Speedwell Weekly Recap
Speedwell Weekly Recap
Edition #9: Two for One E. Coli Burritos, Gas Stations as CAC, Homemade Marketplaces, Taco Bell's Job to Be Done, and Flooring w/ Chit Chat Money
In this weekly recap, we touch on key quotes from our latest two episodes of The Synopsis, summarize key points of our Etsy report in a Tweetstorm, talk about similarities between Casey's General Store and Super Apps, and much more-- including many interesting links!
The Synopsis
Episode 3: Copart: Building a Deep Moat Business from Junkyards and Wrecked Cars.
First, one on Copart.
In this podcast on Copart, Speedwell Research covers everything from Founder Willis Johnson’s early business career to the industry dynamics, and how Copart became the global, salvage marketplace auction leader. Investors can learn a lot from Willis Johnson’s early business intuition and movement from the lowest wrung of the salvage vehicle value chain as a liquidator to ultimately a critical service provider for insurance companies. We draw on Speedwell’s 85 page report, released in May 2023, to teach not just about Copart’s business, strategy, and formidable competitive advantages, but also to parse out cultural factors that distinguish truly great companies.
Episode 4: Dialogue: The Consumer’s Hierarchy of Preferences—The Other Side of The Consumer Value Prop.
Second, one on a framework we created called the Consumer’s Hierarchy of Preferences. It is a broad ranging episode covering aspects of a ton of businesses from Chipotle and Taco Bell to See's Candy, Costco, Amazon, Tesla, Shein and Temu.
In this episode of The Synopsis, we introduce our Consumer’s Hierarchy of Preferences framework in a new episode format. The Consumer’s Hierarchy of Preferences is a helpful idea for investors and entrepreneurs to better understand the market, their products, and competitors’ offerings. You can check out our original writing introducing the idea here.
This show is the first of our “Dialogue” format, which will be episodes focused on business frameworks or other investing ideas.
Links to The Synopsis Podcast here (Apple, Spotify).
Select Podcast Transcripts
Episode 3 Excerpts: Copart
Copart vs IAA
Episode 4 Excerpts: The Consumer’s Hierarchy of Preferences
Addressing the right consumer preferences is critical to creating a sale.
If there is a preference that is insufficiently addressed, you cannot make a sale.
When Chipotle had their E. coli scare they tried to address tepid demand with a buy 1 get 2 promo.
It didn’t work.
Speedwell Featured on Chit Chat Money's Podcast
We were also featured on Chit Chat Money's podcast covering Floor & Decor. (And if you want even more Floor & Decor content, check out our appearance on Business Breakdowns for last year).
Links to The Chit Chat Money Podcast here (Apple, Spotify).
Etsy
We recently released our Etsy report. Below is our Tweet thread that gives more color on the company, the problems they face, and the opportunity.
1/ From down -50% to up +800% to back down -80%, Etsy’s stock had a volatile past few years that left them at the same valuation level as 2019.
But while the stock is basically where it was 3.5 years ago, the business isn’t.
2/ Compared to pre-pandemic, Etsy has doubled their buyer base and more than doubled GMV with a revenue CAGR of 40%. However, since Etsy’s growth has been lumpy, it has been discounted.
3/ Over the last two years, Etsy’s 90mn buyer count has basically stayed flat, leading many to think they are done growing forever.
4/ Their habitual buyers—those that buy over 6 times a year—started to fall in number, making investors conclude that they were a temporary lockdown fad.
5/ The two acquisitions Etsy consummated at peak valuation in 2021 were written down to the tune of $1bn. They would even put one of the acquisitions back up for sale, after just a year of ownership. Now, investors also are losing patience in management.
6/ While that’s all true, it’s only part of the story. Over the same period that Etsy maintained all of their Covid buyer gains, eBay lost 25mn buyers from their peak. This shows how hard it was just to stay “flat”.
7/ Habitual buyers are still 3x what they were before the pandemic. The ~12% drop in habitual buyers from peak, while not great, has stabilized as of last quarter (and those buyers didn’t churn, they just purchased a couple times less compared to 2021).
8/ And while CEO Josh Silverman admits acquisition mistakes, he never did fall prey to the Covid overhiring binge that other tech companies partook in. You might even look positively at how quickly he openly admitted an error rather than hiding it.
9/ Remember, before he took over Etsy in 2017, they were experiencing quarter after quarter of falling growth. In a single quarter after being appointed CEO, Josh Silverman reaccelerated revenue growth and simultaneously increased profitability.
10/ Under Silverman, Etsy has emerged as one of very few successful and profitable marketplaces, generating ~$400mn FCF despite materially stepping up marketing and R&D investments.
11/ In contrast to most marketplaces, competition is not a real concern, as their position is hard for even $AMZN to copy (have you ever even heard of “Amazon Homemade”?)
The real problem–or opportunity–with Etsy is simple: how do they get buyers to buy more often?
12/ They have ~70% of eBay’s buyers, but only 1/6th the GMV. Most buyers love Etsy and their brand awareness is high, but consumers do not think about them for enough purchase occasions. Half of all buyers only buy once every two years.
13/ They have many initiatives aimed at solving this. Two big unlocks are: (1) improving search and recommendations so buyers can find items quicker (2) improving buyer experience consistency.
14/ In addition to big top down initiatives like the Star Seller program and purchase protection, Etsy has dozens of teams that run hundreds of experiments a month. Every week, Silverman makes the experiments that successfully increase GMV the default experience on the site.
15/ And there is some evidence that their efforts are working. Average frequency has improved from 2.6x to 3.0x. However, even that is understating the magnitude of the frequency improvements, as they have many more “single purchase buyers” than before.
16/ But they still have a long way to go before they successfully wedge themselves into tens of millions of consumer’s regular purchase habits. If successful, they will own all purchase occasions where consumer’s look for something “special”.
17/ But what stands in Etsy’s way of success? What competitive advantages do they really have? How has capital allocation been historically? Valuation? Risks?
We cover all of this and much more in Speedwell’s 79 page research report on $ETSY!
18/ Become a member today and also get access to our growing library of reports, which includes Constellation Software, Copart, Floor & Decor, Restoration Hardware, and more! Members will also receive ongoing business updates.
RH Business Update.
RH margins have grown from negative to 25% in a decade.
But is the recent downward trend temporary or was 25% abnormal?
You can read the full RH update here.
Casey's General Store as a Super App
Other Tweets
Interesting Links
Compilations
Yahoo! was founded in 1994 and incorporated in 1995, and was one of the fastest growing and largest technology companies of all time, once being valued at >$100bn.
They're also known for having made one of the boldest venture bets in history -- a $1bn dollar investment for 40% of a little company called Alibaba (today, that investment would be worth ~$100bn by itself).
By the late 2000s, Yahoo!'s core business was starting to struggle, and Microsoft was eyeing an acquisition. However, Yahoo! didn't want to sell. This resulted in Carl Icahn stepping in, writing a series of letters to Yahoo! management and shareholders, urging them to take the deal. Ultimately, Yahoo did not sell, but Icahn received three board seats, one of which he took.
Just 3 years later, in 2011, Dan Loeb of Third Point smelled opportunity. The company's core business had continued to decline, but Alibaba had taken off, with Dan pegging the company's value at $25bn (meaning Yahoo!'s 40% stake would be worth an estimated $7bn after-taxes). And Dan estimated it could further double over the next two years. In fact, he highlighted that there was "more upside potential in the Alibaba stake than the downside potential in core Yahoo!" After penning several letters, he joined the board. Within a year of joining the board, Yahoo! sold half of their Alibaba stake for ~$7bn and hired Marissa Mayer.
Despite the value unlock from new leadership and an influx of capital from the Alibaba sale, Yahoo!'s core businesses were still in decline. And once again, activists were swirling. Jeff Smith of Starboard sent management a letter asking them to narrow their focus, cut costs and switch search providers. Two months after Jeff's letter, Eric Jackson (then of Spring Owl, now EMJ) released a 99 slide deck airing his grievances with the company. Ultimately, Yahoo! added 4 of Starboard's independent directors (including Jeff) to the board. Within a year of Jeff joining the board, Yahoo! sold itself to Verizon.
After Verizon acquired Yahoo!, they merged it with AOL into a company called Oath (later rebranded to Verizon Media). But after a few years of operation, Verizon decided it was time to move on, and sold the combined asset (AOL and Yahoo!) to Apollo.
Apollo's co-head of private equity, David Sambur, who had looked at acquiring Yahoo! in 2017 before it was acquired by Verizon, stepped up. At the time, they were the only financial interested in the company. Since closing the deal, Yahoo! has operated as a standalone business under Apollo, and Apollo has focused on refocusing the business, monetizing their existing assets, and growing the businesses.
Thanks for reading this week’s roundup! If you have any questions or suggestions on what you’d like to see more of, please reach out!