Value, special situations, long-term horizon, contrarian
Value, special situations, long-term horizon, contrarian
Contributor since: 2010
Company: Bakatil
"The most obvious example of an owner-operator is Warren Buffett, but there are many others. Look at John Malone, who has been well represented in our portfolios for years.
He originally made his name by building the nation’s largest cable system through more than 480 deals between 1973 and 1990.
Given high interest expense and goodwill amortization, his company, Tele-Communications Inc., produced virtually no taxable income, even as he was assembling an exceedingly valuable enterprise that he eventually sold for more than $30 billion to AT&T.
(As an aside, Mario Gabelli came up with the concept of using enterprise value to EBITDA in order to more accurately value TCI, which prior to that time had been shunned on Wall Street as just another highly indebted and unprofitable enterprise.)
Malone is a classic entrepreneur, marching to his own drummer, but all in the name of creating long-term shareholder value."
- Murray Stahl
I would assume that FB is paying for the network effect of the leading service, so assuming the same value per user for a smaller network is simply not applicable.
If we use Metcalfe´s law (disregarding the price the user is prepared to pay for the service) a network of 450M users has 31x more value than a network of 80M users. So if the value per user of the network of 450M users is $42 per user, the corresponding value of the network of 80M users would be $1.33.
I´m not saying thats the value of BBM as it is an oversimplification. Just pointing out that you cannot extrapolate the value per user between these two networks.
(disc: long bbry)
You could have asked the same question about the Sirius XM merger.
The entrance of Netflix, AppleTV, etc. might result in a different opinion within the FTC.
But, man! Charles Ergen is one shrewd SOB.
"PostNL has a nice sized pension plan which will require €125m in contributions in 2011 alone. The pension is currently 112% funded which isn't much of a concern, the concern is that the contribution amount can be viewed as a fixed debt payment. PostNL needs to continue paying €125m each year or the pension will become unfunded and will be a liability in front of equity holders."
Hi team Oxen,
Thanks for the write up.
Do you have any insight as to how GIII structures the licensing contracts?
I think people who look at SODA often don´t realize that they aren´t doing anything new in terms of distribution. They have been implementing this distribution model for years and years and still it has not been broken/disrupted yet. Whatever the reason, it seems to be very robust.
Well, Switzerland is actually one of the most successful markets of Sodastream with very high household penetration and they have had it for years.
Birchbaum on Investor Day:
"CO2 refills are fuelling a bigger base of consumers, so growth in CO2 is often much bigger base, the base being the community of all of our users, while the soda makers or often zero base, every year. I mean it’s a new number every year. So of course you get a bigger number [in soda maker volume growth]. You can compare it to golf balls and golf clubs."
“The focus is household penetration. Get that new user! And after you get the user, keep the user!! We call that loyalty or retention. With a great product, with reinforcement of the benefits. That’s it! We don´t need McKinsey or other…BCG…to give us a big manual for a million dollars to tell us what our strategy is. We know what it is and we´re very focused on it and it has not changed in six years. Our goal is to be a billion dollar company by 2016. They told me not to say…but I want do it earlier…so I´m not saying it.”
Every time I hear him talk, I like him more.
Do you mean optimistic in terms of the NOPAT multiple?
The aim of this analysis was to be as factual as possible and refrain from making subjective statements, be they optimistic or pessimistic.
The NOPAT multiple is the one thing where I actually had to be opinionated, the rest is simply fundamental analysis.
Hi Sergio,
Thanks for the comment.
I actually do not foresee anything. This analysis is backwards looking and focuses on how efficiently management has been deploying capital in the last 3 years.
Did you mean a arithmetic progression instead of mathematical progression? A geometrical progression is a mathematical progression, so I´m not sure I follow. I would think that by looking at rates of return on invested capital over time that it would correspond to a geometrical progression of operating income (and therefore revenues as well).
I´m simply using the numbers stated in the notes to the 2012 financial statements.
Hi Mark,
You´re right. That would be interesting. I´ll see if I can get around to update it tomorrow.
Thanks Seth,
I think you are referring to the 12 month attrition rate of 30%, right? And that 80% of active users are using it at least once a week? I would think that it corresponds with the 40% in 3 years.
So how are you modelling attrition/user rates and # of active users? Would you agree that gas refill volume is a better proxy for active users than soda maker sales of a period of years (3-5)
Regarding the retailers adapting addition CO2. It also does not seem to be in the interest of the retailer to sell cheaper CO2 refills as consumption would not increase accordingly, thus lowering the profit for the retailer himself.
Hi BG,
The numbers are international and these are volume numbers. Please note that the first graph shows the change in volume from quarter to quarter.
You are right to assume that household penetration in the US is very low compared to more mature markets, such as the Scandinavian countries and Switzerland.
I don´t think that the self-carbonation market is a fad.
The article is missing two charts, which can be found here:
What I think is lacking in this discussion is a distinction between real-time streaming and faster-than-real-time distribution. Delivery of pre-produced content is different from the delivery of live content.
No, him being wealthy does not make the statement any less valid. Lottery tickets have negative expected value, the more often you play the more certainly you will lose out. Thats why he thinks its stupid, because its a bad bet to make. He did not get rich by buying lottery tickets.
Thank you very much for the write-up, great quality.
I have been long for some time now and you provided me with valuable information (details on HappyWater and the LCFs, that I was unaware of).
I have been waiting for an exit point, but am unwilling to sell below $5, especially with the improvements in balance sheet and cash flow that we have seen in last quarters (at least before the most recent one).
Thats exactly how I have been framing the thesis for SWY.
Hi Ben,
After +50 comments on the incompetence of the RSH management, I think I got your point.
From a capital allocation perspective they do seem to have made many mistakes (which should be their specialty). It will be interesting to see how they handle the debt repayment coming up in 2013.
I´m not disagreeing that RSH is a POS.
My point is that the article does not provide any analysis or information that I could not have gotten by visiting yahoo finance for 15 minutes.
"Dilapidating year over year earnings surely signal some trouble for the electronic retailer. At the rapid pace that earnings are declining, RadioShack will burn through precious cash as quickly as it was earned."
Did you bother to check up on free cash flow or lease obligations?
"No, it's not that RadioShack is selling some useless product. So then what's the problem? The ability to sell the product. That's one problem. RadioShack faces intense competition from the likes of Inc. (AMZN), eBay Inc. (EBAY) and even retailers like Target Corp. (TGT) and Costco Wholesale Corp. (COST)."
Well, RadioShack is actually selling its products on Amazon: has a storefront on eBay:
...and is operating the Target Mobile stores:
Come to think of it, was there anything in your article that has not been said before?
Thank you Jae for a very informative and balanced article.
Also: in 2011 Adidas payed 31,2% of its retained earnings out in dividends.
Just to put things into perspective:
- Adidas Group revenue is about €12b.
- The adidas brand counts for about €9b. of those revenues.
- The USA basketball shoes and clothing market size is about $2.8 billion for shoes and $1.1 billion annually for apparel. (see
So the influence of D.Rose and Dwight aren´t that propelling to the adidas group total profits.
What´s your take on the move into apparel? They might benefit from being able to leverage their relationships with current retail clients, but to me it is a totally different market, with less specialization and a much wider range of competition.
Your right, my bad. Thanks for the correction.
Nice article. Brand is very strong and I like the NOL´s but I´m a bit concerned with them raising equity at $7.15, which is below book value.
Nice find. Thanks for the article.
Lets say that the Barnard litigation charge stands and Cybex is forced to file for Chapter 11, where would Barnard stand as a claimant?