Sunday Finds + 3 Thoughts From Last Week
Shows on Procore and Leatt Corporation released this week
Welcome to Chit Chat Money’s Sunday Finds + 3 Thoughts From Last Week. In this newsletter you will find three topics I thought about last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.
Podcasts From Last Week:
Interview: Leatt Corporation With DeepSail Capital (Ticker: LEAT)
Investing Power Hour #34: Iger Is Back at Disney, October Retail Trends, Amazon Losses at Alexa
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1. Iger returns. Is this a good or bad thing?
These sections are going to be short because of the holiday weekend.
As many of you reading this will know, Bob Iger is back for a second stint as the CEO at Disney. This is after a two-year absence where Bob Chapek took over from early 2020 until now.
At first thought, this feels like great news for Disney. Iger was the person who made some fantastic acquisitions (the big 3: Pixar, Marvel, and Star Wars). He also seemed to do quite well with the theme parks, although honestly how hard can that business be to run.
However, I don’t think the Iger from 2015 - 2020 should inspire confidence in shareholders. He made some terrible mistakes, including the Fox acquisition, embracing China (that may have been before 2015 too), and being late to streaming video.
Iger also seems to have undermined Chapek to make himself look better, if we can believe recent reporting. What’s he going to do to make this business better? They are already in a tough spot with every business segment besides theme parks. What is Iger going to do to change things? It will be interesting to watch over the next few years.
2. Can Apple successfully pivot away from China?
The footage coming out of the city where Foxconn manufactures iPhones for Apple is not pretty. Workers seem to be upset, and it is plausible that it will only get worse with the Zero COVID policy still in place by Xi Jinping and the government.
It makes sense why we are seeing so many news stories about Apple trying to get its manufacturing base away from China. There are stories about bringing more manufacturing and assembly to India and Southeast Asia plus a new semiconductor partnership in Arizona (which is likely going to be with Taiwan Semiconductor).
The big question is: how many years will this take, and will they be able to do it? Also, what will the CCP’s reaction be if they lose such an important trade partner?
3. Evaluating Revenue per Employee
One metric I’ve overlooked when evaluating a potential investment is revenue per employee. This is a simple metric that is just calculated by taking annual revenue and dividing it by the total employees at the company.
It can be important to look at because we all know what the average salary is across the country (and you can look up the average salary in a foreign country), so you know what sort of sales need to be brought in per headcount in order to generate positive cash flow. Gross margins matter too, of course.
Here are some basic questions I look at when analyzing revenue per employee for a business:
What is Rev/employee vs. average salary? If it is below $200k, you can bet operating margins are quite low. If it is above $300k, it is likely operating margins are high.
How has rev/employee trended over the years? Has the company achieved operating leverage with its employees or not?
How does rev/employee look vs. competitors?
See you next week,
Brett
***Our fund, Arch Capital, may own securities discussed in this newsletter. Check our holdings page and read our full disclosure to learn more.***
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3 Good Reads
The Definitive Post on the FTX Scandal - Blockcrunch VIP
Below, I’ll share my account as an insider in the industry as to what led us to this point, which hopefully services as a cautionary tale for founders and investors for spotting future fraud. Most views are subjective and I have done my best to verify the veracity of each source and piece of “evidence”, but cannot guarantee 100% reliability as the event is still unfolding.
Forward to Poor Charlie’s Almanack - Li Lu
Twenty years ago, I came alone to the United States as a young student. I would never have guessed that I would later become a professional investor, nor did I foresee the fortuitous circumstances that led me to becoming acquainted with the contemporary investment guru, Mr. Charles T. Munger. In 2004, Mr. Munger became my investment partner and has since become my lifelong mentor and friend—an opportunity I would never have dared to dream about in the past.
A homebuyer must earn $107,281 to afford the $2,682 monthly mortgage payment on the typical U.S. home, up 45.6% from $73,668 a year ago. That’s due to mortgage rates that have more than doubled over the last 12 months, combined with persistently high home prices.
The average U.S. hourly wage grew by about 5% over that same period, and inflation is also cutting into would-be buyers’ budgets.
After remaining mostly unchanged for several years, the annual household income necessary to afford a monthly mortgage payment began climbing at the beginning of last year due to the pandemic homebuying boom and rapid rise in prices. Scroll to the end of this report for details on our methodology.
1 Good Listen
Nuclear Energy: Climate Friend or Foe? - Decouple
Mark Nelson, managing director of the Radiant Energy Group, debates Tobias Holle, an activist with Fridays for Future Germany, at the pavilion of the International Atomic Energy Agency at COP27 in Egypt. The question at hand: is nuclear power a climate friend or foe?