Speedwell Weekly Recap & Coverage News
New APi Group Report, Founders vs. Operators, where DFH copies CSU, Distinguishing Signal from Noise, The Privilege of the Long-Term Investor
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, as well as notable news for our covered companies.
Table of Contents:
Speedwell Releases & Upcoming
Spotlight
Coverage Updates
Sharing Links
1. Speedwell Releases & Upcoming.
Research.
We released our highly anticipated 61-page extensive research report on APi Group (stock ticker NYSE: APG)!
This company is a leading provider in life safety and fire protection services. A large portion of their revenues come from statutorily mandated services that are mission critical and represent a relatively small portion of a customer’s overall operating expenses.
They are almost a 100 year old company, but have only recently gone public with the help of muli-billionaire and Co-Chairman Martin Franklin.
The Synopsis Podcast.
We posted a dialogue episode where we provided a business update on Dream Finders Homes and Floor & Decor. We talk about how DFH is seeing success despite a high interest rate environment and how Patrick Zalupski’s acquistion strategy has a slight resemblance to Constellation Software’s. We also discuss the differences between how founder operators run a business versus professional managers with Floor & Decor as an example.
Upcoming.
Podcast
We will release another dialogue business update covering Copart and CoStar
Research
Our next research report will be on AppFolio! This is the vertical market software company Constellation's Mark Leonard said he wanted to learn from in a recent AGM.
Coverage
No conferences this week from our coverage.
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.
Dream Finders Homes and Floor & Decor Dialogue
DFH success in High Interest Rate Environment: “When interest rates increase, people who are locked into their mortgage don’t want to sell their home because then they’d be trading a low interest rate mortgage for a higher interest rate mortgage so existing home sales kind of plummet and taking its place is new home sales.”
Why ROE > ROIC for DFH: “A homebuilder capitalizes the interest expense in the cost of goods sold, so that is weighing on gross margins…we actually do see they did have a bit of gross margin pressure and that was the result of financing cost essentially being just a little higher in this period.” “When you are building a home, you’re taking out a loan, the interest incurred on that loan is being capitalized and it’s actually being flowed through the cost of goods sold line item.”
Tariff Impact on DFH: “And to the extent that tariffs do hit and seem like they are likely to go through a lot of construction material, lumber, steel piping, all sorts of building material, that could definitely really be a hit to margins. And it seems unlikely they’ll be able to pass too much of that off or to the extent they are, it will probability weigh on volumes.”
Difference between founder operator and professional managers: “One of the reasons why you like a founder led business is because when crap does hit the fan, it does allow you to really charge forward and do what you want to do.”
FND Advertising Experiment: “The fact that they didn’t need it before, it makes you a little bit more comfortable because when someone is really enjoying the value prop of a business in the service and products they offer, then it tends to show up in the fact that there’s so much consumer surplus that people want to tell other people about.”
What is a Great Business?
Irreplaceable: “What we see with most great businesses is they are doing something for someone that somebody else couldn’t do. The best businesses have a service or product that cannot be replaced in a cost-effective manner.”
Great Businesses Fulfill More Preferences: “Now the difference between a mediocre and a great company is how many preferences they fulfill that consumers care about that a competitor couldn’t fulfill.”
Be Wary of Businesses That Fulfill Low Consumer Preferences: “Mediocre companies serve consumer preferences that are easily forgone or substitutable. Or they wastefully release the consumer surplus they may have had otherwise through mismanagement including poor service and inconsistent experience.”
Think Critically Rather Than Following a Prescription: “A prescription would have likely had you miss many great companies right up until the point it was nearly consensus they are great. That is not to say their rise was preordained, but rather that giving answers to a question instead of an understanding on how to answer that question would all but destine an investor to miss the next great company that doesn’t look like the last one.”
Practice, Practice, Practice: “The only way to be able to interpret novel environments is to have a deep understanding of what makes a great business, and much like becoming a great basketball player, it doesn’t just come from watching the tape. It’s in the practice.”
Read What is a Great Business? Memo here
If You Don't Know What Game You're Playing, You've Already Lost
Distinguish Signal From Noise: “The more specific of a prediction you make, the larger the room for error. This is most evident with stock movements on quarterly earnings… These large swings of market price could be an opportunity for a long-term investor who can parse out the difference between the signal and noise.”
Focus on Intrinsic Value: “The event-driven investor focuses on perceived value whereas the long-term investor focuses on intrinsic value.”
The Privilege of Being a Long-Term Investor: “An investor is in a privileged position for two reasons: 1) they do not have to invest in anything they do not have high confidence in, and 2) they only have to be certain of the lower range of their estimate’s confidence interval.”
Read If You Don’t Know What Game You’re Playing, You’ve Already Lost Memo here
3. Coverage Updates.
ABNB WSJ article: Airbnb Boosts Marketing and Hiring Ahead of Push Into New Businesses
Experiences Relaunch: “Ultimately, the goal would be things that you can do in your home city because they’re compelling, interesting and differentiated from other things that you might be doing.”
Headcount Addition: “The company aims to increase head count by about 10% this year, compared with a roughly 6% rise to 7,300 workers last year.”
Margin Pressure: “This initiative is going to weigh on margins for probably a couple years, but the dollar amount that they’re spending is relatively contained and they’re investing in businesses that, if successful, could have high margins.”
CPNG: Coupang and Warner Bros. Discovery Strike Landmark Content Deal in South Korea
Coupang Play will bring acclaimed HBO and Max’s series such as “Succession”, “Game of Thrones”, and “House of the Dragon” to Korean viewers. Couplan Play will exclusively premiere the “The White Lotus” third season. This partnership expands Coupang Play’s content library providing more selection for Coupang Play users. While they are not a top tier streaming player in South Korea today, this is a postive development to make their Rocket Wow membership offering stronger.
4. Sharing Links.
Check out Speedwell Research’s Drew Cohen’s YouTube Channel. It is focused on general investing and business content. Videos are released every Tuesday and Thursday. Feel free to drop questions you want answered on any video!
How to Value Stocks & Understanding Valuation
Valuation fundamentals.
Thinking in probabilities.
The importance of having conservative assumptions.
3 Things All Great Businesses Do
The Create, Capture, and Protect Model.
General Electric & Yogurt Shops versus Airlines & Dating Apps.
Why some businesses succeed more than others.
Why return on capital matters.
Other Links.
A Letter a Day: Arielle Zuckerberg and Molly O’Shea on the “Rizz and Tiz” founder theory (link)
Quartr’s Edge: Adobe: Equipping the Architects of Digital Expression (link)
Altos Venture: Foxes and Hedgehogs (link)
Paul Graham: Superlinear Returns (link)
A Letter a Day: Klarna Founder & CEO Sebastian Siemiatkowski F-1 Shareholder Letter on Investing in Trust (link)
Michael Mauboussin on ROIC and the Investment Process (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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