- Dotdash, a business created by IAC from the remnants of About.com, is a very interesting business you probably haven’t heard about.
- It reaches 100m monthly users, is profitable ($40m of EBITDA) and growing.
- It is also unique event in digital media – a turnaround.
- “Our job is to make great content that loads quickly with relevant non-intrusive advertising,” he insists. “If we execute, the search results will be fine.” His critics call this naive, but Vogel is trying to build a billion-dollar publishing business, not a search colossus. He’s betting that Google will drive traffic to the best content.
Stocks
Interesting, and often contrarian, Snippets on individual companies and the stock market.
Fintechs Threat to Banks
- Interesting chart from Alphaville.
- This is analysis from the behaviour of 688,000 mobile banking users for 3 months of 2019.
- The x-axis shows the proportion of people who use each of the major banking apps at least once a month.
- The y-axis shows the proportion of those people that use that banking app exclusively.
- It suggests that high street banks not only have the highest share of mobile app usage, but also a far more loyal base of users.
- Lots of further interesting stats inside the article.
Softbank Continues to Invest
Value Factor
- Interesting piece by Cliff Asness of AQR on the value factor.
- Valuation of value stocks (the cheapest ones) are near historic levels against the most expensive stocks on several measures – suggesting now might be a good time to invest in this factor.
- This chart shows the price to book ratio of the expensive 30% of stocks divided by this ratio for the cheapest 30%, adjusted for industry.
- The spread is now in 97th %ile of the ex-tech bubble range.
Tech
- Fascinating read about one of the early backers of Silicon Valley.
- Roger McNamee first ran the T-Rowe Price Science and Tech Fund from 1989 and then co-founded private equity firm Silver Lake Partners.
- He has now turned a critic of big tech that he backed early on.
Tipping and Uber
Start-ups & Principal Risk
- Venture backed businesses are increasingly pivoting towards taking more principal risk and moving away from acting as brokers.
- Latest example is Leavy, an Airbnb copy-cat, who are guaranteeing payments for your apartment holiday rental upfront.
- The real estate sector has seen this already – with companies offering to buy your home directly.
- As is discussed here this type of model leads to better margins in good times, but is a lot riskier.
- It feels like late cycle behaviour.
Banks
- EU bank relative valuation is still below crisis levels.
- The banks are taking action by cutting costs.
- Banks are cutting 77,780 jobs this year the most since 2015.
- 82% of these cuts are originating from European banks with Deutsche bank topping the list with 18,000 through 2022.
Amazon
- Big read on Amazon from the New Yorker.
- Worth a read, as Amazon, now the second largest employer in the US, touches more and more companies.
- This chart shows the growing number of companies mentioning Amazon as a competitive threat in their annual report.
Fedex and ISM
- Fedex stock slightly leads/is coincident with the ISM composite.
- If you think ISM is heading up you should probably be buying Fedex.
- NB there are non-macroeconomic issues that one needs to consider.
Newspapers
- Media is a tough business.
- This article paints a clear picture of what is going on behind the scenes.
- All told, according to The Columbia Journalism Review, 3,385 journalists lost their jobs in the past 12 months. With some estimates double this figure.
- Considering there are only 37,000 people classed as reporters in the US these are huge numbers.
S&P vs Treasury Yield
- This chart suggests that relative to US Bonds equities are fairly priced.
- It correlates the S&P 500 P/E ratio vs. 10 Year Treasure Yield.
- Not a perfect correlation but a good guide.
Customer Value
- Really interesting model to calculate customer value.
- This essential tool is used to understand which bit of revenue comes from what customer cohort and combines four models of behaviour.
- Important reading for anyone analysing stocks but does require further disclosure (the customer cohort chart) from companies.
Financials
- S&P 500 Financials hit all-time high just once in the last 10 years.
- For reference the S&P 500 index has done so 236 times.
Invert, Always Invert
- Inversion is often a powerful thinking tool.
- One interesting idea from The Market Ear is to invert stock charts.
- This chart is Apple’s stock price inverted.
- The question to ask is – would you short more?
Amazon Logistics
- Amazon’s logistics investments are coming into their own.
- They employ 90,000 people and delivered 46% of amazon’s own packages in the latest datapoint.
- In 2019 they are on track to deliver 3.5bn packages – more than FedEx.
- Likely a big issue for parcel companies if they open up the network to non-AMZN volume.
Bank of Fintechs
- Interesting article about the bank fuelling lending focussed fintechs.
- They have been writing $1bn of new loans per month all sourced from 15 or so VC backed fintech start-ups.
- They effectively provide the regulatory infrastructure. Most loans are then sold off with a portion retained.
- Some choice quotes – “Our strategy is to be the only financial services provider to the fintech ecosystem globally,” Gade says excitedly. “Changing people’s lives is why we do this, before anything else.”… “The talk about a recession or a credit cycle that’s going to start going the other way is much ado about nothing.”
Direct Lending Revolution
- There is a big new trend in the world of finance – direct lending.
- Private equity firms are grabbing a slice of the leveraged lending market from the big wall street banks.
- It is leading to lots of competition – leveraged loan syndication fees are down 29%.
- Apollo think that private could gain as much as 10% share in the $2.5 trillion high yield loan and bond market in the next 5 years.
- This could be a function of higher bank risk weights eroding balance sheet advantage and huge fund raising capacity of private equity.
- Returns as well could be an explanation.
- The risks are clear as more and more lending is slipping into less regulated corners of the financial markets.
Internal Correlation of S&P
- The correlation between the components of the S&P 500 index is back to the high correlation zone.
- This suggests that stocks are moving in unison and is a difficult environment for active management.
HSBC
- Moody’s downgrades HSBC rating to negative outlook.
- Credit rating is the key cost of goods sold variable for banks so this should be monitored carefully for any investors.
- “The negative outlook on HSBC Holdings’ ratings is driven by the execution risk attached to the planned repositioning of HSBC Bank and of the group’s US business“. These businesses are 34% of risk weighted assets. HSBC has been restructuring for nearly a decade.
- “and our expectation of subdued profitability in 2020 and 2021. It also reflects pressures on asset quality and profitability in Asia due to a more difficult operating environment in Hong Kong and the rest of the region“