Three Things (June 30th)

Wednesday, Jun 30th 2021

Commentary

“It is not enough to be industrious; so are the ants. What are you industrious about?” - Henry David Thoreau

1) Dealerships sell used vehicles above the sticker price, bolstering our view on CARG and suggesting possible rise in inflation

As a result of global chip shortages and COVID-19 driven supply chain constraints last year, production of new vehicles has slowed, leading to a shortage of used vehicles across the US. These events have resulted in high vehicle prices today, with the WSJ reporting that many dealerships are now selling cars above their sticker price. As investors in Cargurus (CARG, an Opportunities portfolio holding), we will continue to hold our position: we believe transitory inventory shortages will further incentivize dealers to post cars online, in order to maximize gross profit per vehicle during periods of relatively strong demand. Taking a step back, average selling prices for used vehicles are an indicator officials use to predict inflation, and recent trends may suggest that inflation could rise near-term.

2) Adidas launches new share buy-back program, reinforcing our view of a strong demand environment in 2021

Adidas (ADDYY, an Offshore portfolio holding) recently announced a €550M share buy-back program, starting July 1st. The move forms part of the company’s plans to return up to €9B to shareholders over the course of the next five years, through dividend payouts and share buy-backs. Although the new share buyback program was not a part of our original thesis on ADDYY, the increased capital allocation to shareholders reinforces our conviction of a strong demand environment in 2021. Our thesis remains the same: we believe that ADDYY has worldwide secular growth potential, and we expect the company’s gross profit to grow faster than sales, driven by corporate efficiency and its DTC business.

3) Facebook adds to wave of newsletter platforms with launch of Bulletin

Facebook has announced the launch of Bulletin, a newsletter platform separate from Facebook Blue. While Bulletin users won’t need a Facebook account to subscribe to a newsletter, Bulletin is reliant on Facebook’s existing infrastructure to provide newsletter creators with more tools to help them build their business (e.g., through Live Audio Rooms and Facebook Pay). Bulletin falls in line with the industry’s renewed interest in newsletters, stemming from the strong growth of startups like Substack and Revue. More broadly, we continue to believe that Facebook’s range of tools is becoming a moat for its users and creators, presenting the company with a long runway of growth for both engagement and advertising revenue.

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