Thread on Newly listed loss making Unicorns
@RajeevThakkar Sir on the recent FoF meeting at @PPFAS has shared his learning on recently listed IPO's
Key highlights and our Inputs
Thread
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@RajeevThakkar Sir on the recent FoF meeting at @PPFAS has shared his learning on recently listed IPO's
Key highlights and our Inputs
Thread
π§΅π
Most of loss making IPO, after their debut has shown huge wealth destruction. Investors post correction are now skeptical on how to take these companies in their portfolio.
Whether to hold or average down the share?
Whether to make new investment?
How to Value these Business?
Whether to hold or average down the share?
Whether to make new investment?
How to Value these Business?
Valuing New Age Tech IPO:
Old School Thought will think of it better avoiding, as these companies are already loss making with poor financials & near term future doesn't looks to be changing
However these industry is sort of a Big Pond, with few of the Big Fish alive in future.
Old School Thought will think of it better avoiding, as these companies are already loss making with poor financials & near term future doesn't looks to be changing
However these industry is sort of a Big Pond, with few of the Big Fish alive in future.
Few Risk to Accept:
1. Not All Losses are Bad....
βMr Buffett in 1999 letter mentioned about GEICO, where Cost of Acquiring Customers was 250$ for company.
However from Year 2 cash flow per customer turns out to be +150$, which makes future annuity in favour.
1. Not All Losses are Bad....
βMr Buffett in 1999 letter mentioned about GEICO, where Cost of Acquiring Customers was 250$ for company.
However from Year 2 cash flow per customer turns out to be +150$, which makes future annuity in favour.
2. Disruption Takes Time:
Losses may continue for few years, however post disruption company may enjoy long term benefits.
3. Hidden Mega Trend:
IT companies which survived 2001 IT Bubble Burst got the huge market with few competitors & innovation led to mega trend(Eg. Google)
Losses may continue for few years, however post disruption company may enjoy long term benefits.
3. Hidden Mega Trend:
IT companies which survived 2001 IT Bubble Burst got the huge market with few competitors & innovation led to mega trend(Eg. Google)
4. Short term Customer Acquisition Cost may turns out to be Life Time Value for the company.
5. Operating leverage turns out to be best for the industry in future. This may lead to quick profits, until customer are ready to pay for the price.
5. Operating leverage turns out to be best for the industry in future. This may lead to quick profits, until customer are ready to pay for the price.
6. Industry is Blitzscaling: Winner Takes All
For such business, investor has to stay in with company. The risk associated is very high, as the tenure of success and external factors are un-defined.
Business can be successful in short timeframe with proper execution(e.g. Jio)
For such business, investor has to stay in with company. The risk associated is very high, as the tenure of success and external factors are un-defined.
Business can be successful in short timeframe with proper execution(e.g. Jio)
Pain Points to Keep in Mind:
With huge growth, many of these loss making IPO, turns out to be wealth destructor. Hence with data facts & fancy story telling one has to be aware of "Walk The Talk"
Recent Wealth Destruction:
With huge growth, many of these loss making IPO, turns out to be wealth destructor. Hence with data facts & fancy story telling one has to be aware of "Walk The Talk"
Recent Wealth Destruction:
1. Low Base Rate:
From Past, these industry often look as big pond with 1-2 Big Fish. Winners are few, however the winners turns out to be biggest wealth creator of all time. However winning cost is very high, as few companies will be dead.
From Past, these industry often look as big pond with 1-2 Big Fish. Winners are few, however the winners turns out to be biggest wealth creator of all time. However winning cost is very high, as few companies will be dead.
2. First Mover brings many competition:
It's not always true that every innovation may succeed. Eventually every innovation brings competition & there are chances that competitors grabs the entire market share and innovator leads to nothing.
It's not always true that every innovation may succeed. Eventually every innovation brings competition & there are chances that competitors grabs the entire market share and innovator leads to nothing.
3. Understanding What is disruptive & What is not ? Whether the disruption will lead to positive cash flow.
Eg. Zomato which has change the trend of ordering food, however company is still lagging to charge its customer enough to pay its own expenses.
Spotify, Netflix etc
Eg. Zomato which has change the trend of ordering food, however company is still lagging to charge its customer enough to pay its own expenses.
Spotify, Netflix etc
4. Era of Free Money is over, with tightening of interest rate & increasing inflation.
5. What will happen to volume when subsidy goes away? (Classis example of increase in Jio subscriber, when Jio gave free data)
However now people are only upto 1 sim when the prices are high.
5. What will happen to volume when subsidy goes away? (Classis example of increase in Jio subscriber, when Jio gave free data)
However now people are only upto 1 sim when the prices are high.
6. Sometime Incumbents enter your space & destroy innovators. (Eg. Grofers service is now even provided by D-Mart with edge of supplying same products at higher discount).
7. No Skin in The Game:
With multiple rounds of funding, founder itself have minimalist stake in the co.
7. No Skin in The Game:
With multiple rounds of funding, founder itself have minimalist stake in the co.
8. Unusual dilution makes shareholdersβ investment scary:
As with every dilution shareholder has timely allocate fund to the business, which makes Equity Investor investing as Venture Capital Investing.
As with every dilution shareholder has timely allocate fund to the business, which makes Equity Investor investing as Venture Capital Investing.
What one can probably do?
1. With low base rate, probability of winning is few. Hence allocate in small amount in different company.
"Play VC / PE model, when it comes to investing in new tech companies."
2. Pay-less weightage to Optionalities
3. Stay away from Story Telling
1. With low base rate, probability of winning is few. Hence allocate in small amount in different company.
"Play VC / PE model, when it comes to investing in new tech companies."
2. Pay-less weightage to Optionalities
3. Stay away from Story Telling
4. Continuous Innovation should now break the focus. Entering multiple sector should not led mess in the business.
End of Thread
You can refer entire video here
youtube.com
End of Thread
You can refer entire video here
youtube.com
You can also read our detail post on Zomato business and one can have a valuation perspective on such business.
thetycoonmindset.com
thetycoonmindset.com
Snowman Logistics is another such example which is working on thin margin business and is not profitable since many years.
Here is our detail research on understanding such business.
thetycoonmindset.com
Here is our detail research on understanding such business.
thetycoonmindset.com
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