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.

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This Week:

Earnings Reactions

The Trade Desk Soars
What’s with Paypal?
Still into Coinbase
Unity to All Time Highs

Recommendations

Bankless Interviews Brian Armstrong
New Piece from Morgan Housel
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:

YieldFanatic @Yield_Fanatic

$TTD

Looking Up In The Sky Checking The Weather GIF

But it’s not without volatility!

Plant @plantmath1

$TTD Last 5 Sessions -5.58% -5.36% +29.47% +9.40% -8.68% Crazy market.

Eugene with a killer thread:

Eugene 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 💪🏻

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:

Max 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.

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.

MazwoodCap @MazwoodCap

Bought a little $ROKU $TTD $FB $SNAP and a bigger slug of $PYPL. Might not be done.

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.

John 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%

There are reasons to be bullish.

Sean 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...

Wolf 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

Liviam Capital @LiviamCapital

$PYPL still a long way to go, don't really see anything here to merit a -12% reaction.

But not without concerns.

Frazier 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.

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.

John 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

And Nick, Austin and David:

Nick 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.

Austin 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.

David 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

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.

Mr. 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%)

People are digging Unity right now!

Jo Trader @JoTrader4

$U what a machine

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.

MazwoodCap @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."

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:

Fighting 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

Plant tells me I am in fact wrong!

Plant @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.

Still a compelling value proposition, no doubt.

 Q-Cap  @qcapital2020

$U summary of analyst upgrades.

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!

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.

Patrick 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…

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!

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

Have a great weekend!

#14: Earnings Continued, Flow State, Coinbas…

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