Value Investing COVID-19’s implications for private equity and portfolio companies

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• COVID-19’s implications for private equity and portfolio companies
• Police Security Flashlight & Police Security Brands Flashlight Prices *2020
• Is there a bull case for coal in the near term?
• Conduit Capital - Riskowitz
• Sprout Social (SPT) Analysis

COVID-19’s implications for private equity and portfolio companies Posted: 23 Oct 2020 02:30 PM PDT submitted by /u/ilikepancakez [link] [comments]

Police Security Flashlight & Police Security Brands Flashlight Prices *2020 Posted: 24 Oct 2020 03:37 AM PDT submitted by /u/rlady81 [link] [comments]

Is there a bull case for coal in the near term? Posted: 23 Oct 2020 12:00 PM PDT I don't have any insight on this because I have no idea of how much capacity can be switched from gas back to coal. I think there's a pretty well socialized bull case on natural gas and the corresponding equities given declines in associated gas production. You can see the market has reacted appropriately with some natural gas stocks up significantly (>3x) from their March lows. However, I'm assuming at some point with HH now above $3 we could see some gas to coal switching to the horror of the current ESG trend permeating through the market. Anyone on the utils or commodity side hear anything about this? Coal stocks (ARCH, ARLP, BTU, CEIX) are still hovering near or below March lows. Estimates across the Street seem to have 2021 only up marginally from 2020 implying I am completely wrong here as well. submitted by /u/flyingflail [link] [comments]

Conduit Capital - Riskowitz Posted: 23 Oct 2020 12:27 PM PDT Does anyone have insight into this situation? The Conduit vehicle was supposed to be a BRK-like vehicle for investors looking for South African exposure. The reality has been more akin to Biglari Holdings for LPs. I suspect the sponsor, Riskowitz, has fared well despite this outcome: https://finance.yahoo.com/quote/CND.JO. Background: https://www.businesslive.co.za/fm/money-and-investing/2019-09-26-enigmatic-sean-riskowitz-takes-on-the-sceptics/. submitted by /u/hukkaberry [link] [comments]

Sprout Social (SPT) Analysis Posted: 22 Oct 2020 07:04 AM PDT Hi all, Thanks for the discussion on my post about Goosehead (GHSD). I really enjoyed that. I did a valuation on Sprout Social (SPT) too. Like before, I won't have the financial model in the article because I don't know if it's allowed. Please message me for the model and I will happily provide it for you to do your own valuation. Here's my deep-dive on Sprout. Happy to discuss :) Investment Thesis Sprout is a growing technology company operating in the content management industry. They have seen significant growth in revenues, with an increase of 75.43% and 30.43% in core revenues for 2018 and 2019 respectively. We expect their revenues to grow at a slightly slower rate as the market for social media content software matures, and market entrants are able to take market share. Sprout has been unable to maintain an effective moat, keeping it unable to reach profitability. Thesis: Because of Sprout's inability to differentiate itself through either product or target market, their spend on marketing and advertising will continue to outpace its revenue growth and keep it from profitability. For these reasons, we believe Sprout is significantly overvalued. Company Overview Sprout Social was founded and had its first round of funding for $1 million in 2010. The product, Sprout 2.0, was launched the following year. Since then, Sprout has grown to nearly $103 million in annual sales as of 2019. Sprout has come about in a competitive industry and struggled to establish an effective moat. However, the brand is well known by users and potential customers. It is easily identifiable by its leaf logo. Sprout operates as a content management system for social media sites. The site offers easy-to-use software and visually appealing dashboards and reports. Also offered is analytics for marketing campaigns on the social sites. The software allows for content management across Twitter, Facebook, Instagram, Pinterest, LinkedIn, Google, and Youtube. It allows for post scheduling, engagement, and analytics across all platforms. Having a centralized location for all of these features for a marketing team allows for stronger review of the effectiveness of social media campaigns and easier collaboration for marketing teams. Sprout offers its products on a per-user basis and opens up plenty of opportunity to upsell either additional features, or add on users. In addition to subscription revenue, Sprout also generates revenue from professional services fees. These are primarily implementation costs by Sprout's technical teams. The company has not done much in the way of finding a niche. However, it does have different offerings for small businesses and larger enterprises on its site. Sprout seems to want to appeal to all sizes of companies as it grows. Given the competitive industry, this may not be an effective strategy long-term. Industry Overview The industry that Sprout operates in – social media content management- is relatively new on the scene. Sprout was one of the earlier contenders in the space and managed to grow to a respectable size. Like all those in the social media space, Sprout's dashboards are sleek and their software is easy-to-use. Because of this, it's had high user scores and customer retention. These are definitely points for a higher valuation for Sprout, but there is nothing that Sprout has that is unique to them in this sense. All the points that Sprout maintains for strong user experience, their competitors do too. It is simply expected of the companies in the industry now, not a standout feature. Sprout has many competitors, but their most notable ones would be Hootsuite and Hubspot. Of these, Hubspot appears to be best for smaller companies. Their starting price point is much lower than Hootsuite at $50/month compared to Hootsuite's $190/month. Despite this, Hootsuite claims to cater to smaller and medium-sized companies. Sprout targets both large and small companies, but because they have not identified a niche, they are likely to lose market share to Hootsuite in the small business market with their lower entry price point. Also troubling for Sprout is their lack of transparency. Of the three, Sprout is the only one that does not offer a minimum price on their website. Again, this could cause a loss in the small business market. But it would be less likely to lose market share in the more sophisticated large business market, where potential users would be more willing to ask for a consultation for pricing and customization. Strengths Sprout has a strong balance sheet and cash position. This strength, however, points to a hidden weakness. The company is about ten years old, and in that time, it is still funded primarily through rounds of equity funding, not positive operating cash flow. This means it has not reached profitability yet, and its cash burn reflects that. Despite the negative operating and investing cash flows, Sprout's 2019 IPO funding should keep its balance sheet and cash position stable for at least a few more years, even if it cannot reach positive cash flows. Another strength of Sprout's is its revenue growth rate. High growth is expected for a new technology company, however. Its core revenues grew a staggering 75.43% and 30.43% for years 2018 and 2019, respectively. Weaknesses For Sprout's weaknesses, we can compare operating results to competing companies to see where they may be underperforming in the broader industry. Sprout's gross profit appears strong, with a gross margin hovering around 25% over years 2017-2019. It increases slightly from year to year. Cost of revenue consists primarily of hosting costs and providing support to customers on the platform. While this margin would be very admirable for a company offering a tangible product, software companies are generally expected to maintain lower gross profit margins. For comparison, Hubspot's gross profit margin is 19.26% for 2019. This leads us to believe Hubspot is more efficient in offering its products and services to its customers than Sprout is. Hubspot's average annual growth rate in its core revenues hovers around 30-40%. Although this rate is slightly lower than Sprout posted in 2018 of 75.43%, it controls significantly more market share. Hubspot's 2019 revenues were $674 million, compared to Sprout's $103 million. Given that Sprout is significantly smaller than Hubspot, we would expect Sprout's revenues to be growing at a faster rate than Hubspot since there is more market share available for Sprout to take. This leads us to believe there are inefficiencies in the marketing department for Sprout that are hampering its growth potential. It also appears there are operational inefficiencies reducing its ability to improve its profit margin. Opportunities The industry is expected to grow at a CAGR of 14.1%, and we forecasted Sprout's revenues at a generous range of growth from 50% to 17% CAGR over a ten year period. Sprout's primary opportunities will come from the growth in the industry around it. The other opportunity it should benefit from is its age and the benefits that it affords. This will primarily come from its contacts at larger companies. Sprout should see sufficient cross-selling opportunities in the companies it already transacts with. And the fact that it utilizes a per-user pricing model means that as a client of theirs grows, the more users it may need to license. Customer build-up and increased user licenses means customer retention will be increasingly important. Luckily for Sprout, this is already one of their strong points. Out of 1,326 reviews, Sprout has maintained a user score of 4.3 / 5 stars. Customer retention should over time reduce marketing and sales spending, as this is such a large component of their total expenses. In 2019, marketing and sales spending represented more than 45% of total expenses. Keeping this amount in check over time should significantly increase the chance of profitability. Threats Sprout's primary threat is its inability to gain significant market share. Its marketing spend appears to be less effective than its competitor Hubspot. Hubspot expands its selling and marketing expenses by roughly 25-30% per year, whereas Sprout's expands at roughly 50% per year. Despite this, Hubspot is growing at a comparable rate to Sprout even though it controls roughly 6x as much market share. If Sprout is unable to gain more market share in a reasonable time period going forward, profitability will be out of reach. Their cash burn rate for 2019 was nearly 33%, and without more rounds of funding they could be facing a liquidity problem within a few years. Financial Model & Valuation We used assumptions that forecasted revenues at growing at a consistent rate from 50% CAGR to 17% CAGR over a ten year period. Because of our assumptions above, we forecasted Sprout's marketing and advertising expenses at a high rate going forward as well. Our outcome was that Sprout was significantly overvalued. For a look at our exact numbers we used and to test your own, please send us a message and we will provide the model for your use to value Sprout. Thanks for reading! submitted by /u/smallcapconnoisseur [link] [comments]

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