TIP808: Current Market Opportunities w/ Daniel Mahncke & Clay Finck

“It's bittersweet for me to also share that this is actually my last episode as a host here at The Investor's Podcast Network. I'd like to take the opportunity to thank everyone who has tuned in over the years and supported me in this journey. Without people like you listening, this incredible journey would not have been possible for me. It's somewhat surreal to have been a host for the past four and a half years as I was a huge fan of the show for many years prior to joining TIP, and I'll certainly continue to be a listener for many years to come.”

“It's essentially the Amazon playbook that Mellie is using here. Amazon looked unprofitable for decades before it finally decided to show its true earnings power. It seems to me like Mellie actually is doing the same thing. Nick Sleep, who most of our listeners will be familiar with, he talks a lot about this model of scaled economy shared. The firm has been investing in these items today to grow the business in the future so that free cash flow in the years to come will be meaningfully greater than it would be otherwise.”

“The new generation of robots will actually be able to do the entire process—we're talking picking and packaging as well. If you consider that Amazon employs over a million people in its warehouses globally, you can imagine how much they would save if they could automate most of that work. It's not only about the money you would save, it's also about the efficiency gains. Robots don't need breaks and they can work 24-7. They already store incoming inventory about 75% faster and reduce order processing time by up to 25%.”

“Andy Jassy shared in an internal all hands meeting that he expects AI will help fuel AWS to become a $600 billion business in 2036, which is double the previous estimate of how large they expected that business to become. That would imply that he essentially expects AWS to grow at a 15% CAGR over the next decade. It's also worth highlighting that AWS growth has been accelerating. As in the recent quarter, revenue grew 24% year over year.”

“The leading edge of tech is simply irrelevant in vertical market software. The assumption of tech guys and investors is that everyone would adopt new technology as soon as it is there, but everyone who has worked in the corporate world knows that's not the reality. If employees are used to a certain software or system, it can be way more efficient to stick with what works even though you might save a couple of bucks on implementing the new software. A rule of thumb is that something has to be 10 times better than what you use right now to actually change it.”

“Constellation has said previously that it's just difficult to go way beyond 100 acquisitions, which is currently what they average per year, without diluting the quality and still hitting the target returns of about 20 to 25%. So I do think it was a matter of time before we would see this strategic expansion. It's only natural for CSI to look for opportunities in the public market where valuations are much lower due to these AI-related fears. This comes with some risks that you didn't have in the private market where you buy a business outright.”

“They focus on so-called carve-outs, so often parts of larger companies. One of the advantages of carve-outs is that you don't have a lot of competition for those deals and the parent company is also often happy to get rid of that part of the business. The price that you have to pay is relatively lower compared to other parts of M&A that you could do. Another advantage is that there's lots of potential for improvements at the acquired companies because they have been neglected for a long time, which means there's a lot of potential to increase margins.”

“Hermès is really targeting the top 1%. You could probably argue it's the top 0.1% of the population. And that's the fastest growing segment of luxury buyers, growing at a CAGR of almost 10% per year, compared to only 1% for the aspirational buyers. And it's barely dependent on macroeconomics. It's almost impossible to replace a brand in this segment. I think the biggest risk is that a brand of Hermès' caliber is kind of losing its exclusivity by trying to sell more volume and then invite these aspirational buyers into the ecosystem.”