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Some things and ideas: July 2020

Posted July 31, 2020

Some random thoughts on articles that caught my attention in the last month. Note that I try to write notes on articles immediately after reading them, so there can be a little overlap in themes if an article grabs my attention early in the month and is similar to an article that I like later in the month. That's a particular challenge for an environment as wild as this one; for example, if I link something from early April like "Apple tells staff stores closed until early May or "Equinox won't pay April rent," by the time I post those articles in late April the information is wildly out of date (people will be more concerned with Equinox paying May rent!) even though it's super interesting!

Premium / word of mouth

  • I launched a premium YAVB in April (announcement / overview here). I've had a lot of fun doing the site so far, and I think it's worth subscribing if you enjoy the free blog.
    • The general goal of the premium site is to post one deep look at a company and/or investment idea each month (you can view some historical case studies here), and then do a monthly general update post (kind of like this post, but with a heavier focus on investing specific things, individual investment updates, and my thoughts on them), but it's still a work in progress!
  • Don't feel like subscribing? No worries! However, one of the reasons frequency of posts / podcasts / other public stuff can fall off is because I look at them and wonder: "Is it really worth my time doing these for this small an audience?" A lot of work goes into all of these, and I hope that the output is generally of interest / high quality. If it is and there's someone you think would like this blog, please share it with them. It would mean a lot; positive feedback / increased readership is what keeps the public posts coming!
    • This isn't meant to be a threat or anything! It's just frustrating to spend lots of time on something that you think is decently high quality and consistently see viewership numbers that would rival a local high school's newspaper or a North Korea / South Korea soccer match or an Italian soccer match during a pandemic.
    • And a big thank you to everyone who reached out expressing how much they liked the blog. Honestly it means a lot to me!
  • One thing I realized after putting this request up for a few months: it's kind of rude for me to be asking people to share my blog without highlighting some other blogs I enjoy. So here's a special shout out to some fellow bloggers whose posts I enjoyed this month
    • The Great European Dividend Futures Caper (fun name, better article)
    • If I ruled the tweets (from the Not Boring Newsletter; mentioned in my own post on Twitter)
    • Clark Street on GLIBA / LBRDA (disclosure: long both)
      • When one of my favorite bloggers posts on one of my favorite stocks, it's a given I'm going to link to it.... but having a shout out in the post is certainly a nice cherry on top!
      • PS- I co-sign with most of what he says. I think LBRDA is getting a slightly better deal, but it's probably not worth splitting hairs over.
    • The future of OTC Adventures
      • I love this site and hope it continues publishing!
    • Search for less competitive games
    • Liberty's highlights
      • New blog / substack, but I really like the first post!
    • Still day 1 for ISRG
    • Rackspace rises again
    • Some posts on seeking alpha
    • Premium service recommendation of the month: DeepFin: eSports & Gaming Deep Dive
      •  This is.... not the most in depth dive I've ever seen. I thought about not recommending. But for $5, I got three things:
        1. A piece that I left with a bit better of an understanding of a space I'm intensely interested in.
        2. Multiple points that made me think and question my own beliefs about a space I'm intensely interested in.
          1. Why did that quote in particular strike me? Players seem to have a lot more leverage in eSports than in normal sports; I'm not sure why they shouldn't extract more than their fair share of value. For example, Ninja noted he was losing money by going to tournaments versus streaming. The alternatives for monetization are just so much higher and easier in eSports.
          2. Let me try another angle on this: single players sports (golf, tennis) have the vast majority of their monetization go to the superstars (Federer, Woods, etc.) versus the sport or the venues. It'll depend on the game, but most games tend to have much smaller teams than something sports. Fortnite is single player, League of Legends and most shooters are ~5 players, etc. When I think back to the bidding war for ninja and all the alternate ways superstars can monetize, I tend to think the superstars are going to grab a huge slice of the pie here.
          3. One last thought: in sports, if a player tries to play a game outside the league, they'll get banned (i.e. Lebron can't play for the NBA and TBT at the same time; the NBA won't let him). Platforms and such can't do that in eSports (ie. Ninja could be on Mixer and Twitch and YouTube, and he can play fortnight and any other game he wants). I tend to think that freedom means he'll take a lot of the economics. I could be wrong!
        3. Several investment / stock suggestions in the eSports space I had never heard of before
      • If that's not worth $5, seriously what is?
    • PS- if there's a blog or service you like that you think I should follow / potentially recommend, please let me know. I'm always looking for good new sites to read and highlight!
      • Seriously, no one has taken me up on recommendations yet. I am near begging here: if you have a blog you think I'd like or a service you think I'd enjoy, please highlight it for me. I'm always desperate for new things to read and use, and while I can't promise tons of traffic for your website or product, previous recs have seemed pretty happy with the traffic sent their way.
      • A note for readers: I don't get paid or anything for these recs. I just like finding new and interesting sources of information, and if people are bringing them to me hopefully it's of help when I bring them to you!

Monthly pondering: Video Game pricing; shouldn't they be free?

  • I've long been intrigued by video games. I always thought the pricing dynamics of a video game suggested they had significant pricing power as they significantly undercharged versus other forms of entertainment. An example might show this best; consider the Witcher 3. The game had near endless game play; I believe the main story alone would take ~50 hours to play and that's assuming you ignored all of the side quests. I played the game a bit and had to quit because I'm a complete completionist (meaning I HAD to do all the side quests) and the enormity of the side quests meant I would have had to spend upwards of 200 hours (or more) trying to beat the game. If you needed to buy the Witcher the day it came out, it would cost ~$60, and if you waited a year or two the price would drop to around $20. So, depending on how soon you bought it and how much of a completionist you were, The Witcher was priced at somewhere between $1/hour to $0.10/hour for each hour of entertainment. What else gives that much value? A movie ticket costs $10-20 and gives two hours of entertainment (plus some time for traveling from your house, parking, etc.). Obviously not apples to apples, but I use that just to show how good the value of a video game was. Over time, I expected that the great price/value of video games meant their publishers would have significant pricing power.
    • And that analysis is for a "story driven" game. An online game (a shooter like Call of Duty or a strategy game like Starcraft II) offers literally infinite hours of play as they have competitive online ranked modes that you can spend as much time as you want trying to climb.
  • That line of thinking changed for me as micro-transactions grew. Fortnite is the headliner here, but games like Candy Crush and Pokemon Go stand out too. These games were free to play and only charged for micro-transactions. Initially, I thought that was crazy: making a title like Call of Duty involves an investment that rivals Marvel movies (i.e. tens of millions of dollars); why would the studios give something like that away for free. But Fortnite has proved the model out: give the game away for free, attract as large a base as possible, and monetize through micro-transactions. The base becomes a moat in and of itself: once you've invested the time to learn Fortnite, you're less likely to invest the time to learn another game, and if all of your friends are on Fortnite, there's no reason to switch to another game anyway.
  • Why mention this? 2k games is experimenting with increasing the price of NBA 2k from $60/unit to $70, and I can't help but wonder if that's a bad idea.
    • I'll caveat this by noting that 2k is in a slightly unique place: a basketball game that licenses NBA characters has an enormous moat and a huge fixed cost base. If I'm getting into a shooting game for the first time, I probably don't have much of a preference between Call of Duty or Fortnite. All else equal, I'd probably pick Fortnite over Call of Duty just because it's free. That's not the case for a basketball game: if you gave me the choice between playing a basketball game with NBA players or a basketball game with just random players, I'm willing to pay up to play a game with my favorite players.
    • Despite that, I wonder if it's a bad idea. An NBA game doesn't exist in a vacuum; it competes for time with a variety of other things and games. And while, as an NBA fan, I may be willing to pay up for a game that features my favorite players, casual fans are going to be evaluating NBA2k versus other things that have effectively zero marginal cost (Fortnite, playing other games they already own, watching Netflix). By raising price, NBA2k losses some of those casual fans who they could monetize through micro-transactions.
    • Maybe you'll argue that doesn't matter. Sure, NBA2k might sell 3% fewer titles, and yeah maybe they lose a couple of extra micro-transactions, but they just pushed through a 20% price increase, so net-net they've maximized revenue and profits, right? In the short run, absolutely! In the long run, I'm not so sure. Remember, a big part of a game ecosystem these days is having a thriving online community. Maybe this year NBA2k losses its most casual fans. That actually slightly hurts their overall network effect: fewer players playing online games means slightly longer load times to match up online, and fewer players means I'm less likely to have friends playing the game. That means I'm less likely to enjoy the game, less likely to spend as much time in the game (and thus less likely to do micro-transactions), and slightly less likely to purchase next year's game. A gaming ecosystem (or any network) is a delicate thing, and small changes now can have huge impacts on the long term size and network effects. I'm sure the people at 2k know what they're doing, but if I was a video game publisher right now every decision I made would be viewed through the lens of lowering every barrier possible for people to get / play my game. Raising prices is the opposite of that.

Other things I liked

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Michael Loeb
Michael Loeb
13 days ago

Really enjoy this site for learning about tech, even though most of it is currently highly priced...https://softwarestackinvesting.com/

Have you looked at TAP (or BUD) recently? Maybe its just me, but a company like TAP trading at 8x EBITDA (or BUD at 10-11x) seems pretty cheap compared to most other staples.

If you believe that they are at least stable businesses and not in secular decline due to craft beer growth, then it's hard to see how a double-digit cash flow yield on TAP is inadequate.

Disclosure: No ownership but considering it.