Speedwell Research's News Update and Weekly Recap
4 Business Updates, Balancing Humility & Confidence, Meta's 5 Opportunities, What CoStar's 50% S&M spend implies for Mature Margins
Welcome to Speedwell Research’s Newsletter. We write about business and investing. Our paid research product can be found at SpeedwellResearch.com. You can learn more about us here.
This is a weekly recap, where we summarize recent content you may have missed.
Table of Contents:
Speedwell Releases & Upcoming
Spotlight
Coverage Updates
Sharing Links
1. Speedwell Releases & Upcoming.
Research.
This week we released four 1Q25 business updates on CoStar Group, Evolution, Meta, and Airbnb.
The Synopsis Podcast.
We released a dialogue episode covering business updates on CoStar and Evolution! We discuss growth vs S&M and the recent board changes happening at CoStar, and what’s causing Evolution’s growth deceleration.
Upcoming.
Podcast
New Dialogue episode this week covering some business updates!
Research
Our next research report on AppFolio will be released this week! This is a very exciting time to learn more about them as 2024 was the first year of meaningful cash flow and their stock is down 15% YTD.
More business updates coming out this week on our covered companies!
Coverage
Coupang, Axon, Perimeter Solution, and Dream Finders Homes report 1Q25 earnings next week.
Become a Speedwell Member today to get access to all of our research updates and our in-depth research reports!
2. Spotlight.
Below are select quotes from our various writings and podcast.
Dialogue: CoStar and Evolution 1Q25 Update, Negative EU Growth, S&M at 50% of Revenues.
The Balance of Humility & Confidence: “Investing is trying to find that balance between humility and confidence… it’s a constant learning game, which is what makes this really fun.”
Andy Florence Gets a Baby Sitter?: “This sort of board change came in conjunction with a ‘support agreement’ with DE Shaw and Third Point... I do pause at the fact that they’re calling it a Capital Allocation Committee. That brings into question whether Andy Florence will continue to run the company as he wants.”
Bad Regulation Risk: “The real risk isn’t regulation—it’s bad regulation. Regulation that forces Evolution to offer a subpar product while competitors ignore the rules and fly under the radar.”
Bad Regulation Decreases Channelization: “Channelization is a fancy word for ‘how many players are using legal options.’ And when regulation is bad, that number drops.”
Evolution 1Q25 Business Update: Revenue Softness Transitory?
Self-Inflicted or Broken Business Model?: “Key to any Evolution thesis today is whether the recent revenue growth softness is indeed self-inflicted and transitory, or a signal of a broader and more pernicious weakness in their business model or their end markets.”
Unfair Competition: “While Evolution might have the best games and competitive position, if a market is poorly regulated, competitors will get a clear leg up on them because they can offer games to operators who do not have to abide by regulations or taxes.”
The Secular Trend of Online Gambling: “It seems very likely more is spent gambling in the future than today as the world generally becomes more affluent overtime, the global population grows, and access increases… so if you believe that the market is going to grow, internet gaming penetration will grow too, and Evolution is the leader in the category, how do they not continue to be much bigger in the future than today?”
The Question Every Evolution Investor Needs to Ask: “So the question isn’t necessarily whether Evolution will return to strong double digit growth in the future, but whether you are confident they will not continue to contract.”
Read the Evolution 1Q25 Business Update here
CoStar Group 1Q25 Business Update: Reaccelerated Growth, But Elevated S&M Remains.
New Client Acquisition Driving Growth: “They typically don’t take pricing in soft macro environments, signally that they could take price on their CoStar Suite once the environment improves. This commentary together with their disclosure that they had the best quarter ever of net new bookings (+116% y/y) suggest that most growth has been driven by new client acquisition.”
“Capital Allocation” Comittee: “When they refreshed the board of directors at the beginning of April and formed a ‘Capital Allocation’ committee that perhaps investors were expecting expenses to be tapered. However, that most certainly did not happen and there was no indication they will curtail marketing investments in Homes.com or slow growth investments elsewhere.”
Homes.com Progress: “The most telling on their progress with Homes.com is that they noted unaided brand awareness increased from 4% to 36%. Zilliw right now sits at 60% and they full intent to keep spending until they reach or exceed them.”
Is High S&M Spend Here to Stay?: “Key to a CoStar investment thesis is how much of this spend is growth marketing that once successful, will permanently raise their top of mind brand awareness, versus maintenance marketing that will require on-going upkeep.”
Read the CoStar Group 1Q25 Business Update here
Meta1Q25 Business Update: No Problems Here.
Meta’s 5 Opportunities: “The massive amount of compute is driving their AI research, which Mark Zuckerberg sees benefiting them in 5 ways: 1) improved advertising, 2) more engaging experiences, 3) business messaging, 4) Meta AI, and 5) AI devices.”
You Think You Know Your Audience: “Advertisers may say they want a specific audience, but Meta knows better than them who their real audience is.”
Margin Compression Headwind Offsetting?: “Capex is now running at 3.3x D&A, which suggests a margin compression headwind in the future as their structurally higher base of PPE phasing in overtime. Offsetting the potential margin headwind from higher D&A is that fact that the capex spend is improving engagement, ad targeting, and ad attribution.”
AR/VR Call Option: “While we still tend to think of their AR/VR efforts as a call option, it should be noted that their Meta Ray Ban glasses have 4x’ed monthly users y/y.”
How Much Growth Capex Does Meta Need?: “The ultimate question being wrestled with here is how much growth versus maintenance capex. While it seems likely that D&A understates their capex needs, it seems unlikely that they will run capex at almost 40% of revenues indefinitely.”
Read the Meta 1Q25 Business Update here
ABNB 1Q25 Business Update:
Improving Consistency: “Brian Chesky loves to note that there are 9 hotel stays for every Airbnb stay and they only need to get one more of those nights to double in size. Key to getting there is offering improved consistency. They have started to address this with “guest favorites”, which have higher customer satisfaction and fewer surprises.”
Iterating to Improve the Airbnb Value Prop: “They are very good at taking customer feedback and reiterating their products, which overtime doesn’t just result in a markedly better consumer experience, but also improves conversion.”
Travel to U.S. Diverted Elsewhere: “Although foreign travel to the U.S. is a small portion of their business, which they estimate at 2-3% of their total bookings. They also noted that the “forgone travel” to the U.S. seems to have been diverted elsewhere.”
Airbnb Sees No Slowdown: “While many would seem to believe this would drive even softer results for 2Q, given that travel is generally a discretionary, non-essential good and tends to be pulled back on first in economic slowdowns, Airbnb’s guide does not imply a further slowdown.”
Read the Airbnb Q125 Business Update here.
3. Coverage Updates.
Evolution
Evolution reported 1Q25 earnings.
Revenue growth decelerated to +4% y/y.
EBITDA -1% y/y, but guidance was maintained.
Ring-fencing and Asia cyber attacks weigh on results.
Each geography segment showed weakness.
For more insights into Evolution’s earnings, read our Evolution 1Q25 Business Update here.
CoStar Group
CoStar Group reported 1Q25 earnings.
Total Revenues grew 12% y/y
CoStar grew 6% y/y.
Multi-Family (Apartsment.com) grew 11% y/y
Residential (Homes.com) grew 46% y/y
S&M spned still high at 50% of revenues whive drove to an EBIT loss of $43mn.
For more insights into CoStar’s earnings, read our CoStar Group 1Q25 Business Update here.
Etsy
Etsy reported 1Q25 earnings.
Revenue grew 0.8% y/y to $651mn.
GMS fell 6.5% to $2.8bn.
Active buyers fell 3.4% y/y to 88.5mn.
Number of habitual buyers fell 11% y/y to 6.2mn.
Divestment of Reverb for $105mn was announced to focus resources on Etsy and Depop.
Depop saw its best GMS since acquistion.
Airbnb
Airbnb reported 1Q25 earnings.
Revenue grew 6% y/y of $2.27bn.
GBV grew 7% y/y to $24.5bn.
Nights & Experience booked grew 8% y/y.
ADR fell 1% y/y to $171.
Announced global rollout of total price display.
For more insights into Airbnb’s earnings, read our Airbnb 1Q25 Business Update here.
Floor & Decor
Floor & Decor reported 1Q25 earnings.
Revenue grew 5.5% y/y to $1.16bn.
4 new warehouse-format stores were opened in the first quarter, with plans to open 20 more during the year. This is reduced from their intial target of 25 stores.
Created a “Tariff Steering Committee”.
Management highlighted their sourcing diversification strategy that is projected to reduce reliance on China from 18% to mid-to-low single digits by the end of the year.
APi Group
APG reported 1Q25 earnings.
Revenue grew 7.5% y/y to $1.72bn.
Safety Services segment saw organic growth of 5.6% with inspection revenue in North America growing double digits for the 19th consecutive quarter.
Repurchased $75mn of stock and authorized a new $1bn share repurchase program.
Meta
Meta reported 1Q25 earnings.
Revenue grew 16% y/y to $42.3bn
Operating income grew 27% y/y to $17.5bn.
Family of Apps margin at 52%.
Family of Apps other revenue grew 34% y/y to $510mn driven by business messaging growth from WhatsApp and Meta Verified subscriptions.
For more insights into Meta’s earnings, read our Meta 1Q25 business update here.
4. Sharing Links.
A Letter a Day: Warren Buffett Anthology-Lessons from Warren Buffett on his mentors, Charlie, portfolio company leaders, business partners, and family (link)
Aswath Damodaran on The Greed and Fear Tango (link)
Michael Mauboussin on the Opportunities and Limits of Pattern Recognition (link)
And a special thank you to Matthew Harbaugh for helping put this weekly recap together!
The Synopsis Podcast.
Follow our Podcast below. We have four episode formats: “company” episodes that breakdown in-depth each business we write a report on, “dialogue” episodes that cover various business and investing topics, “article” episodes where we read our weekly memos, and “interviews”.
Speedwell Research Reports.
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