which caused us to question a number of our assumptions. In summary, while we acknowledged in our December article that Netflix “offers a useful, attractivelypriced service to customers, is growing like wildfire, is very well managed, and has a strong balance sheet,” we now believe that it is an even better business than we gave it credit for. The company has enormous momentum and substantial optionality (for example, international growth), and management is executing superbly. In particular, we tip our hat to Reed Hastings, whom we had the pleasure of meeting last weekend. In addition to his success building the business and navigating the transition from DVD-by-mail to streaming media, he’s also one of the most down-to-earth, honest and straightforward CEOs we’ve ever encountered.
     
    END

    I currently hold no position in Netflix.
     
    Tags: NFLX, Internet, Media
    Feb 11 9:28 AM | Link | 1 Comment
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