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I guess there's a reason for why I
E-commerce so much. These lessons are as important as the returns.
Sharing with few Fintwit friends. @saxena_puru @FromValue @dhaval_kotecha @richard_chu97 @adventuresinfi @BahamaBen9 @TMFJMo @7Innovator @borrowed_ideas @investing_city
E-commerce so much. These lessons are as important as the returns.Sharing with few Fintwit friends. @saxena_puru @FromValue @dhaval_kotecha @richard_chu97 @adventuresinfi @BahamaBen9 @TMFJMo @7Innovator @borrowed_ideas @investing_city
Thank god I didn't wait for consistent GAAP profitability before investing in them (like I do for most other sectors). 
Positions : $MELI $AMZN $BABA $SHOP $ETSY $W $SE $CHWY
Watchlist : $JD $PDD $FTCH $MWK
Haven't analyzed much : $JMIA $OZON
Positions : $MELI $AMZN $BABA $SHOP $ETSY $W $SE $CHWY
Watchlist : $JD $PDD $FTCH $MWK
Haven't analyzed much : $JMIA $OZON
E-Commerce is one of those sectors where you have to understand the Business model and lot of non-GAAP (but Business driving) metrics & KPIs.
I'm not an expert by any means, but these are some of the things I broadly think about.
Is the Company a Marketplace (1st party, 3rd party, both?) or a Platform, a combination?
Does it handle inventory?
Does it handle payments in house?
Is the Company a Marketplace (1st party, 3rd party, both?) or a Platform, a combination?Does it handle inventory?Does it handle payments in house?
What other services is it offering to Merchants (Logistics, Shipping, Credit, Marketing ...)What other services is it offering to Buyers (Digital Wallet, fast shipping, loyalty rewards....)How is the Company leveraging the Marketplace or Data Network effects?
How is it funding the expansion and growth?-Operating Cash Flow?
-Shareholder dilution?
-Debt increase?
Are any of those actions making them vulnerable to unfavorable Market conditions?
Who are this Company's main competitors in the countries/categories they operate? Why is this Company winning over them? Difference in strategy/execution? How sustainable is it?
Some KPIs to look at for E-Commerce Co's before diving into Financial stmnts.
Num of Users & growth trajectory
How is it acquiring those Customers? (Direct Marketing, partnerships, social/viral....)
Num of Subscription or repeat Users?
Retention & Cohort trends
Num of Users & growth trajectoryHow is it acquiring those Customers? (Direct Marketing, partnerships, social/viral....)Num of Subscription or repeat Users? Retention & Cohort trends
What is it doing to retain, engage & monetize Users?What are the core/strongest categories? Where is it expanding & seeing success?Is it expanding into new geographies? Opportunities vs Challenges. Look for actual data instead of guesses about it's success/failure.
Total Items sold?Items per User? Items per Basket?Gross Merchandise valueTake Rate levels and trends?
Take rate too low? Is the Company providing enough value for the transaction? Take rate too high? Is the Company creating an opportunity for Competitors? Is it detracting existing/new Customers?What else would you add?
Coming back to the overall lessons learnt from these E-commerce positions..
Investing is not a set of isolated actions & results. What you learned in a position can be applied elsewhere while making your overall process & returns better.
Three quick examples below.
Investing is not a set of isolated actions & results. What you learned in a position can be applied elsewhere while making your overall process & returns better.
Three quick examples below.
1) $AMZN taught me the power of investing in long-term moat enhancing things can be much more important than aiming for short term business profitability.
The opportunity to invest and capability to execute should be there. The Company needs to produce the results to gain your trust of course.
I used the same playbook when analyzing, investing in and monitoring $SHOP $W
I used the same playbook when analyzing, investing in and monitoring $SHOP $W
2) When I sold $NFLX too early for a modest 80% gain in 2017, while missing on a subsequent 500% gain, all the while not having a good reason to sell or having a better opportunity to invest...
it taught me to hold on to your winners while they have a wide open field in which they are executing beautifully despite short term over/under valuation.
I used that lesson to stay in $MELI for a 1800% gain while not getting tempted by 200%, 500% or even a 1000% gain to sell.
I used that lesson to stay in $MELI for a 1800% gain while not getting tempted by 200%, 500% or even a 1000% gain to sell.
3) My earlier failures in few consumer/fashion related stocks taught me that an objective analysis of current facts should always win over whatever your prior beliefs/position/thesis were.
On the flip side, if new information proves that...
On the flip side, if new information proves that...
...a Company is much stronger/better than you previously thought (while still offering an attractive return potential), you should buy it.
This led me to take a position in #ETSY back in 2019 when it was already clear that $AMZN can't just bury it.
This led me to take a position in #ETSY back in 2019 when it was already clear that $AMZN can't just bury it.
OK I guess that's enough for today. Hope you all found some of this useful.
All the best with your E-commerce positions. This trend still has long ways to go....
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All the best with your E-commerce positions. This trend still has long ways to go....
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