Sunday Finds + 3 Things I Thought About Last Week
Upstart and Allbirds
3 Things I Thought About Last Week:
At what valuation would you pay for ownership of the National Football League? I had this discussion (while slightly inebriated) with some friends. The scenario goes like this: The NFL consolidates into one company/stock instead of the individual team model it has right now. Everything else about the league stays the same. What price (market cap) would you pay for an ownership stake in this company? For reference, in 2019 it is estimated that the NFL generated $15 billion in revenue, up from around $6 billion in the early 2000s. I have no idea what the margin structure of the consolidated entity would be, but I would bet profits of $2 billion - $5 billion annually are in the right ballpark if the league was run with shareholders in mind instead of how it is currently run. And there is a clear path to growing annual profits, with the league just signing an 11 year deal with its TV partners worth $113 billion (slightly over $10 billion a year) that starts in 2023. Over the next decade, you could see annual sales hit $25 billion - $30 billion if sports gambling goes legal nationwide. With all these facts taken into consideration, I think I would buy “stock” in the NFL at a market cap of $250 billion. However, with all of its profits/sales basically guaranteed for a decade, if not longer, I would expect the stock to trade at a premium valuation (which it would deserve).
Can you spot the fraud at Enron? One of the “3 Good Reads” this week is a copy of the Enron 2000 Annual Report. I haven’t gotten a chance to read it yet, but I plan to with the idea of testing myself to see if I could spot the fraud/blackholes that were about to bring down the company. If you’re an investor, especially in faster-growing names with more obscure business models (i.e. not Starbucks), it might be a good idea to give it a read too. If I can spot the fraud and tell myself, while acting objectively as possible, that I would have seen the red flags in the business, then it will give me slightly more confidence in how I discern potential bullshit companies to avoid in this current cycle. If I can’t, well, then I think my confidence will move in the opposite direction.
Would you invest in Chinese companies at any price? Multiple stories came out this week affecting foreign investment into Chinese stocks. Didi is officially delisting from the NYSE, and there are rumors that all Chinese companies will do the same. We also saw Alibaba’s CFO announce their resignation, which isn’t as big of a deal but signals that change continues to be afoot with the large-cap companies in the country. Personally, I don’t understand how anyone from the west can rationalize investing in China. For one, you have minimal understanding of the culture, so even if business policies were predictable, it would still be tough waters to navigate. But on top of that, you have the Chinese Communist Party, which (last I checked) is a communist government! Run by a dictator! With a long history of pumping out frauds to the west! And yet, investors still seem to think it is a smart thing to do. If you are invested in Chinese companies, I am not rooting for you to lose money, and hope you do well. But in general, I think the risk/reward dynamics of Chinese stocks are quite poor.
See you next week,
Brett
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