The Daily Update
Today: Snapchat, Best Buy and Amazon, Talent is fleeing broadcast TV, and How a 30 year old built a real estate empire.
My 1 Big Thing
It was reported earlier that Dan Loeb, the hedge fund manager of Third Point Capital has dumped his position in Snapchat(SNAP), after only owning the shares for one quarter and added a new position in Alibaba(BABA).
This seems odd to me. I believe he bills himself a value investor but he is selling what has been getting crushed and buying what has worked recently.
I don’t know how these two business will fair in the future nor his reason for these trades, but I can’t help but think that the hard thing to do would be the opposite. Buy Snapchat, which most people hate and sell Alibaba, which most people love.
I have written about Snapchat before and I keep coming back to this. I don’t know what the company will come up with in the future or if they will be a viable business 10 years from now.
However,
I believe the R/R favors owning the stock at these levels provided that your time frame is 5–10 years, not 1–2. I think the probability of the stock going to zero is low and I also think the probability of the company being as big as Facebook($495 billion)is also low.
If they only grow to 10% of Facebook that would put their mrkt cap at ~$49 billion, 3x from their current market cap of $15 billion. That seems reasonable to me.
If you wait for them to release a feature that Facebook can’t copy and it’s obvious to everyone, then you will be too late and forced to pay up.
I would rather own it now, knowing I’m ok with the downside if I am wrong and banking on the probability(whatever that is)that the company can compete in 5–10 years.
In my mind, this fits squarely into the non-consensus bucket.
Will I be right? Who knows. Time will tell.
The Retail Business
How Best Buy has survived Amazon.[LA Times]
From the article:
That appeals to customers such as Scott Vellman of Los Angeles, who bought the “Battlefield 1” video game for his Xbox One player at Best Buy’s store in Atwater Village last week after Best Buy matched its $50 price on Amazon.
“I bought it here [instead of online] because I didn’t want to wait for it to ship,” Vellman said.
2 Key Takeaways
1. One of the first moves the new CEO did was price match any item from an online competitor, especially Amazon. This took price off the table immediately.
We are impatient. Especially with games and new electronics that we are looking forward to playing with. We will usually opt for getting what we want NOW, all things being equal.
2. People still like to be educated about the products they buy, especially if they are expensive and confusing to use. Best Buy has invested heavily in employee education and training and it seems to be paying off.
For me, the last point(#2) is crucial for brick and mortar retailers to survive and remain competitive. You have to offer a superior experience than online, otherwise, why would we consumers bother coming at all.
For a retailer that did not invest in employees and their stores, look no further than Sears.
Media
Netflix signs Shonda Rhimes, creator of Scandal and Grey’s Anatomy.[WSJ].
From the article:
Other producers echo Ms. Rhimes’s desire to be free of the demands of broadcast television. David E. Kelley, whose broadcast resume includes the hits “The Practice” and “Ally McBeal,” has more recently produced for HBO and Amazon Prime and said he has no desire to go back to a broadcast or basic cable network.
Why this is important
We as consumers tend to follow the path of least resistance. Netflix, Amazon, and HBO has made watching content almost frictionless.
If the best creators head for these platforms, we will follow. The only programming I watch on a regular basis on broadcast TV is live sports.
As Axios reported last week:
“TV’s Sports Problem: Amazon, Facebook, and Google could soon challenge the networks for big-time sports. And they’ve got deep, deep pockets” — Barron’s cover story by Jack Hough:
How deep are their pockets?
By 2020, “Wall Street predicts, the big four TV networks and their parent companies — with their theme parks, movies, and other ventures — will generate a combined $30 billion in free cash flow. Alphabet, Facebook, and Amazon… more than $100 billion.”
If it comes down to just dollars, the TV networks are in big trouble.
Real Estate
How Nate Paul built his real estate empire before he was 30.[Forbes]
From the article:
“I was buying at the pit of the crisis,” he says. “In many of those deals, there was no other bidder.” As a result, Paul has operated almost exclusively in a low-interest-rate environment with steadily rising prices.
2 Key Takeaways
1. Timing matters, a lot. He was buying in the middle of the crisis. In my lifetime, there will likely never be a better time to buy real estate.
Of course, it is easy to say how great his timing was in hindsight. I remember the headlines from those years. You had to be a contrarian in the extreme to pull the trigger.
2. Where you buy, matters a lot. I live in Jackson, MS. I would guess that the returns from commercial real estate here have not matched the returns from Austin, where he started buying.
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Have a great day,
Caleb
