Reagan Rose

A curated feed of investing knowledge for myself to serve as a substitute for doomscrolling.

[CapexAndChill @CapexAndChill]

I see some worry about $MELI 90+ day loans NPL rising to ~18%. Because short-term loans have rapid lifecycles, good payers exit the balance sheet immediately, while defaults sit on the books for up to 360 days before write-off. An elevated late-stage NPL metric is often caused by portfolio growth deceleration or survivor bias, rather than sudden systemic failure. Management talked about this on the call.

[David Perlmutter @Muzzlebuster]

When we think about $MELI's credit risks, it's very important not to lose sight of how short-duration these loans are. Yes, it could sting like hell in a credit event, or with some underwriting issue. But MELI retains the ability to adjust strategies and pivot if needed because the loan durations are short and it has multiple other revenue streams to fall back on. That's why I tend to be comfortable with how aggressive they are being in growing the book. I honestly believe that if they ran into a meaningful credit-related problem, I would be buying all of that weakness while the stock was getting obliterated because the company would come out the other side with eventual strength, even if it took a few years. Models can be adjusted, spending reined in, cash flows optimized for, etc. This management would do what they needed to do while they needed to do it, and they have the strength of the sticky ecosystem behind them. This is why I hold the stock.

[Fede Sandler @FedexSTi]

Reportó $MELI (Q2’26):

Ayer armé el checklist de lo que realmente importaba mirar (sin ruido). Acá el scorecard con los números reales:

1. 15-90d NPL
Q1 ~8% → Q2 7.0% overall (credit card 4.6%, cerca de mínimos históricos)
✅ Green Flag: bajó QoQ a pesar del fuerte crecimiento del book.

2. NIMAL
Q1 17.8% → Q2 20.7% (+~290 bps QoQ)
✅ Green Flag: se estabilizó y mejoró. La compresión de tarjetas (nuevas cohortes a -2.5%) se normalizó en parte por maduración y menor presión de provisiones en Brasil. No siguió comprimiendo fuerte.

3. GMV growth
Q1 +36% FXN → Q2 +44% YoY (FXN sólido, Brasil sigue acelerando post umbral bajo)
✅ Green Flag: sostiene/acelera por encima de +30-35%.

4. TPV growth
Q1 +55% FXN total / ~41% acquiring → Q2 +56% total / +44% acquiring
✅ Green Flag: sigue arriba de 40% acquiring y total >50%. Momentum intacto.

5. Credit book
Q1 US$14.6bn (+87%) → Q2 >US$16bn (+75%)
✅ Green Flag: sigue creciendo fuerte con disciplina. La calidad acompaña (NPL bajando).

6. Margin ex-provisions
Operating income -17% YoY (inversiones en free shipping, crédito, logística y opex).
⚠️ Mixed / ligeramente green: el core del ecosistema se defiende vía volumen y flywheel, pero la compresión de márgenes reportados es por diseño (inversión first). No es deterioro operativo.

7. Ads
Q1 +73% → Q2 +62% YoY (ya >10% share del mercado digital de ads en LatAm)
✅ Green Flag: crecimiento sigue fuerte y la palanca de alto margen sigue acelerando.

Resumen:
Casi todo Green Flags.

NPL y NIMAL mejoraron exactamente como se esperaba en el escenario positivo. GMV y TPV se sostuvieron/aceleraron. La cartera crece con disciplina y Ads sigue siendo una máquina de operating leverage.

El único punto más tibio es el margen reportado, pero está 100% alineado con el mensaje de management de priorizar scale y engagement de largo plazo.

Trimestre sólido. Valida el framework y refuerza el flywheel commerce + fintech.

La acción reaccionó mixta en after-hours… típico cuando hay beats de top-line y KPIs operativos fuertes pero compresión de márgenes por inversión.

Otro gran trimesre. La siguen rompiendo. Me puedo ir a boxear tranquilo.

NFA. Abrazo.​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ DYOR

[Dimitry Nakhla | Babylon Capital® @DimitryNakhla]

$V to acquire BioCatch for $2.4B cash

Visa announced today that it has signed a definitive agreement to acquire BioCatch, a leading provider of behavioral-first, multi-signal fraud intelligence.

The deal is expected to close by the end of $V fiscal Q2 2027, subject to customary closing conditions and regulatory approvals.
___

𝐖𝐡𝐚𝐭 𝐁𝐢𝐨𝐂𝐚𝐭𝐜𝐡 𝐛𝐫𝐢𝐧𝐠𝐬

BioCatch uses advanced AI and machine learning to analyze more than 3,000 anonymized behavioral, device, and network signals in real time — including keystrokes, mouse movements, touch gestures, device handling, and even signs of coercion or AI agent usage.

This allows banks to distinguish legitimate users from fraudsters during digital sessions, stopping account takeovers, scams, money mules, and application fraud before they reach the point of payment.

Scale today:

Protects 1.8 billion devices and 760 million users

Serves 350+ banking clients across 21 countries (including more than 100 of the world’s largest banks)

Analyzes 19 billion user sessions every month
___

𝐖𝐡𝐲 𝐭𝐡𝐢𝐬 𝐦𝐚𝐭𝐭𝐞𝐫𝐬 𝐟𝐨𝐫 𝐕𝐢𝐬𝐚

Account takeovers and scams already cost the global economy over $1T annually, and AI is accelerating these attacks at scale.

$V has invested more than $13B in technology and infrastructure over the past five years to safeguard the payments ecosystem. BioCatch fits perfectly into that strategy by pushing fraud prevention upstream — complementing $V existing cyber, risk, and security solutions and expanding its high-margin Value-Added Services (VAS) offerings.
___

𝐁𝐮𝐥𝐥𝐢𝐬𝐡 𝐟𝐨𝐫 𝐥𝐨𝐧𝐠-𝐭𝐞𝐫𝐦 𝐯𝐚𝐥𝐮𝐞 𝐜𝐫𝐞𝐚𝐭𝐢𝐨𝐧 𝐰𝐡𝐢𝐥𝐞 𝐬𝐭𝐫𝐞𝐧𝐠𝐭𝐡𝐞𝐧𝐢𝐧𝐠 𝐕𝐢𝐬𝐚’𝐬 𝐜𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐯𝐞 𝐦𝐨𝐚𝐭:

Higher trust → more volume: Better real-time fraud intelligence makes the $V network safer and more attractive for banks, merchants, and consumers, supporting sustained growth in payment volumes.

VAS expansion: Fraud and security tools are high-margin, sticky products. Integrating BioCatch’s behavioral intelligence enhances Visa’s ability to monetize these solutions across its massive client base.

AI-era positioning: As generative AI supercharges social engineering and deepfake scams, owning best-in-class behavioral biometrics gives Visa a structural advantage in staying ahead of evolving threats.

Ecosystem lock-in: Stronger fraud prevention reduces losses for issuers and consumers, increasing switching costs and reinforcing $V role as the trusted backbone of digital payments.
In short, $V is not just buying a cybersecurity company — it’s buying a powerful layer of intelligence that makes its entire network more resilient and valuable in an increasingly hostile digital environment.

This is classic $V: deploying capital to compound long-term network effects and trust.

https://t.co/PTprL3KYpr

[CWB Research @CWB_Research]

$MELI - 2035 Scenario Analysis

Thanks to everyone who commented on my MELI discussion post. After reading the comment section, I have developed a tentative framework to calculate MELI's pre-tax CAGR (from the stock's closing price of $1,877 on July 31, 2026), across three revenue growth rate scenarios (2027-2035) and P/E multiples. Each scenario assumes: (i) revenue growth of 40% YoY in 2026 (below Q1 26' growth of 49% YoY); (ii) a 15% operating margin; (iii) a 28% tax rate; (iv) a net non-operating expense of $1.4B; and (v) 50.7 million shares outstanding.

P/E Multiple
Rev CAGR │ 30x 25x 20x
25% │ 25.8% 23.5% 20.8%
20% │ 21.1% 18.9% 16.3%
15% │ 16.3% 14.2% 11.7%

Before getting into which revenue CAGR is most likely, I will attempt to justify my operating margin and net non- expense assumptions.

First, MELI's operating margin in 2023, one year prior to the beginning of its 2024 investment cycle, reached 14.6%. I use this as a benchmark for MELI's operating margin during periods where the company is not in an investment cycle. Therefore, by forecasting a 15% margin in 2023, I assume that MELI's operating margins fully recover from its current investment cycle.
• NOTE: A 15% operating margin in 2035 may be understated, as MELI's credit business (which is higher margin than retail) is forecasted to become an increasingly high percentage of the the company's total revenues by 2030.

Second, net non-operating expense has compounded at 15.7% since 2021. I apply that same CAGR through 2035.

In terms of MELI's revenue CAGR between 2027 and 2035, it is useful to look at the company's historical revenue growth and the total addressable market it competes in. Specifically, MELI's revenue has grown at a 38.9% CAGR over the past three years and 46.1% CAGR over the last ten years. 2026 is showing signs of re-acceleration, with revenues up 49% YoY in Q1 2026. This re-acceleration is associated with MELI's investment cycle, aimed at capturing higher market share within the "very large growth opportunity" seen by management across commerce, fintech and advertising.

Given MELI's historical revenue growth and the current opportunity for growth management sees, I think a 15% revenue CAGR between 2027 and 2035 is too low. On the other hand, a 25% revenue CAGR is likely too high, as under this assumption by 2035 MELI would have captured roughly 3.3% of Latin America's GDP, above Walmart's 1.6% capture of American GDP and Amazon North America's 1.4% capture of American GDP. A 20% revenue CAGR (roughly 2.3% of Latin American GDP) by 2035, is demanding but the most realistic situation given MELI's current growth trajectory.

Therefore, a base case with MELI compounding 2027 to 2035 revenue at a 20% CAGR with 15% operating margins in 2035 and no share repurchases during the forecast period yields in a 16.3% pre-tax CAGR at a 20x earnings multiple, a 18.9% pre-tax CAGR at a 25x multiple, and a 21.1% pre-tax CAGR at a 30x multiple.

Given that MELI currently trades at an earnings multiple well over 40x, I expect its 2035 P/E multiple will be at the high-end of this 20x-30x range, but as revenue growth slows in the back half of the forecast window a 20x multiple is possible and would reflect the market valuing MELI as a more mature business.

Therefore, the most likely pre-tax CAGR for MELI through 2035 is ~19%. If MELI falls 8.8% to $1,713, assuming a 20% revenue CAGR and 15% operating margins, this pre-tax CAGR increases to 20%.

~$1,700 is my entry price.

[CWB Research @CWB_Research]

MercadoLibre $MELI Discussion

MELI is the first company which I have run through Buffett's 13-step evaluation where I do not feel comfortable forecasting future EPS growth. This is attributed to a: (i) highly complex business model spanning e-commerce and fintech operations; (ii) volatile EPS trajectory over the past ten years associated with major investment cycles eroding operating margins; and (ii) lack of forward EPS, revenue or margin guidance from company management.

NOTE: I am sure that management's current investment cycle will pay off, and that like 2021-2023 after the 2017-2020 investment cycle, MELI will see expanding operating margins and rapidly compounding EPS growth when its current investment cycle ends. What I cannot say is how long its current investment cycle will last and how extreme MELI's EPS growth will be when it concludes. If anyone can help me out with forecasting either of these variables it would be greatly appreciated, and I will revise my write-up accordingly. 

Despite the absence of a price target, in this post I will still provide an overview of MELI's core businesses, its competitive landscape, its current investment cycle, the trajectory of EPS, revenue and operating margins over the last ten years, and my take on whether it should be valued on a multiple of its earnings or free cash flow.

Because MELI's business model is complex, I am re-arranging the steps to begin with an overview of MELI's core businesses before assessing its competitive positioning. I am also opting to include only Step One (Understanding Business), Two (Consumer Monopoly) and Four (Trailing Ten Year EPS Evaluation).

Step One - Do I understand MELI's business?
Not well enough to invest. As stated, MELI's business model is extremely complex. Below I attempt to provide an overview of the company's e-commerce and fintech operations.

E-Commerce
MELI operates the leading online commerce ecosystem in Latin America by gross merchandise volume, present in eighteen countries across South and Central America. The opportunity in this space is vast, as e-commerce penetration of total retail in Latin America lags the United States, the United Kingdom and China by a wide margin.

Within MELI's e-commerce ecosystem there are several business, including:
(1) The Mercado Libre Marketplace. This is a marketplace where third-party ("3P") sellers, who account for the majority of GMV, and MELI itself via its own inventory (confined to less than 10% of GMV), sell goods to buyers across Latin America. Categories span consumer electronics, apparel and beauty, home goods, automotive accessories, toys, books and entertainment, and consumer packaged goods, plus international supply from Chinese and U.S. sellers through cross-border trade.

(2) Mercado Libre Classifieds. A marketplace for higher value products, including vehicles, properties and services. Within this marketplace MELI charges placing fees only, not final value fees.

(3) Mercado Envíos. This is MELI's logistics arm, built around fulfilment centres, which account for more than half of shipments, plus cross-docking where MELI collects sold items directly from sellers or via MELI Places, a network of thousands of partner stores where sellers drop off items for injection into the network and buyers collect purchases and process returns. In addition to fulfillment centres and cross-docking, Mercado Envíos includes dedicated aircraft and trucks and thousands of last-mile delivery vans to transport goods sold on the Mercado Libre marketplace. The vast majority of MELI's transportation fleet is owned and operated by third-party carriers.

(4) Mercado Ads. MELI offers advertising on its marketplace to platform sellers and brands both on- and off-platform. Advertising revenues are bolstered by Mercado Play, a video-on-demand service launched by MELI in 2023 which licenses content from 3P studios under revenue-sharing agreements. Overall, advertising grew 73% YoY in Q1 2026, roughly four times the regional market, and MELI now ranks third in Latin American ad spend behind Google and Meta.

(5) Mi Página. The digital storefront solution letting sellers set up, manage and promote their own stores while running on MELI's logistics, advertising and payments rails.

Revenue within MELI's e-commerce segment has two drivers. The first is Service Sales, which comprise marketplace fees including: (a) final value fees; (b) flat fees on transactions below a certain merchandise value; (c) shipping fees net of third-party carrier costs where MELI acts as agent; (d) storage fees; (e) classifieds fees; (f) advertising fees; and (e) ancillary businesses. Second, Product Sales comprise first-party ("1P") merchandise sold from MELI's own inventory, plus related shipping.

Fintech
Mercado Pago operates in eight South American countries and is the leader in fintech monthly active users in Argentina, Chile and Mexico, and second in Brazil. It processes and settles every transaction on MELI's own marketplace in the countries where it operates, but the majority of its activity is now off-platform.

Mercado Pago began as an escrow mechanism for the MercadoLibre Marketplace. It then extended to online merchants outside of the marketplace, as management observed that individuals and micro, small and medium-sized enterprises in Latin America were underserved by incumbent banks and that a very large share of Latin American retail was still settling in cash. Today, Mercado Pago's digital accounts offer utility payments, mobile top-up, peer-to-peer transfers, pre-paid and debit cards, credit cards, merchant and consumer credit both on and off MELI's marketplace, insurance (extended warranties, personal accident, theft and damage), savings and investment products on idle balances, and a cryptocurrency buy-hold-sell feature in Brazil, Mexico and Chile.

Fintech revenue has three divers:
(1) Financial services and income. This stream includes commissions on off-platform payment processing and MELI's asset management product, instalment financing (whether MELI funds directly or sells the receivable), interest on cash and investments held as part of Mercado Pago activity including regulatory balances, net of interest passed through to Brazilian users on the asset management product, plus debit card commissions and insurtech fees.

(2) Credit revenues. Includes interest collected on merchant and consumer loans and advances, and interest and commissions on Mercado Pago credit card transactions.

(3) Fintech product sales. This includes mobile point-of-sale device hardware.

Step Two: Is MELI a Consumer Monopoly?
Under the taxonomy I set out in my framework write-up, the three consumer-monopoly categories are: (i) brand-name products; (ii) advertising agencies, publishers, social media and telecom networks; and (iii) businesses providing repetitive services that people and businesses are constantly in need of. MELI is a hybrid of the second and third.

Specifically, the company's e-commerce ecosystem belongs in category (ii). It is a toll bridge whereby Latin American sellers must pay MELI a fee on each sale made in the marketplace and in order to increase visibility on MELI's marketplace must pay an advertising fee.

Mercado Pago belongs in category (iii), given that payments, deposits and credit are needed repetitively and indefinitely. Additionally, switching costs to another financial provider, especially in the sparse setting of Latin America where individuals and businesses are underserved by traditional banks, are costly.

Switching costs are elevated by synergies between MELI's fintech and e-commerce ecosystems, as demonstrated by the company's Loyalty Programme. Specifically, this Loyalty Programme offers members free shipping and content from purchases made on the MercadoLibre Marketplace, along with better remuneration on their deposits, extra free installments on credit card purchases, and cashback on anything bought through Mercado Pago. The combination of benefits from MELI's e-commerce business and fintech ecosystem cannot be replicated by single-sided competitors, and encourages e-commerce members to become Mercado Pago customers. This phenomenon is supported by Brazilian credit card data cited by MELI management during its Q3 2025 Investor Presentation. Specifically, most of the 1.3 million cards issued in Brazil during the second quarter of 2025 went to existing marketplace buyers whom MELI had already observed for years.

Despite the competitive advantages associated with MELI's scale and synergies across its e-commerce and fintech ecosystems, the company's own risk disclosure states acknowledges that barriers to entry for large, well-established technology companies are relatively low, and that current and new competitors can launch sites at relatively low cost using commercially available software. Further, management has acknowledged that competition has intensified over recent years as local players grow and international players expand, mainly in Brazil and Mexico.

Rising competition has not yet weakened MELI's margins. Instead, margin erosion at MELI can be attributed to the company's current investment cycle, which is aimed at increasing market share in the e-commerce and credit card segments of Latin America. However, it is worth monitoring whether increasing competition results in margin erosion at MELI beyond its current investment cycle, as that would represent a more structural threat to MELI's EPS growth.

Step 4: MELI's Trailing 10-Year EPS Growth
As seen in the attached figure titled "MELI 2015 to Q1 2026 EPS Growth", MELI's EPS growth has compounded at a 32.3% rate over the past 10 years. This EPS growth has been entirely independent of share repurchases, with MELI's share count flat since increasing 15% between 2015 and 2022.

While strong, MELI's EPS growth has been volatile. A major investment cycle between 2017 and 2020 caused diluted EPS to turn negative before rapidly increasing to $37.69 in 2024. A new investment cycle initiated in 2024 caused MELI's EPS growth to grow only 4.5% in 2025 and on a trailing 12 month basis as of Q1 2026 MELI's EPS has contracted by 6.8%.

As seen in the attached figure titled "MELI Revenue and Operating Margins, 2021 to Q1 2026", MELI's operating margin has contracted each year since beginning its 2024 investment cycle. In 2024, operating margins contracted 190bps to 12.7%, followed by a 160bp contraction to 11.1% in 2025, and a 420bp contraction QoQ (~600bps YoY) in Q1 2026 to 6.9%. Management expects the company's current ~7% operating margin to remain relatively constant for the foreseeable future.

It is worth noting that MELI's investment cycle is driving high revenue growth, which has increased at a 38.3% CAGR since 2023. In Q1 2026, quarterly revenue was $8.85B, up 49.03% and representing MELI's fastest quarterly revenue growth since 2022.

The two central initiatives within MELI's ongoing investment cycle which have caused accelerating revenue growth and deteriorating operating margins are as follows:

(1) The Brazilian Free-Shipping Programme
In Q2 2025, MELI lowered its Brazilian free-shipping threshold from BRL 79 to BRL 19, representing the fourth cut from BRL 120 when free shipping launched in Brazil in 2017. Management identifies shipping costs as the largest friction suppressing e-commerce penetration in Latin America, and by removing this friction management is growing the entire Latin American e-commerce ecosystem along with MELI's share of it.

Every prior free-shipping threshold reduction produced an acceleration in GMV, total payment volume, purchase frequency and new users. This reduction has followed trend, with Brazilian item growth accelerating 34% in June 2025 (above Q2 2025 item growth of 26%) after the free-shipping reduction was implemented earlier that month. Group-wide in Q1 2026, unique buyer growth reached 32%, GMV reached 38% on a FX-neutral basis, and items sold increased 56%, more than double the pre-change rate.

Meanwhile, cost per shipment fell 17% in local currency as management converted products above BRL 19 to a two-to-four-day delivery timeframe rather than same- or next-day. CFO De los Santos explained that slow-ship items will act as a plug increasing transportation efficiencies for MELI's delivery fleet, such as a truck running from São Paulo to Rio for next-day delivery which must depart at 7 p.m. even if it at 75% capacity. Looking forward, management stated that the direction of shipping cost reduction should remain downwards but is not going to be linear.

(2) Credit Card Expansion
The second ambition of MELI's current investment cycle is to expand the number of individuals using a Mercado Pago credit card. CFO de los Santos refers to the benefits of credit card expansion as "principality", the phenomenon by which a Mercado Pago wallet is converted from a place customers transact into their primary financial relationship.

Management's credit card expansion efforts are working, as in Q1 2026 MELI's credit card TPV grew 90% YoY and its credit portfolio nearly doubled to $14.6 billion, bolstered by the issuance of 2.7 million credit cards in the quarter.

Increased credit card volume expands MELI revenues but comes with lower operating margins at the initial stage. Of the ~600bps of total YoY margin compression in Q1 2026, ~400bps was caused by credit provisioning alone. This is because expected-loss accounting registers the full life-of-loan reserve at origination, while interest income arrives over the following months, so a credit card book such as MELI's growing 87% YoY is constantly paying today for revenue it collects later. Additionally, MELI's extension of average personal loan duration in Brazil from five months to eight months means larger provisions and the assumption of greater early-repayment risk. Further, in order to incentivize new credit card users MELI is offering benefits such as lower spreads, reaching segments that are either more risky or require working with smaller spreads.

Conclusion
If MELI's current investment cycle continues to drive higher revenue growth and if operating margins expand once management slows its pace of investment, I expect MELI's EPS to grow rapidly. This is what occurred in the aftermath of MELI's 2017-2020 investment cycle. Specifically, operating margins increased from 6.2% in 2021 to 9.9% in 2022 to 14.6% in 2023 as the 2017 logistics cycle matured, and diluted EPS went from $1.67 to $9.53 to $19.46 across the same three years. The company's current investment cycle is based on a blueprint which MELI's management team has executed on before, which gives me confidence that it will eventually culminate in increasingly profitable growth.

However, due to: (i) a volatile EPS history; (ii) a complex business model; and (iii) the absence of management guidance on revenue growth or profitability, I cannot forecast when MELI's current investment cycle will end, or how quickly EPS growth will accelerate once it does.

At first glance, MELI's current valuation does not offer much cushion to fall back on if its current investment cycle continues for longer than anticipated or does not result in increased profitability.

At its current share price of roughly $1,800 and 50.7 million diluted shares, MELI's market cap is roughly $91B.

On trailing earnings of $37.89 per share that is a 47.5x P/E ratio, and about 44x forward. Against a multiline retail industry average P/E near 20x, the multiple assigned to MELI is pricing in a significant acceleration in EPS, which I am unable to forecast.

However, many analysts have pointed out that MELI should be valued on a cash-flow basis rather than on a multiple of company earnings. The most useful cash-flow-based valuation approach for MELI is a multiple of what Buffett refers to as Owner Cash — operating cash flow adjusted for the items that inflate it without belonging to shareholders.

As summarized by @Muzzlebuster in his article "The Single Greatest Mercado Libre Valuation Article Ever Written in the History of Human Kind", starting from an estimated $18.8B of 2026 operating cash flow, MELI's Owner Cash can be calculated by stripping out: (i) restricted customer funds held for regulatory reasons, roughly $7.5B, which MELI cannot lend, invest or distribute; (ii) card transaction settlement float, roughly $2.3B, held temporarily between collection and merchant payout; (iii) maintenance capital expenditure, proxied conservatively at full depreciation and amortization of roughly $1.1B; (iv) excess provisions, roughly $3.15B, being the gap between provisions booked and losses actually charged off, which exists only because the loan book is growing at close to 90%; and (v) a roughly $50m timing excess on the long-term retention plan.

That leaves approximately $4.7bn, or about $93 per share in Owner Cash, a multiple of 19.4x at $1,800. Owner Cash per share is rapidly expanding, up 37.4% between 2024 and 2025, and estimated to grow 47.6% this year.

19.4x Owner Cash is a far more reasonable multiple than ~45x earnings. I believe it is also a better way to examine a business that is deliberately suppressing earnings to fund growth, reflects the fact that MELI's reported free cash flow and EPS are both distorted outputs rather than measures of the business' earning power.

Given this attractive valuation and management's track record of exercising on investment cycles, I am tempted to allocate a small position to MELI even without being able to forecast its future EPS growth. I am sharing this post with the hope that the FinX community will be able to help me with forecasting future EPS growth and providing a timeline on MELI's investment cycle.

[Reagan Rose @Reaganxrose]

@SukhGill__ @teechongyen Beware of valuing Uber on trailing FCF. Companies that have lumpy growth investments and are strategic acquirers might look deceivingly expensive/cheap depending on where they’re at on the investment cycle.

[Reagan Rose @Reaganxrose]

@teechongyen Do you feel the TAM is insufficient to support both players?

[Ben Buchanan @01Core_Ben]

I am zero concerned about AVs for Uber. It’s a massive market. 1.1 billion trips per day in the US alone is the TAM. And the TAM for trips will grow if costs fall by removing the driver. Also think about what AV does to trip count if old people who can’t drive anymore now can, kids can be driven to school, etc. The only way uber loses is if trips get monopolized or oligopolized, and that seems extremely unlikely given market size, capex required, variations in trip type, etc. And, there’s the tiny lag between generations of intelligence between companies (eg Anthropic 6 months ahead of Kimi), which probably follows into driverless tech just as it is now in LLMs- meaning everyone will be able to access software for AV. Besides- again- this market is so freaking massive, and at this price if Big Tech wasn’t yoloing capex building digital God I guarantee you someone be looking at acquiring Uber at a 50-75% premium to where it is today. I have a small position now which I plan to make a bigly position Monday

[Raj.brk @rja907]

A non-financial POV on $UBER

One of the first things I saw at airports during my trip to Argentina and Brazil were $UBER ads and $UBER signs.

As I earn in USD, the prices were so cheap that my friends and I didn't even think of using public transport as Uber was faster and super cheap.

Every single time I entered a new city, the first thing we did was look for the Uber pickup spot at the airport. It was indispensable.

Interestingly, the SDU airport in Rio does not have an Uber pick up spot. So, we had to look up the Uber prices to our hotel and then go out and haggle (in a language we didn't speak) with the taxi drivers who quoted a price double of what we saw on the Uber app.

On top of that, he didn't use a map. So we were worried that he might try to take us the wrong way or charge us more.

Also, I am one of the weird people who likes to speak with the locals/drivers and get their perspective on things!!

I have used Uber in almost every city that I have ever travelled to. It is probably in the top 5 most undeletable apps that I have on my phone.

$UBER knew that our accounts were based in the US. If they wanted, they could have charged us 50-100% more and we would have paid without even realizing that it is high because we weren't really comparing against other local alternatives. (if you work at Uber and are reading this, please don't set up this feature!!)

I was recently watching a podcast of the DeliveryHero Founder (https://t.co/tRB6l5rhkE) and he seemed like a pretty strong manager. I like the acquisition but wish it was cheaper!

Also, through my credit card, I got Uber One for free and it is nice to see a 6% credit on all rides.

I have also used $UBER in a bunch of other countries including India. An interesting thing one of the drivers told me was that a local competitor called Rapido paid them a lot faster and that's why they preferred to ride with Rapido over Uber. Also, Rapido operates with a flat subscription fee whereas Uber takes a cut on the earnings. Rapido is far from being profitable and I don't think competitors like that can sustain for super long.

I don't understand why I prefer Doordash to Uber Eats. It's the same with my friends. I think of it as a growth area!

As someone who doesn't own a car as I live in the city with a good public transport system and Uber/Lyft is not too expensive, I think Uber/UberEats is a very important app.

I had sold $UBER around the peak in 2021. I think it is time to look into the business again.

[Ben Buchanan @01Core_Ben]

Re: $UBER - which I'm buying mucho of monday

there's about a zero percent chance Waymo's long term plan is to lease their own fleet of AVs. Every AV needs to be cleaned every day. Every AV costs a ton of up front capex - capex with a low ROI compared to other things Google can invest in. Obviously the play is to enable other vehicle manufacturers to make their own vehicles autonomous. Google has no interest in trying to figure out how to build millions of cars per year and clean millions of cars per day. There's also the issues of dealing with vandalism, changing tires, storage, etc - it's just not what Google does.

That leaves Tesla on the one hand - and everyone else on the other. Not to mention Chinese companies that may find their way into the country. So, our AV future will have Tesla + Other, and Other is a very long list. AVs will - along with drones - increase the number of "trips" by at least 2x and probably more. Right now trips are expensive (which I will define as anyone moving anything, so a person driving another person or themself is a trip, amazon sending a bottle of soap via drone is a trip, and so on). The cheaper trips get the more of them there will be. Already there are around 1.3 billion trips PER DAY just in the US, and probably a similar number in Europe, more in South America, etc. This market is massive. I don't think it's remotely possible for a single player to take the market because of the amount of capex required. Therefore we end up with a combination of Tesla + Other + Drones. Also - someday we'll have humanoids needing to get around, so that will increase demand for trips too.

Add on old people who can't drive (and an aging population) now being able to drive, and also sending people or drones on errands, and people having their kids carted around - and things like: "Oops I forgot my keys, I'll just send a courier to get them and bring them to me."

it seems plausible that we actually more like 3X total trips within 10-15 years of AV/drones hitting the nine 9s level of safety on any road anywhere at any time. Uber is in the business of moving things around, it will be a big beneficiary of AVs - it's not like GM or Ford are going to have their own Apps. Google may compete with Uber by doing something like embedding trips into Maps, but again, the market is huge and Uber is solely focused on this.

A lot of people think of a trip as just a trip, but trips are a product and one trip is very different from another. Who or what is going where? What's important about the trip (comfort, speed, # of seats, onboard medical kit, fast wifi, remote monitoring, etc). Is having a human on board a plus or a minus (a lot of people think AV removes the human, but there will be many bazillions of cases where people want the human there). When you start thinking of trips as products instead of a uniform thing, it starts to make more intuitive sense how truly massive and heterogenous this market is and how valuable it would be to be a company that gets more data than anyone else on trips as a broad category - vs. the much more limited sub-category of AV trips in a limited set of vehicles.

Besides, sit down and start calculating how long it will take for a big percent of trips to be AV - it's so far into the future it doesn't even bear thinking about when it comes to Uber. So to summarize:

Google has no interest in becoming a car maker - it's a low ROIC business, they have other opportunities, they just want to sell systems, and sell more ads to the people who have more free time b/c they don't have to pay attention to the road and can watch more youtube.

Trips is a big effin market, and will probably 2-3 X within 10-15 years of AVs hitting nine 9s of reliability.

Trips have tons of different flavors - each of which should be thought of as a product. Trips in a specific type of AV vehicle is a small subset of a giant market. There is value to seeing the whole market (e.g. Uber's unique perspective) vs. just that subset.

AVs will come in three flavors: Tesla, Other (GM, Ford, etc - or the people who buy their EVs to put into fleets), Drones. China is a wildcard - but if the US ever lets Chinese cars into the US that would be a massive boon to Uber, b/c the US probably wouldn't allow the Chinese companies to run their own network for national security reasons - so they would be forced to keep data local and run on Uber. There's also a universe where Uber - who will have tons of valuable data about road conditions, trip types, etc - ends up licensing data back to Waymo, and the "Other" category. It might also end up managing a servicing network. If you need to clean millions of cars per day - who organizes getting the detailers to the cars?

Other and Drones will use Uber to keep their fleet busy. AVs will lead to there being more trips - so Uber's potential TAM will increase bigly.

Regardless, it's so far into the future it doesn't make sense to even worry about it now. There will be umpteen headfakes as this market plays out over time. None of which are worth worrying about particularly not given the valuation Uber is trading at today.

There will be multiple winners in the AV market, and Uber is certain to be one of them...but again, doesn't even matter.

bookmark/endrant

[Dimitry Nakhla | Babylon Capital® @DimitryNakhla]

One of the most expensive mistakes in investing is overpaying for a great business. Even excellent companies can deliver years of disappointing returns when the starting valuation is too high. https://t.co/K1xm6c8Sdc

[Reagan Rose @Reaganxrose]

An analogy I think of surrounding valuation:

'r' is gravity that brings down future cash flows to todays value.
'g' is the air in the beach ball pushing against that downward pull and preserving the value of those future cash flows

A smal drop in 'g' can send the valuation to the floor.

[Reagan Rose @Reaganxrose]

@realroseceline And thank you for your contribution on this platform. Very much looking forward to pre-ordering a few copies of your book.

[Reagan Rose @Reaganxrose]

"I think investors often confuse scarcity with a moat. They’re not the same thing. A shortage creates pricing power. A moat protects pricing power after the shortage disappears. Those are two completely different things."

[Rose Celine Investments 🌹 @realroseceline]

Thoughts on $UBER, Neo Clouds, $GOOG, $TSLA, $APP, $PYPL and more…

Today, $UBER sold off after the Waymo news. Whether I’m right or wrong about $UBER isn’t really the point. What interests me is how quickly the market starts questioning a business once it thinks the moat might be weakening. Stocks don’t need the business to collapse. Investors simply need to believe tomorrow won’t be as good as yesterday.

Look at $ADBE, $PYPL, and $FI. All three looked objectively cheap at different points. Yet they kept getting cheaper because the market wasn’t debating today’s earnings. It was debating tomorrow’s economics.

That also makes me think about capital allocation. Investors love buybacks, but buybacks aren’t automatically great capital allocation. They only create value if the business you’re buying becomes more valuable over time.

If the market is correctly identifying that the moat is weakening, buying back billions of dollars of stock may actually destroy shareholder value instead of creating it. A stock can look statistically cheap and still become dramatically cheaper if investors believe the future economics are deteriorating. Sometimes the market is wrong. Sometimes it’s simply repricing a business whose future has changed.

I’ve made this argument about $UBER for a long time. Investors don’t need to see the entire business disrupted overnight. They only need to see a few major cities like SF, LA, or NY start getting penetrated by autonomous fleets from $GOOG and eventually $TSLA. Once the narrative changes, the multiple usually changes long before the financials do.

This also makes me think about the so called Neo Clouds. Today’s economics look incredible because demand is greater than supply. But what happens when supply catches up and everyone starts competing on price? I don’t know exactly when that’ll happen, but I struggle to believe competing against $GOOG and $AMZN is bullish for anyone’s long term margins.

I think investors often confuse scarcity with a moat. They’re not the same thing. A shortage creates pricing power. A moat protects pricing power after the shortage disappears. Those are two completely different things.

One lesson I’ve learned over the years is that extraordinary margins attract extraordinary competition. High returns are like a giant sign that says, “Come compete with me.” Capital always flows toward the best economics until those economics become far more ordinary. Perhaps that’s the invisible elephant in the room for $APP?

Generally speaking, in transportation one thing I’ve learned is that when technology improves and competition increases, the biggest long term winner is usually the customer. Better service, lower prices, more convenience, etc. That’s fantastic for society, but it doesn’t always translate into fantastic returns for shareholders.

Maybe I’m completely wrong. Maybe $UBER moat proves much stronger than I think, and maybe the Neo Clouds keep earning exceptional margins for another decade. But whenever I see extraordinary economics, I always ask myself one simple question.

“Who wants those margins?”

Because history has shown that if the answer is everyone or the 800lb gorillas, those margins rarely stay extraordinary forever.

Happy Friday to you all and thank for reading! 🌹

[Drew Cohen @DrewCohenMoney]

$MU and homebuilders are more similar than you might think.

Everything about a home builder is basically a commodity product.

It is often taught that commodity products cannot maintain high returns, but if you look at the ROE of many home builders you’ll see many in the 20%+ range. Sometimes much, much higher.

These businesses have a product that anyone can produce, but the reason why their economics are maintained is because demand outstrips supply.

There is more demand for (moderately/ low priced) homes than we create. Thus virtually every home that gets built gets sold—and at a price that provides ample margin for the builder.

When these businesses do poorly is when demand temporary sags and the carrying cost of inventory (construction loan interest expense) weighs on returns. Aggressive financing on the builders parts, could result in bankruptcy in such situations.

Generally though, demand for homes is only going to go up overtime and will continue to outstrip the pace of building—at least in the U.S.

The situation is different in China for instance where supply increases has resulted in very soft home prices and phantom cities.

The point I wish to make is that competitive moats are only pertinent to a business when supply outstrips demand.

If you can differentiate your product sufficiently, the consumer preferences you are fulfilling are unique enough that the business itself is the sole supplier.

They have escaped the rat race of commodity competition where any business can build what they build. If you want an iPhone, there is only one seller. If you want fast delivery on millions of items through a high trust seller, there is only Amazon (in the U.S.)

The less emphasized point though is that even if your product is undifferentiated, so long as supply runs below demand, you can have a strong business.

We are seeing this phenomenon in memory chips, energy supply, and data centers. The demand is overwhelming and so many business that fit the bill of being a commodity product can reap stellar margins and returns on capital—for now.

Micron posted 68% operating margins. 3 years ago they were as low as -63%.

With capacity constraints and capital flooding into the data center build out, they certainly have strong tailwinds to continue to post such stellar margins.

However, the problem with such businesses comes from the fact that these high returns draw in incremental capital and eventually growth in supply will overshoot demand.

While a cycle can take years, it doesn’t change the fact that memory is not a differentiated product the same way a Nvidia GPU chip or Arista network switch is. (That doesn’t mean they can’t also have their own cyclically though—just that by and large the market for Nvidia GPUs, is different than the market for “GPUs”)

Investing in such businesses becomes a bet on the capital cycle duration and a bet on the rationality of multiple players. It works so long as demand is higher than supply, but when the situation reverses, the commodity-like returns of an undifferentiated product returns. (Memory investors are basically betting that AI demand has resulted in a paradigm shift where demand will continue to outpace supply for many years—perhaps a decade… but Wall Street only tends to model 3-5 years out).

Building constraints in the U.S. has prevented economic deterioration in the home building industry. (Even in a weak year like 2021 a small home builder— Dream Finders Homes had a 12% ROIC, higher than most businesses). The time it takes to build new fabs has prevented this from immediately correcting in the memory industry, but it is inherently a more precarious competitive position to be in because the businesses do not control their destiny. Apple can control the production of iPhones, but Micron cannot control the supply of HBM.

This is not to say this is a “wrong” way to invest—there are many ways to make money. But just that the timing of such investments are much more critical than say investing in a Red Bull or Monster. The customers of those business’s only want a “Red Bull” and alternatives (by and large) will not do. Thus the vectors of competition move from trying to create a better Red Bull rather than simply supplying an energy drink.

The history of businesses that do not have moats is brutal. Capitalism will eventually compete down those returns. But that doesn’t mean an investor can’t make money if they time the capital cycle right—they should just be aware that is the bet they are making.

[Reagan Rose @Reaganxrose]

@S_FG00 @realroseceline The moat is customer switching cost (don’t kill the patient in the process of killing the disease)

Net net, they’ll embed deeper into the S&P 500 corporations and beyond.

[Reagan Rose @Reaganxrose]

@S_FG00 @realroseceline $NOW is basically corporate cancer.

They started small with ITSM, spread to HR, then to Customer support and Cyber security.

They’re are so embedded (metastasized) that to get rid of $NOW (ridding the cancer) would kill the biz (the patient).

And voilà: 98% renewal rate

[Reagan Rose @Reaganxrose]

@patientinvestor Much closer to 18x FCF if you exclude SBC.
$142b/$8b

Not that it matters, bc like you said its dumb cheap.