The 100 Baggers Club

Over the past decade and half, 25 listed companies have gained 100x or more in value in the U.S. and Europe. The top performer was XPEL, a Texas-based firm that specializes in automotive surface protection and window tint solutions. XPEL, founded in 1997, has returned 1,182x (i.e., a $100 investment would have grown to $118, 200!). Number two was Patrick Industries, the Indiana-based supplier of parts for RVs and mobile homes, returned 654x. Both XPEL and PATK are relatively tiny companies with market capitalizations of $1.1 billion and $3.0 billion, respectively.   

Source: Thierry from arvy; Syz Group (blog.syzgroup.com). (Note, growth as of April 3, 2024)

Interestingly, this list also includes two of the world’s biggest companies NVIDIA and Netflix. NVIDIA, now the largest company in the world with a market cap of $5.5 trillion, has soared in value by over 31,000%! Fifteen years prior it was still a relatively large ~$18 billion company making this growth all the more remarkable.

                                                                                    

Source: Yahoo Finance and Mantabye. Click to enlarge. 

There are other interesting breakdowns. While most of the firms above are 20-40 years old, the oldest is over 150 years. German biopharma Sartorius was founded way back in 1870 and it's time to be a growth stock finally arrived! Not surprisingly, nearly half of the companies (11) are in tech; four hardware-focused (NVIDIA, Entegris, SMCI, and Besi) and seven software-oriented. Other sectors represented include industrials (5), health care (3), consumer discretionary (3), consumer services (2), and real estate (Sagax). Similarly, more than half (14) are based in the U.S., followed by Europe (9). Finally, based on the most common categorizations of market cap, 23 of these companies were either micro or small-cap companies when their remarkable growth started. Forward 15 years, eight had graduated to mid-cap status, ten to large-cap status, and two (you know who) became mega caps. One, AVIS, also became a meme stock--which certainly has helped its return.

In hindsight, investing in NVIDIA, Netflix, Super Micro, etc. seem pretty obvious. But it's worth remembering there are tens of thousands of publicly traded companies at any given time. Just 25 returned 100x (over the sample period). Good luck finding them! Compare that to the odds hitting the jackpot in private markets. Venture capitalists argue that the most successful companies' growth happen before they go public (which is why you should, naturally, give them your money!). But even VC returns are highly skewed; their 'spray and pray' approach means perhaps only 1 in 40 investments may return a10x, let alone a 100x. So, if you happen to have invested in any one of the above companies in the past 10-15 years, then you've done:
  

When Streaming Killed the TV Star

Change is the only constant...in the 1950s television replaced radio as the dominant form of entertainment. Then came cable television and HBO in the 1970s. Then it was the internet...and YouTube in 2005. Since then, broadcast television and cable have been losing ground to streaming services like YouTube, Netflix, Hulu, etc.; first slowly and then quite rapidly. The future that was long anticipated finally arrived last month. The New York Times reports that in May, "more Americans watched television on streaming than on cable and network television combined." It was the first time that happened over a full month.

Looking at the chart above, Americans were still consuming entertainment primarily through television even as late as five years ago. But streaming has made rapid strides in recent years. And ironically, it may be due to Boomers. As the NYT notes, "It’s no surprise that younger viewers were the first to jump to streaming. But another group has since made the leap as well: viewers over the age of 65." They are the fastest growing age group for streaming services, according to Nielsen. Older viewers watch a lot of television and are drawn to free platforms like Tubi, Roku, and Pluto. 

If the streaming vs television race is all but over, the winners within streaming are just as clear. Not all streamers are equal...YouTube is the undisputed king of streaming capturing 12.5% of all viewing time in May, followed by Netflix (7.5%) and Disney (5.0%).

What's next for the winners? Well, Ted Sarandos, Co-CEO of Netflix, says "What we really are focused on is the 80 percent of TV watching that is not on Netflix or YouTube today.”

The ascension of streaming as the primary form television consumption reminds us of the change seen in the music industry a few decades ago. On August 1, 1981 MTV (Music Television) went live and swiftly revolutionized the way people experienced music by playing (back then) music videos 24/7. The impact of a new technology on existing media was captured eloquently in the Buggles' icon video "Video Killed the Radio Star" (which was played heavily in the early days of MTV). And its message applies just as much to the next incumbent technology.   

Netflix: Not Chilling

Netflix is not having a good 2022. This week the company reported that instead of adding 2.5m subscribers, as expected, it lost 200,000 in Q1. To be fair, the net loss was due to Netflix suspending services in Russia to show solidarity with Ukraine. The decision cost Netflix 700,000 Russian users...so the company's subscriber base actually grew by 500,000. However, the company does expect to lose 2m subscribers by July, as noted by Visual Capitalist. 

So, is streaming reaching a saturation point? Are the vast majority of consumers already getting their entertainment from Apps than their cable modems? Not even close, despite the spectacular growth of streaming in the last few years. According to Nielson, "streaming accounted for just 30 percent of total TV screen time in March 2022, with linear TV (i.e., cable and broadcast) still dominating video consumption."

Yes, streaming has overtaken broadcast TV, but it's still sizable and cable is king. What's more the streaming segment is highly competitive. While Netflix is synonymous with streaming, it only controls about 23% of the market. Disney, Hulu, HBO Max and other streamers are steadily chipping away at the former's share. It's why Netflix has lost about four years of gains in the last four months.

Netflix has jacked up subscription prices, with increasing regularity, to keep being able to deliver massive amounts of (subpar?) content and attract new customers. But the strategy seems to be reaching its limits. So, to get its finances in better order, the company is going after password sharers, which it conspicuously allowed for a long time. It is also trying hard to crack down on scammers in illegal password-sharing marketplaces that offer its premium $19.99/month subscriptions for $1.00/month. Combined the company says password sharing costs it $7b-$8b of revenue per year. Furthermore, Netflix is said to also be considering, gulp, ads!

Regardless, the main metric investors are looking for is growth. Until Netflix can demonstrate consecutive quarters of solid growth, the stock will continue to suffer. 

How the U.S. Economy Works

Deficits, stimulus, bubbles...confused about how our economic system works? Let comedian Mo Amer explain it:

Squid Game: South Dakota Edition

Teachers in South Dakota competed in a "Dash for Cash" game that was reminiscent of the mega-hit Netflix show. Perhaps that was the point, life imitating art. The teachers, wearing hockey helmets, "crawled into the pile of cash, frantically stuffing the bills into their shirts as an arena of spectators hollered and cheered until every dollar was snatched up." 

According to Kelo, the Sioux Falls Stampede, a local hockey team, hosted the event using money donated by CU Mortgage Direct, a Sioux Falls lender (of course!). It was billed as an opportunity for teachers to gather money for their classroom needs, with the rousing tagline: “put it in their shirt, pants, wherever... they can take as much money as they can grab during the time that we have during the intermission.”

A clip of the event went viral over the weekend and critics said the image of teachers on their hands and knees, scrambling for low-denomination bills, was “dehumanizing” and even “dystopian,” especially as teachers are paid relatively small salaries in South Dakota. In fact, according to a recent report from the National Education Association, South Dakota teachers in the 2019-20 fiscal year earned an average annual salary of about $49,000, behind only Mississippi. The state ranked 38th in terms of per-student spending, having spent about $10,800 per student in the fall term of that year...Are you not entertained?

Who Killed Malcolm X?

That's still a mystery. But new evidence shows that two of the three persons actually convicted of doing so were innocent. Inspired by the Netflix documentary of the same name, the Manhattan DA--Cyrus R. Vance, Jr.--is set to exonerate Muhammad A. Aziz, 83, and Khalil Islam (who died in 2009), who along with Mujahid Abdul Halim, were convicted of killing the the charismatic civil rights leader in 1965. Vance acknowledged that Aziz and Islam did not get a fair trial and plans to ask a judge to vacate the convictions on Thursday. Both men have consistently denied being involved in the murder. Halim has confessed to being one of the three gunmen who killed Malcolm X, but testified that neither Aziz nor Islam were involved in one of the most important political assassinations in American history. Both Aziz and Islam served more than two decades in prison for the crime.

Value's Comeback?

The Value factor has had a rough few years, ok...maybe more like a decade. As shown below (click to enlarge chart) Value massively underperformed Growth, particularly in the second half of the last decade with interest rates continuing to remaining near zero; 2020 was just brutal.   

New decade, new hope? With the threat of inflation and rising rates on the horizon as President Biden's plans for up to $6 trillion of fiscal spending gets underway, Value made a strong comeback in Q1 2021. In fact, it was the second best quarter of Value outperformance in nearly a 100 years (click chart below to enlarge). But will it last? After hitting a high of 1.74% on March 31, the yield on the benchmark 10-year Treasury Note has steadily fallen to 1.6% as of May 7. So, don't count the FAANGMs out just yet, they continue to be, we think, investors' best bet (except for maybe Netflix :().

Netflix and Chill? Umm, No Thanks

New data from the CDC shows birth and fertility rates in the U.S. continued to decline in 2020 to the lowest level in more than 40 years down to 56 births per 1,000 women of child-bearing age and 1.6 births per woman, well below the 2.1 replacement rate. Twenty five states had more deaths than births.

Early in the pandemic there had been speculation that with couples cooped up at home with no place to go, there would be a baby boom. Well, the opposite happened. Instead of "Netflix and chilling," couples were just...well, Netflix binging. The amount of time U.S. households spent streaming nearly doubled in 2020 over 2019. It's hard to get busy when you're busy watching the Queen's Gambit, the Crown or Bridgerton. Last year Netflix added 37 million new subscribers worldwide — by far the biggest increase since the company expanded its DVD-by-rental service into video streaming 14 years ago. But its wasn't just Netflix, Amazon, Disney+ and a plethora of other streaming services gained captive viewers.

Of course, correlation isn't causation as statisticians frequently warn...so what's really happening? As the NYT notes, "births tend to dip after economic crises, as women put off having babies because of uncertainty with jobs and income. The birthrate dropped sharply in the early 1930s, after a stock market crash precipitated the Great Depression. But it picked up a few years later, once the economy started to bounce back. However, the recent decline, which began after the Great Recession in 2008, has continued, despite improvements in the economy. This unusual pattern has led demographers to wonder whether something else is going on."

Economics still may be an important factor, as couples worry about student debt, housing affordability and rising cost of child rearing, but there is also likely a social impetus with women choosing to form families at later ages to complete studies, build careers and generally gain more "maturity".

There are of course economic consequences to a lower birth rate. Combined with a leveling off of immigration rates (see chart below), falling birth rates could slow long-term growth. After all, GDP growth is driven by two key factors, the size of the labor force and productivity gains (for a given level of capital stock, which is ample in developed countries). Unless there are significant increases in productivity (which hasn't happened in 20 years), a shrinking labor pool will challenge standards of living as retirement and health benefits financed through taxes fall increasingly on lower proportions of the population. As they say, demographics is destiny...

The Queen's Gambit

NetFlix has clearly picked quantity over quality...so many forgettable originals. The Queen's Gambit is a rare gem from the streaming giant. The mini-series tracks the meteoric rise of a troubled female chess genius (a female Bobby Fischer of sorts...without the clinical paranoia).