We're in the middle of the online dating theme for our Not So Deep Dive episodes, and last week we looked at Grindr $GRND. Grindr is the largest online dating platform focused on the LGBTQ community. Here are my scattered thoughts:

Grindr has clearly found product market fit. It was early to the mobile dating space and the platform has stuck. Now at roughly 12 million monthly active users, Grindr is clearly in the zeitgeist. It's a product with tremendous brand awareness which has allowed them to scale through their network effect requiring basically zero marketing spend. Obviously, that lends itself to pretty solid economics (~40% EBITDA margins).

My only real hiccup here is the lack of focus on shareholders. The company went public a couple of months ago via a SPAC and treated it simply as a liquidation event. In other words, the company received no cash from the SPAC, it only gave insiders a way to sell. Additionally, management appeared intentionally misleading when pressed about tough issues. During an interview on CNBC the day of their public listing, the CEO was asked how many shares outstanding the company actually had (the prospectus made it extremely difficult to tell), and he said he didn't know exactly but that it was more than 120 million. I emailed their investor relations and the answer was 173.5 million. So ya, a little misleading for anyone who tuned in that day. They also run at ~4x net debt to adj. EBITDA, which is ok given their current cash flow but it's all variable rate debt with an effective interest rate north of 10%. If rates continue to rise that'll be a whole lot of interest expense, making the Adj. EBITDA figure they cite more useless than it already is. And then on top of everything else, it trades at an EV to free cash flow of 33x. So not cheap.

In summary, Grindr's got a great product. Since it's so well known, they require very little spend to grow which makes for great economics. If the business gets a few years of operating as a public company under their belt, this is certainly something I could own down the road. But definitely not today, and certainly not at this price.

Here's our full episode for anyone who's interested: https://open.spotify.com/episode/5BYO0eJCnjAzQAdbS7AktQ?si=72a70532ebbc42f7

For the September Idea Competition, I pitched Wix.com. At the time the stock traded at ~$76 per share.

The thesis I laid out was fairly straightforward:

Now not to toot my own horn, but it looks like these predictions are quickly proving to be correct. 1) Market share has continued to expand. 2) Creative subscriptions revenue grew 8% in an overall down year for the website building market (rev growth mostly driven by price increases). 3) And cost reductions are working. They are expecting to exit next year with 12%-13% FCF margins, increasing the year after.

However, the stock price has now responded accordingly, up roughly 25% since I posted the pitch.

Truth be told, I've never been a big fan of the management team at Wix. They've been too promotional of the stock in the past, the CEO owns more of Monday.com than he does of Wix, and they consistently give out SBC like it's candy. On top of that, the business solutions segment (think Wix Pay, Wix Scheduling, and other business services) has seen growth completely stall out despite big investments into it.

Considering that, the math doesn't make quite as much sense here. In fact, here's what it would take to get at least a 10% return. By 2025:

You can maneuver those numbers how you want, but essentially that means I'm betting on well above average performance for just over market returns. Feels like the juice is no longer worth the squeeze here.

We discussed American Express $AXP for our Chit Chat Money Not So Deep Dive episode this week and I came away really impressed.

Since AmEx operates across the entire transaction lifecycle, they earn money in a number of ways. The primary ones being:

1) Merchant Fees

2) Card Fees

3) Interest Income

Because of this diverse revenue mix, AmEx's earnings have been generally well protected from the recent surge in interest rates. Most credit providers can't say the same. Additionally, AmEx is home to a highly attractive cardholder base which should give them better spending resilience in an economic downturn.

Here are 4 charts that I think encapsulate the durability quite well and indicate that this could be an even better business in 5 years.

Total Cards-In-Force since 2012:

Average annual fee to be an AmEx Cardholder:

Merchant Acceptance rate in the US:

And an increasingly younger age demographic for new accounts:

If you want to listen to an entire breakdown of the business, here's our episode on American Express. https://open.spotify.com/episode/02CYJiR78ge96EYza3YqL7?si=Lp7h-dQUQ_arWbtUuAbTEw

"There's this tendency among bank investors to get stuck up on this idea of metrics and all that kind of stuff. But it just doesn't mean anything. If you really know what you're doing, it doesn't mean anything. So what do you have to do? You have to assess the people that are running these organizations. That's the only way you can get a sense for whether those metrics are even worth taking a look at."

This week, we interviewed John Maxfield on all things banks. I enjoyed the whole interview but this particular part of the discussion really stuck with me. Management's integrity and their approach to risk management is truly the only thing standing between a durable financial institution and a failed one.

If you're truly interested in investing in banks, I highly recommend listening to our interview with John: https://open.spotify.com/episode/3OcWOEKBTl7IkZRr7kZoEz?si=BplSRx6bR4yQoGmgIOPkZA

We revisited Block $SQ this week on our podcast, and I was once again blown away by the unit economics at their two core businesses -- Square and the Cash App. For example, at the Cash App, it costs $10 on average to acquire an active customer and within 3 years each of those customers contributes $60 in gross profit. Impressive.

The unfortunate part however, is that none of the dollars generated by these wonderful businesses actually go to the shareholders. Instead it goes to things like buying Afterpay at a clear premium, buying Tidal so Jack can be friends with Jay-Z, and random bitcoin projects because Jack says so (and just overall operating expenses). I know I sound like a hater, but bear with me.

There are probably some people that believe in not only what Jack Dorsey says about how bitcoin can level the playing field for everyone and democratize the financial system and so on, but also probably believe in him as a CEO. I respect that. What I dislike though, is the hypocrisy of it all.

In last year's proxy statement, there was a proposal to gradually remove the disproportionate voting rights on the dual class share structure. If this happened, that would mean that every share would be equal to one vote, aka fairness for all, right? However, the board (led by Dorsey) opposed the deal. Now why would some who is so in favor of leveling the playing vote against something that does just that? Well because he'd lose his voting power. So he's a fan of fairness for all but only when it benefits him.

If the share structure was changed, it would allow activists to step in and help realize what the business is truly worth. If that ever happens, I will be once again eager to be a shareholder, but until it does I have a hard time owning the business given that there is literally no telling what Jack Dorsey will do with the money. Maybe he'll buy another $500 million worth of bitcoin or even more, who knows?

We broke down the whole business here for those that want to listen: https://open.spotify.com/episode/1MXPZhLJE3SxpB1NdhbTfU?si=b3aLEENsRxev8k4J66zzZg

MarketAxess is the largest electronic bond trading platform in the world. Catering to large institutions, MarketAxess has developed an impressive network of fixed-income buyers and sellers.

As more clients join the platform, buyers are able to get the best possible prices quoted thanks to competing offers, while sellers are simultaneously able to tap into the largest possible pool of buyers. This provides a wonderful network effect which should continue to drive further customer and transaction growth over time. As all classes of bonds (High Grade, High Yield, Emerging market, Eurobonds, Municipal, and US Govt.) become traded increasingly digitally, this puts MarketAxess in the perfect position to benefit.

Here's our full episode breaking down the business: https://open.spotify.com/episode/4Tn0A5hwZNwaYchEo9xxgc?si=d6486c99fd6741ab

Spent some of the morning looking at SS&C Technologies, whose primary business is providing software for the financial services industry. So administrative services and portfolio accounting for big funds and asset managers.

Having some experience working with fund administrators, I already know that the service is quite sticky. Once you've worked with an administrator for a while, it can be logistically painful (and costly) to switch. $SSNC was founded, and is still run by, CEO Bill Stone who has done a remarkable job acquiring ancillary software providers and drastically expanding their profit margins. Here's a slide from a 2019 investor presentation they had.

Bill Stone appears to run the business quite lean and even mentioned that they think they can generate an incremental $75 million in annual savings from robotic process automation next year. Currently trades at an EV to FCF of ~21x. Looks pretty compelling to me. Would love to hear from anyone else familiar with the company.

Tomorrow we're releasing a podcast episode explaining why we own Alphabet $GOOG in our Arch Capital Investors Fund.

In short, we think it's perhaps the most durable digital business in the world as evidenced by its passing of multiple "Moat Tests" and has ample ways to drive further revenue growth from here. Look forward to sharing it with you all here: https://open.spotify.com/show/4SBtOWGEOmD9pmltgIXO8r?si=e2ecab56a00242ca

And in honor of the show, here's a throwback to their S-1. Perhaps the most impressive S-1 of all time.

I'm a Match Group shareholder and firm believer in both the overall growth of online dating as a whole as well as Match Group's leadership position within it. Yet this quarter the CFO said something pretty concerning which seriously makes me question the competence of this management team in general.

When explaining why they chose not to repurchase any shares during the quarter, CFO Gary Swidler said, "We were concerned by the high volatility and weakness in the equity markets generally in Q4 which drove ours and many others' stock prices down during the quarter."

So let me get this straight. You reported $1.1 billion in adjusted operating income for the year (typically converts about 70% to FCF), you're sitting at about a ~$17 billion enterprise value, and you expect to meaningfully grow in the coming years. Yet you opted not to buy back shares because the "stock was down too much this quarter"?? What does that even mean?

That might be one of the weirdest (stupidest) things I've ever heard a CFO say. Why not just say "hey we knew we were gonna have a terrible quarter so thought it'd be better to just wait to buy back shares"? At least that would make some sense.

Match Group reported its 4th quarter results for 2022 last night. A little underwhelming but here are some of the numbers:

Overall thoughts: This was obviously a difficult and transformational year for the company. Bernard Kim stepped in as CEO and has been busy assembling the team around that he wants.

As for their portfolio, Hinge continues to be a bright spot. They are just now launching across Europe and seeing remarkable success. They're expecting $400 million in revenue from Hinge in 2023, which I imagine will accelerate in 2024 as they rollout monetization efforts in their new markets.

Tinder product updates have been poor and slow, and yet still the business continues to grow its payers and revenue per payer in constant currency. With BK acting as CEO of Tinder for the time being, they should be in better shape this year as they execute on the product roadmap they laid out in the shareholder letter.

All in all, if you exclude foreign exchange headwinds, this whole year looks drastically better. Dollar appreciation looks to be reverting somewhat against most currencies, so I imagine constant currency adjustments could even serve as a tailwind throughout 2023. I expect Match will generate ~$1 billion in annual free cash flow within the next 1 to 2 years and inch closer to $2 billion in the not too distant future. At it's ~$17B enterprise value, I'm comfortable continuing to own this.