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#14: Earnings Continued, Flow State, Coinbase, Housel & Sequoia's 2005 Investment Memo on YouTube
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#14: Earnings Continued, Flow State, Coinbase, Housel & Sequoia's 2005 Investment Memo on YouTube

$TTD $PYPL $COIN $U

MazwoodCap
Nov 12, 2021
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I’ve been reading about flow.

MC, of the newsletter “Flow State,” remembers Mihaly Csikszentmihalyi, “the Hungarian-American psychologist who developed the theory of psychological ‘flow.’” Csikszentmihalyi passed away three weeks ago at 87.

MC explains that:

In 1990, Csikszentmihalyi (pronounced cheek-sent-me-high) published Flow: The Psychology of Optimal Experience... The book is best known for its novel description of what it feels like to be in a flow state. A person in flow is blissfully immersed in a goldilocks activity: something not too hard but not too easy.

MC quotes Csikszentmihalyi, that flow is when:

One’s skills are adequate to cope with the challenges at hand, in a goal-directed, rule-bound action system that provides clear clues as to how well one is performing. Self-consciousness disappears, and the sense of time becomes distorted.

Flow is one of those things that might be hard to describe, but you know when you see it, or more specifically, when you’re in it.

Cutting ten positions three weeks ago has helped my flow.

Let’s cut the fat and focus on what matters.

Flow with me.


I want to take a moment and say a quick welcome to all our new subscribers! If you’re reading this but haven’t subscribed, please consider joining our curious and thoughtful corner of the internet here!


This Week:

Earnings Reactions

  1. The Trade Desk Soars

  2. What’s with Paypal?

  3. Still into Coinbase

  4. Unity to All Time Highs

Recommendations

  1. Bankless Interviews Brian Armstrong

  2. New Piece from Morgan Housel

  3. Sequoia Capital’s 2005 YouTube Investment Memo


1. The Trade Desk Soars

The Trade Desk kicked the week off, reporting earnings Monday morning.

Can I interest you in the returns since?

Yield Fanatic captured it best:

Twitter avatar for @Yield_FanaticYieldFanatic @Yield_Fanatic
$TTD
Looking Up In The Sky Checking The Weather GIF

November 9th 2021

8 Likes

But it’s not without volatility!

Twitter avatar for @plantmath1Plant @plantmath1
$TTD Last 5 Sessions -5.58% -5.36% +29.47% +9.40% -8.68% Crazy market.

November 11th 2021

5 Retweets153 Likes

Eugene with a killer thread:

Twitter avatar for @EugeneNg_VCapEugene Ng @EugeneNg_VCap
The Trade Desk $TTD 3Q21 Earnings 💪🏻 - Rev $301m +39% ↗️ - Adj EBITDA $123m +59% ↗️ margin 41%⭐️ +503bps ✅ - EBIT $80m +88% 🚀 margin 27% +692bps ✅ - NG Net Income $89m +42% ↗️ margin 30%⭐️ +66bps ✅ - OCF $215m -9% ↘️ margin 27% -1916bps ↘️ - Customer Retention >95% ➡️7Y 💪🏻

November 8th 2021

9 Retweets42 Likes

He finishes with:

Final Thoughts on The Trade Desk: Rare combination of a disruptor, top dog with strong management combined with rapid growth, innovation, scale, profitability and vision that continues to execute well. Remains a core and very high conviction position.

Max as well:

Twitter avatar for @MaxTheComradeMax Bosenko @MaxTheComrade
$TTD reported stellar Q3 2021 earnings earlier this week. I am just now getting to the management’s call and wanted to share some of the highlights that particularly stood out to me 👇 Jeff Green is a true visionary and is one of the most forward looking leaders of our time.
Image

November 11th 2021

5 Retweets29 Likes

I’ve spoken about The Trade Desk in a few different places. I covered initiating a position here and wrote an Oral History here.

And here’s what I said when I bought shares for the first time four years ago. (Split-adjusted, the first shares have a cost basis of $5.15.)

Pretty good.

In total, here are my tranches:

Lesson: Don’t fall asleep at the wheel for three years.


2. What’s with Paypal?

Paypal is a gnarly run, going through its largest drawdown ever.

I thought I was being savvy when it was “only” down 22% from highs when I bought a “bigger slug” three weeks ago.

Twitter avatar for @MazwoodCapMazwoodCap @MazwoodCap
Bought a little $ROKU $TTD $FB $SNAP and a bigger slug of $PYPL. Might not be done.

October 22nd 2021

1 Retweet22 Likes

Whoops.

Here are all my buys.

Nothing here is terrible (yet), but what’s going on?

John Street with a great thread on the quarter.

Twitter avatar for @JohnStCapitalJohn Street Capital @JohnStCapital
0/ Most notable out of $PYPL earnings is the partnership w/ $AMZN enabling you to use @Venmo on AMZN's checkout page (starting next year). -TPV of $310B +24% YoY -416M active accounts +13.3M NNA's (+15%) -55M NNAs expected in FY21 -$6.15B net revenues +13% -$1.29B FCF +20%
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November 8th 2021

29 Retweets159 Likes

There are reasons to be bullish.

Twitter avatar for @_SeanDavidSean D. Emory @_SeanDavid
PayPal: $PYPL "Buy Now, Pay Later TPV run rate now exceeds $8B annually and expanding to Spain and Italy in Q4-21". That's the size of Affirm and they arent even trying...
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November 8th 2021

28 Retweets199 Likes
Twitter avatar for @wolfofharcourtWolf of Harcourt Street @wolfofharcourt
$PYPL with a current Price/Sales ratio of ~10 is at its lowest valuation multiple since May 2020 Generated $1.29 billion of free cash flow in Q3 from revenue of $6.18 billion Added more shares

November 9th 2021

3 Retweets22 Likes
Twitter avatar for @LiviamCapitalLiviam Capital @LiviamCapital
$PYPL still a long way to go, don't really see anything here to merit a -12% reaction.
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November 9th 2021

33 Likes

But not without concerns.

Twitter avatar for @Frazier_CapFrazier Capital @Frazier_Cap
Why is everyone acting like $PYPL is screaming cheap here? Stop adjusting for SBC and apply a normal tax rate and it is trading at ~45x 2022 EPS even if you assume 20% growth + some operating leverage.

November 9th 2021

7 Retweets169 Likes

Is Paypal a best idea? Maybe. With StoneCo out, Paypal sits alongside Visa, Square and Coinbase in my fintech section of the portfolio.

Is that the right number of fintech? Too much? Not enough? I’m inclined to keep Paypal’s seat, but not confirmed.


3. Still into Coinbase

Coinbase got hit after hours, but very quickly rebounded.

I got into Coinbase in September after listening to the “The Scoop” podcast with Frank Chaparro. He hosted two big dogs from Coinbase to share the company’s vision: Brett Tejpaul, Head of Institutional Sales, and Greg Tusar, Head of Institutional Product.

I wrote about starting a position in Memo #9.

It’s had a nice little run since buying that first tranche on September 13th.

Here are each of my three tranches:

Some thoughtful analysis from a few of my internet peeps:

Of course, John Street again on anything fintech.

Twitter avatar for @JohnStCapitalJohn Street Capital @JohnStCapital
0/ Looking at $COIN 3Q21 earnings a few highlights: -Net Revenue of $1.23B +331% YoY / (39.3%) QoQ -Adj EBITDA of $618M +402% YoY / (46.3%) QoQ -Volume of $327B +627% YoY / (29.2%) QoQ -MTU 7.4M +252% YoY / (15.9%) QoQ -AuM $255B +608% YoY / +41.7% QoQ
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November 9th 2021

55 Retweets358 Likes

And Nick, Austin and David:

Twitter avatar for @crosswindcapNick Green @crosswindcap
2/ $COIN story is not $BTC and $ETH trading fees. $COIN is the trusted exchange for new assets, new buyers, and institutions who want to participate.

November 9th 2021

7 Likes
Twitter avatar for @LiebermanAustinAustin Lieberman @LiebermanAustin
Notes from the Call: Crypto users have doubled this year and growth is accelerating. This resembles the growth of the internet over the last 20 - 30 years. Focused on serving users with great products, customer service and app reliability, and meeting with/educating regulators.

November 9th 2021

5 Likes
Twitter avatar for @Marlin_CapitalDavid Marlin @Marlin_Capital
I can’t imagine selling $COIN because of the Qtr to Qtr changes in Crypto asset volatility that influence revenue. $COIN is not a Q to Q investment as mgmt said. Big picture, this is the stock I want to own in the Cryptoeconomy. #cryptocurrency #Bitcoin
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November 9th 2021

4 Retweets63 Likes

Maybe this is pricing bias (40% return in seven weeks can do that to you), but I’m very excited about Coinbase.


4. Unity to All Time Highs

By most accounts, Unity had a good quarter.

Twitter avatar for @MrBuysideMr. Buyside @MrBuyside
$U 📈Unity Results vs Consensus Revenue $286.3M vs Cons $266.5M - Create Solutions $83.7M vs Cons $76.7M - Operating Solutions $185.0M vs Cons $171.9M - Strategic Partnerships & Other $17.6M vs Cons $19.3M Adj GM 80.9% vs cons 79.3% Adj operating margin (4.2%) vs Cons (6.8%)

November 9th 2021

6 Retweets28 Likes

People are digging Unity right now!

Twitter avatar for @JoTrader4Jo Trader @JoTrader4
$U what a machine

November 10th 2021

27 Likes

It’s not just Jo. The market agrees! All time highs, and on a juicy run since those mid May lows.

Unity reports revenue in three segments: Create, Operate & Other.

In the simplest of terms, Create is where you build stuff. Operate is where you monetize what you’ve built.

Strategic Partnerships & Other—their Beyond Gaming—is a bucket I’ve been excited about.

Twitter avatar for @MazwoodCapMazwoodCap @MazwoodCap
Where is gets really interesting is BEYOND GAMING. "We continue to gain significant traction with customers/ brands in industries beyond gaming, including architecture, engineering and construction; automotive, transportation and manufacturing; and film, animation + cinematics."

February 8th 2021

1 Retweet6 Likes

But negative Y/Y growth. Huh?

In a Deep Dive on Unity, I wrote:

This is where Unity gets really interesting.

[Unity reports:]

“We continue to gain significant traction with customers and leading brands in industries beyond gaming, including architecture, engineering and construction; automotive, transportation and manufacturing; and film, animation and cinematics.”

Measured by 2019 revenue, Unity works with:

  • Eight of the top 10 architecture/design firms

  • Nine of the top 10 auto companies 

Maybe my Beyond Gaming thesis is wrong.

Daniel lays it out:

Twitter avatar for @Crussian17Fighting the Trend Capital @Crussian17
Other Rev (non gaming partnerships) Rev by Q: Q1 20: 16M Q2 20: 17M Q3 20: 18M Q4 20: 19M Q1 21: 18M Q2: 18.3M Did u know in q2 19 Other had 20M in rev? Clearly there has been very little if any traction here though it’s what’s touted as the major bull case for the stock

November 9th 2021

4 Likes

Plant tells me I am in fact wrong!

Twitter avatar for @plantmath1Plant @plantmath1
@Crussian17 Just for one perspective, Strategic Partnerships and Other is definitely not the bull case on $U. At least for me. This is mostly long term fixed-fee revenue from a few console companies to run Unity games. That is why it’s basically flat.

November 9th 2021

4 Likes

Still a compelling value proposition, no doubt.

Twitter avatar for @qcapital2020 Q-Cap  @qcapital2020
$U summary of analyst upgrades.
Image

November 10th 2021

2 Retweets48 Likes

But something I need to monitor.

Furthermore, here’s CEO John Riccitiello discussing Unity’s place in the Metaverse (h/t North Bluff Capital).

More than 50% of everything that is real-time 3D in the world, that new metaverse thesis, is built in Unity.

We’re the underlying toolset for creating the metaverse.

At the very least, Unity presents itself as a compelling Metaverse play.


1. Bankless Interviews Brian Armstrong

For those who want a bit more Coinbase, Co-Founder/CEO Brian Armstrong was interviewed by the Bankless guys this week.

Brian shares what led him to start Coinbase, how he thinks about the crypto ecosystem, and what the future could look like for his company. Great interview.

In the interview, Armstrong references Coinbase Cloud, a relatively new space where developers can start building. Think AWS for crypto.

Again, maybe this is recent pricing bias, but in Coinbase, I’ve got a thoughtful, Founder-led organization, disrupting global financial systems, with both consumer and institutional products. Let’s go, Brian!

Image

2. New Piece from Morgan Housel

Anytime a new Morgan Housel piece drops, it’s a must read.

On Wednesday, he published his latest piece, “Experts From A World That No Longer Exists.”

Morgan writes:

The biggest risk to an evolving system is that you become bogged down by experts from a world that no longer exists. The more evolution you have, the more you should expect that expertise has a shelf life.

He continues:

Marc Andreessen explained how this has worked in tech: “All of the ideas that people had in the 1990s were basically all correct. They were just early.” The infrastructure necessary to make most tech businesses work didn’t exist in the 1990s. But it does exist today. So almost every business plan that was mocked for being a ridiculous idea that failed is now, 20 years later, a viable industry.

Boy, things can change quickly.

For more Morgan Housel, I put together an “Unbook” Review of Morgan Housel's The Psychology of Money. I also loved his piece, “The Three Sides of Risk.”


3. Sequoia Capital’s 2005 YouTube Investment Memo

Sequoia Capital’s Roelof Botha was on Invest like the Best last week.

Twitter avatar for @patrick_oshagPatrick OShaughnessy @patrick_oshag
My conversation with @roelofbotha We discuss Sequoia’s recent change to a permanent capital structure and the lessons he’s learned across his investing and operating career. I loved our dive into company and founder attributes. Enjoy!
joincolossus.com/episodes/66371…
Image

November 5th 2021

37 Retweets226 Likes

In it, he shares that curiosity is the common DNA trait of great investors.

There are obviously a lot of attributes. You need analytical skills to be able to understand diligence. You need judgment of people. You need an intuition for where markets can go. You need imagination. If you go and read the YouTube memo, which is now in the public domain. It required imagination to back three people with a product that 9,000 people had registered for. That’s what YouTube was at the time we first invested, and I wrote the memo for it. So you need imagination. You need all those things. But the most important thing is curiosity.

He continues:

Are you interested in learning about new things? Are you interested in meeting new people? Are you interested in listening to their idea for a company and how they’re going to change the world? And if you lose that curiosity, then you become jaded. And then you should probably stop working as an investor.

Botha knows what he’s talking about. He was the first institutional money into YouTube! And authored the investment memo.

Well, since the internet is awesome, we can read it! Check it out here.

In it, Botha wrote:

The three entrepreneurs are scrappy and smart. They have built a very easy-to-use, fast growing service that taps several strong veins: user-generated content, online advertising, wide proliferation of inexpensive digital video capture devices, and continued broadband adoption.

He proposes:

Invest $1m in the seed stage, followed by a $4m Series A once specific milestones are met. Sequoia would own ~30% post Series A, with a pool of ~17%.

He recommends:

I first met with the company three weeks ago, and we are in pole position for the financing. Several VCs have been cold calling the company, and a few media companies have also approached YouTube. I’d like to give the company our decision on Monday.

I recommend that we proceed with the financing as proposed.

Amazing.

I recommend you have a killer weekend. Onward!



That’s it for Mazwood Memo #14. Thanks for sticking around!

We’ve written Deep Dives on DigitalOcean, Adyen, Snap, Okta, MercadoLibre, Lululemon, Veeva and Unity. And now Mazwood Memos!

Have a great weekend!

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Jamie Harpst
Nov 16, 2021

Well done as usual!

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