Structure of 3 write-ups on VIC that turned out well (Amazon in 2011, Trade Desk in 2017 and Carvana in 2018).

The 2011 AMZN one is probably top 5 in write-ups I've ever read, 2018 CVNA also excellent)

Amazon 2011: https://www.valueinvestorsclub.com/idea/AMAZON.COM_INC/7050878658

Executive summary: explain that there is a misunderstanding due to Amazon short-term earnings for long-term FCF & competitive advantage. Also macro: well-positioned to take advantage of global internet growth and migration of retail sales

to the internet. Paints a picture of 10 years from now: one of the most valuable companies in the world, leading online retailer.

Core: directly gets into the valuation misunderstanding (AMZN was trading at 95x earnings): shouldn’t look at this on a P/E basis. Because they take

profits and give customers low prices through them, allowing massive efficiencies at scale (large fixed costs spread on a large case).

And the writer uses different quotes from Bezos to support this argument. Comparison of the desire to save customers money to Costco’s biz.

FCF > NI consistently, so need to look beyond earnings.

Amazon and Bezos’ history; how he founded the company and did contrarian things early (ex: allowing customer reviews).

Transitions to the present: Amazon the largest online retailer by a wide margin and grows its

selection every year. Also a leader in computing services and continues its innovation (1-click shopping, Prime, Marketplace, etc). The goal of all these inventions was to improve customer experience and the competitive advantage of the business.

Massive tailwinds: internet users increasing, and despite price deflation of hardware products, internet retail has large efficiencies of scale, which act as a barrier. Global ecommerce as % of total retail, and Amazon’s share of e-commerce spending is constantly increasing.

Amazon’s moat: large distribution infrastructure took years to build. Internet retail has advantages like cost, selection, convenience, and availability advantages. Comparison to Best Buy, which has more employees and rent expense, but AMZN can carry 10x more inventory and turns

over inventory quicker. This section wasn’t that strong, but that’s normal – AMZN’s ‘’moat’’ wasn’t as alive back then.

Section on customer obsession, with Amazon’s NPS compared to competitors.

Section on valuation, using 2015 street consensus FCF. Also estimated % of retail

sales that would be online, the share Amazon would have, and margins at maturity. He estimated Amazon would do 10B$ in 2021 (they did 17B$ for the LTM), but still a solid guess. Also addressed optionality in AMZN’s valuation, mostly through AWS.

Risks: change in sales law tax (funny, that’s a tailwind for AVLR now), competition, etc.

Catalysts: growth of the internet and ecommerce globally, domination of those markets by Amazon and widening of the moat, continued innovation by the company, FCF growth.

Trade Desk 2017: https://www.valueinvestorsclub.com/idea/TRADE_DESK_INC/8657368735

Description of the business (using software to automate manual process and real-time auctions of ad inventory), taking a share of gross ad spend on their platform.

Background on DSPs: there are several such Demand Side Platforms,

but TTD is the largest, and there economies of scale, thanks to 1) exclusivity of inventory and 2) access to data, but no real differentiation between the top 5 biggest DSPs.

TAM: 1) growth in programmatic spend, 2) programmatic ad spend increasing vs the walled gardens

Competition with other omnichannel DSPs: better customer service, lower prices, ensuing high customer retention, switching costs (different functionalities, onboarding a new DSP is difficult, barrier to entry: scale necessary to monitor all inventory available).

Risks: incumbents may cut take rates, competition from a TTD clone, consolidation of media spend on DSPs, TTD sells to ad agencies, who are losing share to companies doing ads in-house.

Valuation: cheap on metrics at 20x ebitda and high growth).

While the stock has worked out very well, I don’t think this was a well-written write-up. Could have cut some of the fluff around description of the business, and went deeper into advantages at scale of a DSP (it’s a marketplace!), into quality of customer service and how much

customers love the product, dedication to low prices, switching costs, instead of only 1 sentence on each of these. Maybe also a short part on Jeff Green, who’s brilliant.

Carvana 2018 https://www.valueinvestorsclub.com/idea/CARVANA_CO_CVNA/0905783932

Description: gets directly to the problem: buying a used car is a horrible experience (fragmented, time-intensive, expensive). Carmax did well by being more customer-friendly and having a more professional & standardized experience.

Then he goes into CVNA. They’re misunderstood (80% of float is sold short), and explains what they do (buy a car, with financing in 10 minutes and have it delivered to your door the enxt day, 7 day return policy), and compares to Zappos, a disruptor in another category no

one thought could be online.

Market thinks no one will buy a car online, but by providing very low prices, wider selection and simpler experiences, customer reviews are great (4.8/5).

But how could they do this profitably? They saw an opportunity to serve this large,

fragmented and dissatisfied market, but with a different cost structure (more centralized by having centralized inventory and logistics networks), so their PP&E/unit is falling, and lower than Carmax.

CVNA has massive operating leverage & there is a deep-dive into unit

economics: we can’t compare KMX to CVNA based on cost structure/asset. Gross Profit per Unit increased a lot, and will continue being better as their inventory days go down (from 100 to 45 like KMX, since CVNA can sell cars across the US, but KMX can only sell to local markets).

Valuation: models out I/S till the gross profit and puts a multiple on it.

Market looks at CVNA like a retailer, but they are an online marketplace (similar misconception as early Amazon being compared to a physical retailer).

Catalysts: unit growth, continued progress on GPU and short covering.

The common threads along the good write-ups seem to be: identifying what’s special/misunderstood about the company and going deep into them, ex: no need to do a deep-dive into ROIC in every write-up

These were also all misunderstood business models, and the author, like a good journalist, turned readers’ head in a different direction. The market turned its head in a similar direction over time.

could it be that the best write-ups are a collection of secrets woven together with 1 thread (why is this company great and worth buying)?