Raptor Dan writes:
When I rated a few hundred stocks again recently, ANET came in at #1 and TREE at #2. The way it’s set up, one or a few places between companies normally doesn’t make much difference, but these 2 scored so far above the others that they were pretty much in a class by themselves. The one caveate would be that it’s apples & organges, but still it’s pretty telling that a lender could compete with high tech when the focus is on growth and momentum. I don’t see any roadblocks whatsoever, so this may become a long-term holding for me as long as they continue to perform like they have to date.
Thanks Dan for the info. The Lending Tree is NOT a lender any more than a stock broker is a fund manager. Years ago we discussed who the real beneficiaries of high tech would be, providers or users. The consensus was on the users. The Lending Tree is using high tech (the Internet a.k.a. the WWW) to deliver information about credit issues to borrowers. It’s optimizing the retail credit marketplace. The Lending Tree has no credit risk, if it did I would not even consider them as an investment.
Think convergence. High tech is the fastest growing sector of the economy with healthcare or finance, depending on who you listen to, in second place. The Lending Tree puts you at that sweet spot just like BEAT, IRTC, and BTCY put you at the convergence of high tech and medicine.
Further along the tread mauser96 writes:
denny I recently bought some TREE. But I do not see much of a moat and it is not cheap.
None of these stocks look cheap while, in fact, they are cheap if they perform as expected. A big “if” no doubt. If you don’t see the moat it would be difficult to invest in them.
These convergence businesses have a different kind of moat than, say, high cost of entry, a typical moat in the industrial era, or patent hurdles. The moat here is mostly the network effect which is one reason companies like Amazon prefer to gab marketshare than to make a profit. It’s inherent in the “increasing returns” kind of business or “the more you sell the more you sell” kind of business. In the computer business that applied to IBM in the 1970s, to Wintel in the 1990s. You didn’t have to have Windows but not having Windows made it difficult for business to communicate since everyone else was “talking” Windows. One reason to go to Amazon to buy books is because that’s where the book reviews are.
These moats are not very permanent, they can be breached in time like the real moats surrounding castles could be overcome. What you want to look for is the number one provider in each category. Does The Lending Tree have a real competitor here and now? It might later on and that will be the time to rotate your money elsewhere.
Looked at in a “lifetime” framework, growth is best described by the “S” curve. We want to be invested during the middle, fast-growth time, when the stock is too expensive by traditional metrics but supported mostly by growth.
Tinker likes TTD but likes other stuff better. There is no arguing with that! I concur that NVDA’s moat is more physical than TTD’s. But these preferences sometimes turn into blinders. I replied to Tinker’s Amazon objection
These three companies mentioned in the article alone will spend more than $800 million with Amazon over the next year, which is multiples greater than TTD’s entire revenues for the year.
This is an ants to aardvarks comparison. The $800 million is what TTD calls “gross spend.”
We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising, data and other features through our platform, the total of which we refer to as gross spend. We enter into ongoing master service agreements with our clients as opposed to episodic insertion orders. To further align our interests with those of our clients, we do not buy advertising inventory in order to resell it to our clients for a profit.
TTD’s nine month 2017 revenue was $205.6 million, call it $275 million for the year. If they charge 5%, the “take rate,” then the gross spend is 20 times that, $5,500 million. I could not find any indiction of what the take rate is except it is variable.