Sunday Finds + 3 Thoughts From Last Week
Podcasts episodes on MarketAxess and FICO 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.
Chit Chat Money Podcasts From Last Week:
Interview: Fair Isaac Corporation With Buyback Capital (Ticker: FICO)
Investing Power Hour #46: Earnings Roundup; Munger Off the Cuff; Housing Update
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1. If your goal was for capital to flow out of China…
The Chinese business environment seems pleasant right now:
The sudden disappearance of one of China’s most influential financiers, Bao Fan, is unnerving the country’s business elite and raising fresh doubts about whether President Xi Jinping’s crackdown on the private sector has run its course. While there’s no indication that Bao — chairman of China Renaissance Holdings — has become a target of regulators, the investment bank said late Thursday it had lost contact with him. Bao is privy to information related to the country’s biggest entrepreneurs, advising giants including Alibaba and Tencent.
According to the thread I linked to below, Fan was the preeminent banker for the Chinese information technology sector, with huge connections to Alibaba, Tencent, and the like.
I have no idea why he was disappeared, but this feels exactly like the Jack Ma situation when he fell off the grid and then was “forced to retire” by the CCP. Hey, I guess it isn’t Russia where important people keep “mysteriously” falling out of high-rise buildings!
On a serious note, these developments cannot be good for capital flows into China. If I was a foreign investor in charge of a Chinese fund at Sequoia Capital or Blackstone, these decisions from the CCP would scare me to no end.
And if I was a wealthy businessperson in China? Well, we already know how that story plays out: you keep buying real estate in Canada, the United States, and Europe as a contingency plan for your family.
All this cannot be good for capital flows into China. With one of the most rapidly aging populations in the history of civilization that relies on foreign sources to provide basic needs for its citizens, the 2020s could be a rough decade for the nation.
2. How impactful is the student loan moratorium on inflation? Will they just end up being forgiven?
This popped up on my timeline this week:
I’m sure many of you are like me (at least those without student loans) and forgot that this was still a thing. By definition, with savings rates in the gutter and credit card debt soaring, I think the pause on student loan repayments has to be inflationary.
The big questions are:
How deflationary will it be if student loan payments get turned back on?
At this point, will student loan debt just be forgiven?
I have no idea what the government is going to do. But it seems like they need to make a decision at some point with the student loan market currently in a weird limbo state.
And if the economy starts running too hot again and employment/wage metrics look strong (which honestly seems to be happening right now) the government could pull the student loan lever to cool things down a bit.
3. Netflix is getting into sports rights
Alright, a prediction to close things out this week: Netflix will soon start buying sports rights.
This makes sense for a few reasons. One, they have now found multiple success stories in documentaries on Formula One, tennis, and golf.
Second, they are one of the only (maybe the only one outside of YouTube?) with a global scale where these sports rights make sense. I’m not sure the leagues would be up for it, but they could come over the top and offer someone like La Liga a global distribution deal at a higher price point than what the entire league is making from all its different rights deals today. Of course, there might be some politics that come into play, but it makes sense in theory.
I think it would work best with more niche sports like cricket, volleyball, tennis, and golf that have global audiences but are not as sought after by existing buyers.
By adding these on top of its existing content slate, I think sports rights could reduce churn at Netflix and increase its pricing power. If you are an avid golf fan — of which there are millions around the globe — you will not be canceling Netflix if that is the only place you can watch a lot of the big tournaments.
Just some food for thought. This will be a slow-moving development (they have to wait for existing contracts to end) but could be the next leap Netflix makes to further distance itself from the streaming competition.
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
Sonos: The Hardware Machine - Investor’s Perspective
Like Roku is an operating system (OS) for a smart TV, Sonos is an OS for a smart audio system. The competitive environment and economic model, however, differ between the two. Sonos has a virtual monopoly in wireless home audio and makes money from hardware. Roku has competition in smart TV OS and makes money from advertising.
Bing AI Can’t Be Trusted - DKB Blog
Now we’re comparing made up numbers.
The Lululemon data is about as accurate as the Gap data.
Lululemon’s gross margin is given as “58.7%”, which is a hallucinated value that doesn’t appear in their financial document. The real value is 55.9%.
Lululemon’s operating margin is 19%, not 20.7%.
Lululemon’s diluted earnings per share is $2.00 not $1.65.
Cash and cash equivalents is wrong for Gap (should be $679 million) but correct for Lululemon.
Inventory is wrong for Gap (should be $3.04 billion) but correct for Lululemon.
The Hershey Company - Top Corner Investing
When Milton S. Hershey returned back to his home state of Pennsylvania in 1886 after several failed business ventures, he had no idea he would end up laying the foundation of a confectionery business that would be thriving 100+ years later. Mr. Hershey had decided to focus on making chocolate after trying his luck as a candymaker and caramel manufacturer. By experimenting with chocolate bars and chocolate-covered caramels, Hershey finally made enough money to open his own factory after years of struggle. In 1903, Milton Hershey broke ground for the Hershey chocolate factory on Chocolate Avenue in Hershey, PA.
1 Good Podcast
Chip Brewer, CEO of Topgolf Callaway Brands - The World According to Boyar
The Interview Discusses:
How he turned around Callaway’s traditional business.
How “off course” golf is now larger than “on course” golf.
How Topgolf is increasing participation in traditional golf.
The economics behind a Topgolf location and why scale matters.
Why he does not believe a rising interest rate environment will impact the expansion of TopGolf.
How he had the confidence to “bet the company” and purchase Topgolf in 2020 (during the throes of Covid).
The significant opportunity they have with Toptracer.
His thoughts on the current valuation of Topgolf Callaway Brands.
Smart, Insightful, and Funny Tweets:
