Investment Pitches

Pitch Summary:
First Citizens Bank (FCNCA) is our newest purchase, and a 1% position so far. It is the bank that bought most of the remains of Silicon Valley Bank, putting the North Carolina bank on many investors' radars. I bought its shares 90% higher than it started the year, which is unusual, but the gains FCNCA made in its SVB purchase are also unusual. The company trades at just above its tangible book value, while earning a good deal more than banks which trade for that value, usually. FCNCA is one of the banks that would suffer from rate cuts, so that is a risk to watch out for, but it has a great reputation and track record, and at a fair price it seems like it is worth fitting into our portfolio.

BSD Analysis:
The manager identifies First Citizens as an opportunistic value play following its transformative Silicon Valley Bank acquisition. Despite shares appreciating 90% year-to-date, the bank trades at tangible book value while generating superior returns compared to peers at similar valuations, indicating potential mispricing. The SVB acquisition likely provided significant asset and deposit growth at attractive pricing, creating a step-function improvement in earning power. Management's strong reputation and execution track record support confidence in successful integration and value realization. The primary risk centers on interest rate sensitivity, as rate cuts would compress net interest margins that currently benefit from the higher rate environment. However, the valuation provides downside protection while the SVB integration offers meaningful upside optionality. The investment represents a calculated bet on management's ability to extract value from a distressed asset acquisition.

Pitch Summary:
Eventbrite (EB) was our biggest new purchase. The company is an online ticketing and events platform. It is mostly for smaller venues and creators – average paid tickets per event is about 40 – and a leader in that niche. It is also close to real profitability, growing 20%+ a year, and has a management team that took a long time to figure out what they should focus on, but seems to have figured it out. I wrote this up in more detail, but it reminds me a bit of Spotify a year ago. It also reminds me of Duolingo, and that lesson pushed me to open an initial position at slightly higher prices. Which is good, because the stock has just gone up since, for no specific reason.

BSD Analysis:
The manager presents a compelling bull case for Eventbrite as a specialized leader in the small-venue ticketing niche with strong fundamentals. The company demonstrates attractive growth metrics with 20%+ annual revenue expansion while approaching profitability, suggesting operational leverage is materializing. Management appears to have achieved strategic clarity after a period of focus-finding, which often precedes accelerated execution. The comparison to Spotify's trajectory a year prior implies significant upside potential from current levels. The platform's dominance in the small-venue segment (40 tickets per event average) provides a defensible market position with limited competition. Recent price appreciation without fundamental catalysts suggests the market is beginning to recognize the company's improving prospects. The investment thesis centers on a turnaround story with clear growth visibility and margin expansion potential.

Pitch Summary:
Inherently broken business model (razor-thin margin during strong market, but big losses during down market); unable to increase the capital base - as more capital equals higher cost; losses are expected well into 2024 eroding the remaining equity; more than 75% downside;

BSD Analysis:
Opendoor pioneered the iBuyer model, using balance sheet capital to purchase and resell homes at scale. The short thesis points to cyclical housing exposure, razor-thin margins, and heavy reliance on favorable credit markets. Rising mortgage rates have slowed transaction volumes, while spreads remain tight. Inventory write-downs during the 2022 slowdown exposed fragility. Pivot to partnerships and marketplaces limits exposure, but skeptics argue the economics remain unproven. Leverage and cash burn remain concerns in higher-for-longer rates.

Pitch Summary:
In 2023, our best performers again have been companies with mechanisms for unlocking value. Technology company Opera paid a 10% special dividend in January 2023, and in the second half of the year, current fund holding NRG Energy repurchased shares and paid dividends worth over 15% of its market cap. Unsurprisingly, both stocks materially outperformed our benchmarks in 2023.

BSD Analysis:
The manager highlights NRG Energy as a top performer in 2023 due to its aggressive capital return strategy. The company executed significant shareholder-friendly actions, repurchasing shares and paying dividends totaling over 15% of its market capitalization in the second half of 2023. This substantial capital return program demonstrates management's commitment to unlocking value for shareholders through direct cash distributions and share count reduction. The manager's thesis centers on value catalysts, positioning NRG as a beneficiary of this approach. The stock's material outperformance versus benchmarks validates the manager's catalyst-driven investment strategy. NRG's ability to generate substantial free cash flow enables these aggressive capital return policies. The manager views companies with active value-unlocking mechanisms as superior investments in the current market environment.

Pitch Summary:
Alphabet Inc. is a collection of businesses which in aggregate, place the company amongst the highest quality franchises in the world. If you are reading this, there is a high probability that you use one or more of Alphabet's products or services on a daily basis. From a high level, the business generates revenues in three major ways: Online Advertising (80.3% of Total Revenue) Apps, Hardware, Content (10.4%') Cloud Computing Services (9.3%') Alphabet has strong competitive positions in each of their major operating segments. The company has a natural monopoly in their Google Search business, which handles over 90% of all search queries worldwide. They own the world's most popular video-sharing site, YouTube, with over 2.6 billion active users as of 2023. Technically, YouTube is the second largest search engine after Google. In the OS market, Alphabet's Android holds a 72% global market share as of Q1 2023, effectively competing in a duopoly with Apple's IOS. By launching Android in 2007, Google positioned itself well in the faster-growing mobile advertising market, maintaining its online search dominance and strengthening its network effect. Google's Chrome browser remains the global market leader with 66% share, compared with 19% for Apple's Safari and 4% for Microsoft's Edge. The company's cloud division, Google Cloud Platform (GCP), is the third largest in the world, trailing behind Amazons AWS and Microsoft's Azure. The company also owns a massive investment portfolio with roughly $92B in marketable securities and another $30B in long-term investments through their subsidiaries, CapitalG and Google Ventures. Alphabet's businesses are supported by powerful global tailwinds of expanding high-speed Internet access and increasing digital transformations across world economies. These secular trends drive the proliferation of web usage, content creation, digital advertising, mobile computing, streaming entertainment, and cloud computing. The company sits squarely at the center of each of these trends, and as the established leader, is best positioned to capitalize on the winner-take-most dynamic associated with platform businesses. We believe that Alphabet has a broad-based competitive advantage related to the data-collection capabilities of their various ecosystems. The company has been able to build this advantage over the prior two decades by providing high value products and services at no cost for users, combined with superior technological expertise in machine learning. In 2023, Alphabets shares increased by 58.3%, beating the market by a wide margin. When we first wrote about our investment in Google, we highlighted much of the negative sentiment around the company, stating, "Good investment opportunities often present themselves with a confluence of negative headlines and concerns over market disruption. We believe that the circumstances that led to our investment in Alphabet are no different. Some of these market concerns include rising competitive pressures from Microsoft's ChatGPT, antitrust lawsuits from governments and companies around the world, and a potential recession-induced downturn in online advertising. The company also did not do their shareholders any favors when they made a marketing blunder in their first demo for their A.I. Chatbot, Bard. We are of the opinion that aside from rising competitive pressures, these concerns should largely be ignored by long-term investors. While it is plausible that Microsoft can take some market share in Search, we find that (a) the markets that Alphabet operate in are large and growing fast enough to sustain multiple players and (b) Alphabet has the technical capabilities and competitive positioning to maintain market dominance for many years to come." – Google Investment Case

BSD Analysis:
The manager's investment thesis emphasizes Alphabet's dominant market positions across multiple technology verticals, creating a diversified moat that's difficult to replicate. With 90% search market share, 2.6 billion YouTube users, and 72% Android market share, the company benefits from powerful network effects and data advantages. The three-pronged revenue model provides stability through advertising dominance while offering growth optionality via cloud services and emerging technologies. The manager's contrarian approach during AI-related concerns proved prescient, as the stock delivered 58.3% returns in 2023. Alphabet's $122B investment portfolio provides additional downside protection and strategic optionality. The secular tailwinds of digital transformation, mobile computing, and cloud adoption position the company favorably for long-term growth. Despite competitive threats from Microsoft's ChatGPT integration, the manager correctly identified that Alphabet's technical capabilities and market positioning would enable continued dominance. The winner-take-most dynamics in platform businesses favor established leaders like Alphabet.

Pitch Summary:
StoneCo Ltd is a provider of financial technology solutions. The company offers solutions that empower merchants to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. The company was founded in 2012 as a merchant acquirer but has since expanded into software and lending. Stone has emerged in Brazil as one of the leading fintechs with financial backing from major global players such as Warren Buffett's Berkshire Hathaway, Cathie Wood's Ark Invest, and Jack Ma's Ant Group. We believe that Stone's offerings have the potential of creating a self-reinforcing ecosystem that can allow the business to gain significant operating leverage as it scales. The business, while still in the early stages, has already shown the operating leverage inherent in its business model, as seen through their costs declining as a percentage of revenue. In general, we like businesses that can grow multiple revenue streams simultaneously, as this growth tends to compound once the business reaches sufficient scale. This is especially true, when growth in one segment reinforces growth in another, creating a flywheel effect. The company continues its ascent in the Brazilian payments space, growing more than double the overall industry. This growth signals that Stone is successfully taking market share away from competitors in the MSMB segment. While the operating results for the latest quarter were impressive, we were equally impressed by the company's capital allocation strategy. In October 2023, the company repurchased US$60M at $10.29 per share. Then, on November 14 2023, the company authorized another share repurchase program, under which Stone may repurchase up to US$206m in outstanding Class A common shares. We are highly encouraged by managements recent actions to repurchase shares at what we believe to be attractive valuations. On another positive note, the company has significantly accelerated its credit operation in 2023, with the portfolio growing over 6X sequentially in the latest quarter. As the credit business begins to contribute more to Stone's bottom line, we see the firm's margins and profitability improving materially. During the companies first Investor Day, Stone announced plans to multiply net profits eightfold through the end of 2027 by accelerating the integration of its financial services and software operations. The firm will continue to focus on MSMB client segments, while maintaining a controlled level of investment, CEO Pedro Zinner said during his presentation. "In recent years, the company has built a super-profitable, cash-generating business model. What we're doing now is basically taking advantage of and leveraging these opportunities, to use this cash to grow our business and improve profitability." In the latest quarter, the company saw its adjusted net profit in the third quarter more than quadruple, landing above analysts' estimates off the back of solid growth in its financial services segment. The firm reported revenue of $628 million, in line with estimates and up 25.2% year-on-year, boosted by a 29% increase in revenues from its financial services segment. Earnings before taxes (EBT) came in at roughly $100M, growing 20% from the previous year. Stone's total payments processed (TPV) in the quarter totaled $17.9bn, up 20% from a year earlier and above the firm's top-end projections. It's take-rate for the segment stood at 2.49% in the three months ended in September, growing both YoY and sequentially. In 2023, StoneCo experienced a dramatic run-up in its share price, becoming the top contributor to our performance this year. When we first wrote about our investment in StoneCo in March, the company was suffering from dramatically rising interest rates in Brazil. In our first article on the company, we wrote, "As a financial services business, Stone is heavily impacted by interest rates. The interest rate in Brazil (referred to as the SELIC rate) has increased from 2% at the start of 2021 to 13.75% in 2023. This rapid increase in interest rates hurt Stones business in two ways. Firstly, it dramatically increased the funding costs for their prepayment operations as evidenced by their gross margins falling during this period from ~82% to ~62%. Secondly, their existing credit portfolio experienced a dramatic increase in NPLs, causing Stone to temporarily pause credit entirely. As credit was the most profitable segment of their business, this announcement caused Stones stock price to collapse." - Stone Investment Case Since our investment in Stone, there have been two major positive developments that we believe led to Stones outperformance in 2023. One is the decrease in the Selic rate, which has now come down from 13.75% to 11.75%, alleviating some of the pressure on Stones cost of funding. The rate is forecasted to continue falling as inflation has been dropping consistently in Brazil. This is one aspect of our original investment thesis that has played out in quick fashion. The second major positive development is the gradual return of the credit product. In their latest earnings call, the company expanded their credit portfolio, reaching $23.36M, a 6X increase Q/Q. Management plans on accelerating disbursements to a larger number of clients without changing diligence toward risk assessments. Our forecast assumes that Stone learned their lesson from the previous folly and will continue growing their credit business through 2024, adding materially to the bottom line.

BSD Analysis:
The manager's thesis centers on StoneCo's transformation from a simple payments processor into a comprehensive fintech ecosystem in Brazil's underbanked market. The company's flywheel effect is evident through multiple revenue streams reinforcing each other, with payments facilitating software adoption and lending opportunities. Operational leverage is materializing as costs decline as a percentage of revenue while the company captures market share at double the industry growth rate. The credit business resurrection represents a key inflection point, with the portfolio expanding 6x sequentially after management paused lending during Brazil's interest rate spike. Declining SELIC rates from 13.75% to 11.75% provide meaningful tailwinds for funding costs and credit demand. Management's aggressive capital allocation through $266M in authorized buybacks demonstrates confidence in the business model. The ambitious target of multiplying net profits eightfold by 2027 appears achievable given current momentum in financial services integration and MSMB market penetration.

Pitch Summary:
Alibaba is a large internet retail business with multiple divisions that facilitate various aspects of commerce such as payments, logistics, advertising, and cloud computing. The company is the world's largest third-party online and mobile commerce platform for brands and retailers by gross merchandise value (GMV) in the year 2023. Its Taobao and Tmall Marketplaces hold leading market positions in retail e-commerce, while its 1688.com and Alibaba.com control the lion's share of wholesale e-commerce. The company went public in 2014 and has since experienced impressive revenue growth while maintaining a profitable business model. Alibaba in recent years has been investing heavily into its value-added services such as smart logistics, generative A.I. and cloud computing, while expanding its services geographically into Southeast Asia (Lazada), Europe (AliExpress), and the Middle East (Trendyol). The business is well capitalized with a large net cash position and a private investment fund that spans the globe. Alibaba's business results through 2023 demonstrated material improvement from the prior year. The company grew topline consolidated revenue 6.5% on a currency neutral basis and improved margins across the board. Free cash flow grew 27% to approximately $6.2B for the latest quarter and $11.6B over the last 6 months. Profitability also improved significantly from the lows with ROCE reaching 11.1%. In 2023, Alibaba underperformed the general market and sunk to its lowest valuation in its history. The reasons for this poor stock performance in 2023 contain a mix of macro factors such as the slowdown of the Chinese economy, rising geopolitical tensions between the U.S. and China, and currency weakness in the Chinese Yuan. On a company specific level, Alibaba disappointed investors in its growth figures compared to rivals such as Pinduoduo (Temu) and Bytedance (Tik-Tok), who have been taking market share from the established players in the recent downturn. Market share deterioration will be a continuing narrative heading into 2024 and we will be monitoring this development in assessing our holdings in both Alibaba and JD. Alibaba's cloud business, with the country's largest market share at 39%, reported just 2% year-on-year revenue growth in the quarter ended Sept. 30. Furthermore, in November 2023, management scrapped plans to publicly list its cloud operations, citing U.S. chip restrictions stating, "The recent expansion of U.S. restrictions on export of advanced computing chips has created uncertainties for the prospects of Cloud Intelligence Group. We believe that a full spin-off of Cloud Intelligence Group may not achieve the intended effect of shareholder value enhancement. Accordingly, we have decided to not proceed with a full spin-off, and instead we will focus on developing a sustainable growth model for Cloud Intelligence Group under the fluid circumstances." We believe that the decision for management to cancel its previous spin-off plans indicate a few things about the current state of the company and the greater market; Firstly, the company will not be able to enhance shareholder value through financial engineering in the near term due to poor market conditions in China. This may change in the future but is dependent on market conditions improving significantly. Secondly, management strategy has become inconsistent over the past year as it relates to restructuring plans and returning capital to shareholders. The market does not like change and uncertainty, evidenced by the continued weakness in Alibaba's shares. Looking at valuation, the company is currently trading at a 9x trailing P/E, (after deducting SBC) and a P/FCF of just 6.3x. Taken together, net cash and investments have a value of $125bn compared to Alibaba's market cap of $192B. In other words, 66% of the company's market value is in cash and investments alone. The other 34% ($67B) is the implied value of the core business, which consists of the largest e-commerce platform in China, the fourth largest cloud provider worldwide, and a roughly 33% stake in China's largest payment platform, Ant Financial. In our view, the company has too many resources, prospects, and profitable business units to continue trading at trough multiples over the long-term. We are encouraged by management's most recent capital allocation efforts to unlock value for shareholders through a combination of share repurchases and dividends. If our analysis is correct, we should see buybacks and dividends increase materially over our planned holding period.

BSD Analysis:
The manager presents a compelling value thesis for Alibaba, emphasizing the stark disconnect between the company's intrinsic worth and current market valuation. With 66% of market cap represented by net cash and investments alone, the core business trades at an implied $67B valuation despite being China's dominant e-commerce platform and fourth-largest global cloud provider. The manager acknowledges near-term headwinds including market share losses to Pinduoduo and ByteDance, plus management's inconsistent strategic execution around cloud spin-off plans. However, operational improvements are evident with 6.5% revenue growth, 27% free cash flow expansion, and ROCE recovery to 11.1%. The extreme valuation metrics of 9x P/E and 6.3x P/FCF suggest significant upside potential if Chinese market conditions normalize. The manager's contrarian approach appears well-founded given the quality of underlying assets trading at distressed multiples. Capital allocation improvements through increased buybacks and dividends could serve as near-term catalysts for value realization.

Pitch Summary:
Tesla has significant and underappreciated competitive advantages across multiple verticals including electric vehicles, software and energy storage. Misunderstood by much of Wall Street – and consequently a favorite of short sellers – Tesla continues to grow rapidly and increase its lead over the competition while delighting consumers in the process. Despite his unconventional (and sometimes off-putting) personality, Elon Musk is a visionary who has created enormous shareholder value. Musk is also a long-term thinker who has embraced the scale-economies-shared business model favored by Henry Ford and Jeff Bezos, intentionally reducing prices, increasing the customer value proposition and expanding the total addressable market. Tesla's massive scale and cost advantages are now challenging the viability of legacy auto, which has hundreds of billions of dollars of outdated property, plant and equipment in a world that is rapidly transitioning to electric vehicles (EVs). While we expect competition for EVs to intensify and for Tesla to lose market share over time, we also believe the company will increase production and deliveries from approximately 1.8 million vehicles today to approximately 15 million vehicles in 2030 and further its lead in autonomous driving capability. In fact, we expect Tesla will eventually license its autonomous driving software, creating high-margin (70-80%), recurring licensing revenue. Tesla is also one of only two companies that dominate the energy storage market, which has the potential to grow to several hundred billion in revenue as power plants around the world increase their focus on renewable energy. Our investment in Tesla is aligned with our preference for companies that have strong balance sheets and the managerial skill to reinvest capital at high rates of return into large addressable markets.

BSD Analysis:
Tsai Capital presents a comprehensive bull case for Tesla, viewing the company as misunderstood by Wall Street despite its competitive advantages across electric vehicles, software, and energy storage. The manager praises Elon Musk's visionary leadership and scale-economies-shared business model that prioritizes market expansion over short-term margins, similar to strategies employed by Henry Ford and Jeff Bezos. Tesla's cost advantages are positioned as existential threats to legacy automakers burdened with outdated infrastructure in the EV transition. The investment thesis projects dramatic production scaling from 1.8 million to 15 million vehicles by 2030, while acknowledging inevitable market share dilution as competition intensifies. A key value driver is autonomous driving software licensing, which could generate 70-80% margin recurring revenue streams. Additionally, Tesla's dominance in energy storage positions it to capitalize on the renewable energy transition, with potential for hundreds of billions in revenue. The manager emphasizes Tesla's strong balance sheet and management's capital allocation skills as enabling factors for sustained high-return reinvestment.

Pitch Summary:
Costco operates more than 860 warehouses worldwide and provides its members with a deep value proposition, promising not to charge more than a 15% markup on goods versus its own cost. This in turn has resulted in an extremely loyal membership base of more than 70 million, over $1,900 in net sales per square foot, and high-margin, recurring membership fees. Since 2012, W. Craig Jelinek has been at the helm of Costco and has perpetuated the values and culture of the company's founder, Jim Sinegal. And while Mr. Jelinek recently stepped down as Chief Executive Officer, we see little change under his successor, Ron Vachris, who has worked at the firm for more than 40 years, having started out as a forklift driver. In many ways, Costco is a cult (I mean that in a positive way), and its allure is only just beginning to spread to international markets, including China. With a stellar management team, strong returns on capital and ample opportunities for growth, domestically and internationally, we believe Costco will continue to compound earnings at a low double-digit rate.

Pitch Summary:
Our investment in Apple dates back to 2018, the same year the company launched the revamped 13 and 15-inch MacBook pro models. Led by Tim Cook, Apple continues to innovate, but our research shows that the company only needs one revolutionary product from time to time in order to keep revenue on an upward path. That's because Apple has arguably created the strongest brand and ecosystem in the world. With more than 2 billion active devices in the company's growing installed base, and with an extremely "sticky" ecosystem, Apple has been able to capture an increasing share of wallet over time. Indeed, during the company most recent fiscal year (September 2023), Apple's high-margin services division represented approximately 35.7% of total gross profits, up from 31.2% just two years ago. Apple's balance sheet is stellar, with approximately $66.8 billion of net cash and marketable securities. We expect earnings per share to continue to advance, aided not only by revenue and net income growth, but also by margin improvement and share repurchases at a rate of approximately 2-3% per year.

BSD Analysis:
Tsai Capital's bullish Apple thesis centers on the company's unparalleled brand strength and ecosystem stickiness, with over 2 billion active devices creating powerful network effects. The manager emphasizes Apple's ability to capture increasing share of wallet from its installed base, evidenced by the services division growing from 31.2% to 35.7% of gross profits in just two years. This shift toward higher-margin services revenue demonstrates the monetization potential of Apple's ecosystem beyond hardware sales. The investment case doesn't rely on constant revolutionary product launches, as the manager believes Apple's brand moat allows for sustained revenue growth with periodic innovation cycles. Financial strength is highlighted through $66.8 billion in net cash and consistent share repurchases of 2-3% annually. The manager projects continued EPS growth driven by revenue expansion, margin improvement, and capital allocation efficiency, making Apple a core long-term holding since 2018.

Pitch Summary:
Amazon, founded by Jeff Bezos in his garage in 1994, is the most dominant e-commerce company and owns Amazon Web Services (AWS), the leading cloud provider. Andy Jassy, formerly head of AWS, became CEO of Amazon in 2021 and is executing exceptionally well. Because of their scale, AWS and Amazon retail benefit from numerous competitive advantages, which in turn drive a high customer value proposition. For example, instead of using the benefits of size to maximize short-term profits, Amazon operates with a scale-economies-shared business model, giving back some of its margin to the underlying consumer. This in turn drives further demand and strengthens the company's ecosystem. Amazon's long-term strategy masks the underlying earnings power of the business. As consumers continue to shift their spending from in-store purchases to online shopping, and as data continues to migrate from on-premise servers to the cloud, we expect Amazon to grow revenue at a low double-digit rate for at least the next five years and increase its profit margins over time.

BSD Analysis:
Tsai Capital presents a compelling bull case for Amazon, highlighting the company's dual dominance in e-commerce and cloud computing through AWS. The manager praises CEO Andy Jassy's execution since taking over from Jeff Bezos, emphasizing Amazon's scale-economies-shared business model that prioritizes customer value over short-term profit maximization. This strategic approach creates a self-reinforcing cycle that strengthens Amazon's competitive moat and ecosystem. The investment thesis is anchored on two secular trends: the ongoing shift from physical to online retail and the migration of data from on-premise to cloud infrastructure. Tsai projects low double-digit revenue growth for at least five years, with expanding profit margins as the company's long-term strategy reveals its underlying earnings power. The manager views Amazon's current valuation as masking the true profitability potential of the business.

Pitch Summary:
Alphabet, led by Sundar Pichai, has a near monopolistic position in online search, with more than 90% of the global market and greater than 80% of the U.S. market. The company also owns YouTube, which it purchased in 2006, and is now the second most popular website globally, followed by Google Search. While there are valid concerns about disruption from Artificial Intelligence (AI) and large language models (LLM), and competition for YouTube, we believe the economic moats for both businesses remain intact. We also think the Google ecosystem, which benefits from strong network effects, will drive advertising revenue at a high single-digit rate for at least the next five years. Alphabet also owns one of the three major cloud companies (Google Cloud Platform) and has a number of private businesses that, while not profitable today, have the potential to become more valuable to shareholders over time. The company's balance sheet is strong, with approximately $106 billion of net cash ($8.48/share), and free cash flow conversion remains excellent.

BSD Analysis:
Tsai Capital maintains a bullish stance on Alphabet, emphasizing the company's dominant market position in search with over 90% global market share and YouTube's status as the second most popular website globally. The manager acknowledges potential AI disruption risks but believes Alphabet's economic moats remain intact due to strong network effects within the Google ecosystem. The investment thesis centers on sustained advertising revenue growth at high single-digit rates over the next five years, supported by the company's diversified portfolio including Google Cloud Platform. Alphabet's financial strength is highlighted through $106 billion in net cash and excellent free cash flow conversion. The manager views the company's unprofitable ventures as potential future value creators, suggesting a long-term perspective on Alphabet's innovation pipeline and market expansion opportunities.

Pitch Summary:
Netherlands-based Adyen is arguably the best-run payments company in the world! Adyen is a financial technology platform which offers end-to-end payment services to big enterprises and also to SMBs through partnerships. They have one unique solution. They build everything themselves. They have 27 offices all over the world. They are publicly-listed in Amsterdam. We have been watching and admiring Adyen as a company from the sidelines for the past couple of years. Its stock price has skyrocketed +300% from its COVID lows of March 2020 until its peak of 2021, followed by a -75% collapse in the stock that bottomed out in the summer of 2023. High quality, well-managed businesses always trade at a premium, but Adyen was in the league of its own. At the peak of 2021, it reached close to a 100 billion euro valuation on operating earnings of 595 million euros and free cash flow of 567 million euros (176x free cash). Patiently waiting for an opportunity to buy the stock, we were able to acquire shares for our fund at the 22 billion euro valuation this summer. Even after a 75+% collapse in the stock price, fueled by concerns of slowing growth, macroeconomic headwinds, increasingly competitive payments landscape and a general market sentiment souring towards growth stocks, Adyen wasn't particularly cheap (statistically speaking). But we thought it was a fair price to pay for a high quality business overseen by a world-class management team. Our average cost basis for Adyen stock is $7.43. Immediately following Adyen's Investor Day that took place in November 2023, the sentiment for the stock started shifting as several factors came together to create a momentum that propelled the stock price +73% from our cost basis. These were a combination of internal progress, improved financial performance, favorable market conditions, and recognition of their unique long-term advantages within the payments industry. Adyen is a Surinamese word for "start over again." It's an apt name for the company. Adyen's founders, Pieter van der Does and Arnout Schuijff, were founders of and senior executives in an international payment service provider named Bibit that was sold to the Royal Bank of Scotland in 2004. In 2006, Adyen was created with the aim of facilitating digital payments by building a modern – and better – payments infrastructure that connects directly with card networks and local payment methods. At the time of Adyen IPO in 2018, its processed payment volume was 159 billion euros. They are estimated to process 910 billion euros in payment volume in 2023 (42% CAGR for the past 5 years). Likewise, in 2018 Adyen earned 349 million euros in revenues and they are estimated to end 2023 with 1.7 billion in revenues (a 37% CAGR). Despite these staggering growth rates, Adyen is one of the most profitable companies we've ever come across. Prior to 2022, they were able to consistently generate 65+% EBITDA margins. In 2022, they posted a still very impressive 55% EBITDA margin, which disappointed Wall Street. The decline in their EBITDA margin was primarily due to management's decision to strategically accelerate their hiring pace, which we will talk about a bit later in the letter. We applaud this decision and view this decline in profitability as temporary. Management is still guiding for 65% long-term EBITDA margins and we believe this is achievable given their track record. We expect Adyen to grow their processes volume and their revenues at 20%+ CAGR over the next 5 years, while growing their EBITDA and cash flows at slightly higher rates. Adyen processes digital payments for merchants. There is nothing special about what the company does, it's how they do it that's special. Being the only company in the industry offering its services through a single unified platform gives the company a major competitive advantage, as Adyen doesn't have to rely on the tech infrastructure of legacy partners (i.e., Chase Merchant Solutions, Worldpay, First Data, and Ingenico) and on white label agreements with banks in order to support card payments, substantially simplifying the life of merchants by only having to partner with one company. Due to its single unified platform and its global footprint, Adyen attracted enterprise customers, which currently make up a large chunk of the company's volume and continue to be the fastest growing segment. Enterprise customers like Adyen because: (1) they get high authorization rates, (2) they can open up new geographies fast without additional partnerships, (3) they can drive actionable insights because they see all the data in the same place, (4) they can see data across all channels in the same platform (unified commerce). While the Network effects (merchants are attracted to Adyen because of its wide range of features and global reach, while consumers are attracted to Adyen because it is accepted by a large number of merchants), switching costs and data they collect play a huge role in forming Adyen's moat, its Adyen's unique cultural attributes that attracted us to invest in the company. Adyen was founded in 2006 with 4 engineers and 3 founders, who started with their own money and bootstrapped the business until 2011, when they did the series A. They were actually profitable that year, but raised capital more for introductions and networking rather than the capital itself. A lot of the largest VC firms in Silicon Valley didn't want to invest in Adyen at the time because of the peculiar terms. Specifically, they didn't want investors to be on the board of Adyen, they only issued common stock and no shares would have preferential terms. They could have raised a lot of money, but in typical Adyen fashion, they didn't care about valuation and they didn't really need the money. They raised only around $300 million, which pales in comparison to Stripe and Checkout that raised $4 billion collectively. Even during the Adyen IPO they didn't really sell more shares — it was just an opportunity for early investors to get some liquidity. Until this day, Adyen's board (6 members) still sees every hire, which is unheard of for a company their size. They set the bar very high and make every attempt to create a productive place for talented people (more on their hiring process later). This is not a company focused on the next quarter, but on the next decade (something that we at Rowan love to see). That means there will be periods in which we will have to trust management and be patient while waiting for their investments to pay off. By starting with the most complex cases and building everything in-house, Adyen builds slower, but the result is much more scalable and flexible and sets it up for success over the next decades. Most others start fast, stitch together several solutions from other payment platforms and then find themselves constrained by the limits of their system a few years later. Their hiring approach is perhaps most telling of the culture that founders have created, given that human capital is their biggest expense. As an example, let's contrast Adyen's approach to hiring vs Stripe's (their main competitor). Stripe's headcount ballooned to 8,000 employees in the fall of 2022 as they aggressively scaled up its workforce during the pandemic boom, anticipating continued rapid growth in e-commerce. Sripe's CEO Patrick Collison later acknowledged they were "too optimistic and over-hired for the world we're in". In November 2022, Stripe laid off around 14% of its workforce (approximately 1,120 employees) due to slower growth and macroeconomic challenges. Collison cited operational inefficiencies and the need to adjust to a "leaner time." Unlike Stripe, Adyen adopted a more conservative approach to hiring. They focused on strategic talent acquisition and prioritized cultural fit and long-term planning rather than rapid headcount growth. Adyen, by comparison, had only 2,575 employees at the end of the first half of 2022. Not only they were able to avoid layoffs, they actually went on the offensive in 2022, taking advantage of a favorable talent pool and continuing to opportunistically hire in key areas, boosting their full-time employees by +53% to 3,332. Their unique culture drives every decision every day, which is the difference between extraordinary and ordinary, and Adyen has an obsessive focus to maintain that culture. Adyen is very careful with every "chess move" along the way. They seem to always stick to their principles of simplicity. They are in fact long term and very patient — many say it but few actually practice it. Adyen is one of the few high growth companies that hasn't even changed its guidance from their IPO perspective almost 5 years ago. As their CEO Pieter van der Does said: "When you have a business and you want to actually keep that business (not just exit it), your decisions start to drastically change."

BSD Analysis:
Rowan Street presents a compelling bull case for Adyen, positioning it as the world's best-run payments company with a unique single unified platform that eliminates merchant complexity. The manager emphasizes Adyen's exceptional financial metrics, including 42% payment volume CAGR and 37% revenue CAGR over five years, while maintaining industry-leading 65% EBITDA margins historically. The investment thesis centers on Adyen's competitive moat through its end-to-end integrated platform, contrasting favorably with competitors who rely on stitched-together legacy solutions. Management's disciplined approach to hiring and capital allocation, evidenced by their conservative fundraising history and strategic talent acquisition during market downturns, reinforces the quality thesis. The fund acquired shares at a 22 billion euro valuation following a 75% stock decline, representing a significant discount to the 100 billion euro peak valuation. With enterprise customers driving growth through superior authorization rates and unified commerce capabilities, Adyen's network effects and switching costs create sustainable competitive advantages. The manager projects 20%+ revenue CAGR over the next five years with expanding EBITDA margins as hiring investments mature.

Pitch Summary:
Our U.K. housebuilding partnerships business. Over the next few years, operating profit ("EBIT") should double from ~£400+ million to £800+ million, and the multiple could double from ~5-6x EBIT to 10-12x EBIT (on a pro forma enterprise value basis). That's how we could get a 4x or greater return in the share price from here. The company is actively monetizing its legacy homebuilding assets and has been buying back shares every day.

BSD Analysis:
Roller presents Vistry as a compelling UK housebuilding opportunity with potential for 4x+ returns driven by both operational expansion and multiple re-rating. The investment thesis centers on a dramatic doubling of operating profit from £400+ million to £800+ million over the next few years, combined with valuation multiple expansion from 5-6x EBIT to 10-12x EBIT. This dual expansion creates the mathematical foundation for 4x share price appreciation. The company's partnerships business model differentiates it from traditional homebuilders, potentially commanding premium valuations as the market recognizes the stability and growth profile. Active monetization of legacy homebuilding assets provides additional value unlock while daily share buybacks enhance per-share value creation. The combination of strong operational growth prospects, undervalued trading multiple, asset monetization, and aggressive capital return creates multiple paths to significant value realization. This represents a classic value play with clear operational catalysts in the recovering UK housing market.

Pitch Summary:
As you may recall, I joined the board of Scott's in early 2021 and became its chairman in May of that year. Since then, Scott's has sold the majority of its brands (eight out of ten), taking the company's balance sheet from levered to one with a net cash position. Last month, Scott's announced it was embarking on a new strategic direction and entered into a definitive merger agreement with Horizon Kinetics LLC, a privately owned investment management company led by Murray Stahl. Once the merger closes, the pro forma combined company is expected to have hundreds of millions of net tangible assets on its own balance sheet and an asset management business with approximately $6-$7 billion of assets under management (AUM). We are thrilled to be partnering with Murray Stahl and the Horizon Kinetics team on this transaction.

BSD Analysis:
Roller presents Scott's Liquid Gold as a successful balance sheet transformation story culminating in a strategic merger with Horizon Kinetics. Since joining as chairman in 2021, the manager orchestrated the sale of eight out of ten brands, converting a leveraged company into one with a net cash position. The announced merger with Murray Stahl's Horizon Kinetics represents a dramatic business model pivot from consumer products to asset management. The pro forma entity will possess hundreds of millions in net tangible assets and manage approximately $6-7 billion in AUM, creating substantial scale and diversification. This transaction exemplifies Roller's hands-on approach to value creation through board involvement and strategic repositioning. The partnership with the respected Horizon Kinetics team provides credibility and operational expertise in the asset management space. This represents a classic special situation where active management involvement and strategic vision created significant value through business transformation and strategic combination.

Pitch Summary:
Our Portuguese conglomerate. I believe the real estate is worth €200+ million and is actively being monetized (the first €32 million of proceeds have been received); the bank is worth €250+ million; and the core business is worth €500+ million (and growing) on €60+ million of forward operating profit (with a path to €100+ million in the next few years). All in, fair value is at least twice the current €500 million market cap, and the company keeps unlocking value and buying back shares every day (recently, it has increased its pace of buybacks to one million shares per month, on a base of approximately 140 million shares).

BSD Analysis:
Roller presents CTT as a classic sum-of-the-parts value play trading at a significant discount to intrinsic value. The manager's analysis suggests the Portuguese conglomerate is worth at least €950 million across three key segments: €200+ million in monetizable real estate (with €32 million already received), a €250+ million banking operation, and a €500+ million core postal business generating €60+ million in operating profit with a clear path to €100+ million. At the current €500 million market cap, the company trades at roughly 50% of fair value, representing a compelling 2x upside opportunity. The value unlock thesis is supported by active asset monetization and an aggressive share buyback program of one million shares monthly on a 140 million share base, representing meaningful capital return to shareholders. The combination of undervalued assets, active value realization, and substantial buyback activity creates multiple paths to value recognition. This represents a classic European value opportunity with clear catalysts for price appreciation.

Pitch Summary:
Following the offer that Clarus received from its chairman to purchase its Precision Sport segment for $160 million, Clarus ran a formal sales process, which resulted in an even better price. In late December, it entered into a definitive agreement to sell the segment for $175 million of gross cash proceeds to an unrelated financial buyer. As a reminder, Clarus purchased the components of this segment for $110 million (~$80 million for Sierra in the summer of 2017 and ~$30 million for Barnes in late 2020). These businesses then generated approximately that entire purchase price in cash flow since, and Clarus is now selling the brands for $175 million. This was clearly a successful investment, with an IRR that we estimate was greater than 20% over six to seven years. After the transaction closes, which it is expected to do this quarter, Clarus will have a completely de-risked balance sheet with net cash of perhaps $1.35-1.50 per share (on a sub-$6 stock). I still believe the market is embedding low valuations on Clarus's remaining businesses. The pro forma enterprise value of Clarus is approximately $170 million, and I think that its two primary brands, Black Diamond Equipment and Rhino Rack, are each worth more than that on their own. There are paths in which Clarus could double or triple in the next three to five years, and I believe there is an excellent margin of safety (especially with the de-risked balance sheet) at recent prices. A number of catalysts remain: • Clarus has a history of opportunistic share repurchases. Once the Precision Sport sale closes, I would not be surprised to see the company take advantage of the current stock price by repurchasing shares. • Clarus continues to pursue claims against HAP Trading. I don't think the market is currently ascribing any value to this, but if the effort is successful, Clarus could recover tens of millions of dollars (perhaps over $1/sh). • Clarus has discussed hosting an analyst day this year in which it is expected to introduce the new operating leadership team and update the market on its multiyear plan. I believe that as investors start to look out beyond the next quarter or two, they will see significantly more opportunity.

BSD Analysis:
Roller presents a compelling value play in Clarus following a successful asset divestiture that demonstrates management's capital allocation prowess. The sale of the Precision Sport segment for $175 million represents a 20%+ IRR over 6-7 years, while the business generated cash flow equal to the original purchase price during ownership. Post-transaction, Clarus will emerge with a fortress balance sheet featuring $1.35-1.50 per share in net cash on a sub-$6 stock, creating significant downside protection. The manager argues the remaining enterprise value of ~$170 million dramatically undervalues the Black Diamond Equipment and Rhino Rack brands individually. Multiple catalysts support the thesis including opportunistic share buybacks, potential recovery from HAP Trading litigation worth over $1 per share, and an upcoming analyst day to showcase the new operating team. The combination of balance sheet strength, undervalued assets, and multiple value catalysts supports the manager's projection of 2-3x returns over 3-5 years. This represents a classic special situation with asymmetric risk-reward characteristics favoring patient capital.

Pitch Summary:
Nextnav Inc. (NN) – There is a lot to hate about Nextnav. On the surface it is a busted SPAC that consummated a merger with an investor presentation that tied the value of the go-forward company to flying taxis. Flying taxis are miles away from my core process, so one may wonder how NN made its way into our portfolio. Nextnav owns the rights to 8 MHz of wireless spectrum in the 900 MHz band which has been earmarked by the federal government for Location and Monitoring Service (LMS). What this means in practice is that the Company has two business lines, one which adds vertical axis capability to the existing GPS network (what floor of a building you are on) and one that is a next generation GPS system, that unlike its predecessor is encrypted, making it difficult to spoof, and the signal is much more powerful than existing GPS, making it difficult to jam. The federal government and first responders have made it clear that the development of these technologies is a priority, and the recent conflicts in Ukraine and Israel/Gaza have put a spotlight on the shortcomings of the existing GPS system. And yes, in theory if the world will someday have flying cars, the vertical axis would be important. However, I am not sure how to value these business lines. In fact, a recent short report by a well-regarded short seller laid out the challenges faced by them, as well as the competition. Where it gets interesting though is that NN has been running tests to validate the idea that they can run their LMS businesses on a small portion of their owned spectrum, and then repurpose the remaining spectrum for 5G broadband. This spectrum could then be sold or leased by NN to anyone from the large cellular companies, cable companies, or tech companies. The FCC has made it clear that they want more spectrum available for broadband, and the laws of physics means that no one is inventing more spectrum. This is low band spectrum, which while it can carry less data than mid-band or high-band, can travel further and more effectively penetrate obstacles such as dense tree cover or urban environments. It covers 93% of the U.S. population, and in industry terms NN has 2.4 billion MHz-Pops, meaning the amount of spectrum multiplied by the population in their coverage area. If we assume that NN will need to retain 1 MHz for their LMS businesses, and ascribe no value to these businesses, we purchased our shares in NN for less than 30 cents MHz-pop. This compares to past transactions and industry experts that suggest this spectrum could be worth anywhere from 2x to 7x or more depending on event path, timing, and the potential that the FCC demands windfall payments in a sale. For me, focusing on the bottom end of the range is enough as even disappointing outcomes suggest that NN is severely mispriced. At the same time, the top end of the range could be exceeded depending on how competitive a bid process is, and also because antenna technology is progressing to the point where adding new spectrum to an existing antenna can be done by software upgrade rather than hardware upgrade. In theory, this reduction in necessary CapEx means that a buyer of spectrum could pay more for the actual spectrum while maintaining their ROIC. Where it gets even more interesting is the people that are involved. The shareholder registry and list of insiders are a "who's who" of spectrum operators and investors. Notably, they have "put the band back together" as it relates to a previous investment in Straight Path Communications Inc. an owner of high band spectrum, which was sold to Verizon (VZ) in 2017 for $184 per share approximately 18 months (deal announcement) after a negative report from a well-regarded short seller caused shares to trade around $7. The band leader can perhaps be thought of as Neil Subin, who manages the family office of the late Lloyd Miller III, who was regarded by many to be perhaps the best small and microcap investor ever. Needless to say, Subin knows a thing or two about spectrum; he is not here for the flying cars. Importantly, the SPAC announced their merger with Nextnav only nine months after its IPO – it is clear this was not a case where the SPAC sponsors were forced to settle for a subpar deal because of a limited time line. Additionally, it is notable that at the time of the transaction, when NN shares were trading at ~$10, Subin said: We believe that this is a 100 year plus asset that will drive innovation, enable the global economy, and produce significant free cash flow for decades to come that I believe we are creating at or below underlying spectrum value. I expect that within the next few weeks Nextnav will formally ask the FCC to repurpose a portion of their spectrum away from LMS and toward broadband. This by itself should be seen as a milestone as the FCC must grant permission for such requests, meaning that if the request is made, the Company has proof of concept in hand from the tests they have been running in the Bay Area. From there, the timing of an FCC review is uncertain, with anything from a few months to perhaps 2 years being within the realm of possibility. However, the outcome is highly likely to be favorable as the FCC has made it clear that they want more spectrum to be freed up for broadband. Further, my research suggests that Nextnav has the relationships in place and has done the groundwork in advance necessary to expedite the process. Importantly, as long as the world is consuming more data, the value of spectrum should continue to go up with time. Upon successfully "splitting" the spectrum, NN is likely to sell or lease to the highest bidder, which could lead to a dramatic re-rating in share price in the not-too-distant future.

BSD Analysis:
The manager presents a compelling deep value play on Nextnav, a former SPAC trading at a significant discount to its spectrum asset value. The core thesis centers on the company's ownership of 8 MHz of 900 MHz spectrum covering 93% of the U.S. population, representing 2.4 billion MHz-Pops. The manager purchased shares at less than 30 cents per MHz-Pop, compared to industry valuations of 2x-7x. The key catalyst involves repurposing spectrum from Location and Monitoring Services to 5G broadband, with FCC approval expected given regulatory support for increased broadband spectrum availability. The investment is backed by experienced spectrum investors led by Neil Subin, who previously generated massive returns with Straight Path Communications. The manager expects formal FCC filing within weeks, with approval likely within months to two years, potentially triggering a dramatic revaluation as the company monetizes spectrum through sale or lease to major telecom operators.

Pitch Summary:
One of the exited positions discussed in the Q3'21 letter (referenced above) was Limbach Holdings (LMB), a holding that I was vocal about back then. Fortunately for the Fund, I did not write LMB off forever after selling it. I continued to follow the company and was able to act quickly to initiate a large position early in 2023 following a management change at the company that was significant. From reinitiation through year-end, the stock appreciated 4x and contributed to just over half of the Fund's gain for 2023.

BSD Analysis:
The manager demonstrates exceptional flexibility by re-entering a previously exited position in Limbach Holdings following a significant management change in early 2023. This decision exemplifies the fund's open-minded approach to prior exits, avoiding the common bias of writing off previously sold positions. The 4x appreciation from reinitiation through year-end validates the manager's thesis that management changes can be transformational catalysts. LMB's contribution of over half the fund's 2023 gains underscores the importance of maintaining conviction in quality businesses even after temporary exits. The position represents one of the fund's current top five holdings and is characterized as a public roll-up, suggesting the manager sees continued consolidation opportunities in the fragmented building systems industry. The significant outperformance demonstrates the value of patient capital deployment and the ability to act quickly when fundamental changes occur. This investment showcases how maintaining relationships and continued monitoring of exited positions can generate substantial alpha when circumstances improve.

Pitch Summary:
We purchased shares of ARIS Water Solutions, a $484 million market cap provider of water disposal and recycling solutions to oil and gas producers in the Permian Basin. Shares of ARIS ended the quarter at $8.39, a whopping 33% below its October 2021 IPO price of $13. We think ARIS is misunderstood by the market, as its revenues correlate with produced oil volumes, not prices. ARIS fills the critical need to treat and dispose of water that is produced in oil production, up to a 5:1 ratio in the Permian. ARIS is also increasing the amount of produced water that can be re-used in drilling, avoiding the need to tap fragile aquifers in the arid region. Our conservative price target is set at $12, which represents a potential 43% return, plus its attractive 4.3% dividend yield. ARIS has a strong financial profile, supported by its long-term contracts with customers. ARIS's network of pipelines and recycling plants represents a barrier to entry to competitors, who would find it economically challenging to create a competing network. Although it continues to build out its gathering and treatment assets, we believe ARIS will continue to reduce its net debt level of 2.3x EBITDA, through improving free cash flow. Additionally, ARIS has $24 million in cash on its balance sheet, and in October it extended and upsized its revolving credit facility to $350 million, providing ammunition for potential M&A opportunities. We believe ARIS stands to benefit from strong revenue growth, margin improvement and free cash flow growth in 2024. While ARIS could suffer revenue weakness if oil production were to fall dramatically, we believe this risk is minimal as it has strong operating partners, including Conoco Phillips, Chevron and others with significant acreage and long-term drilling and production needs. ARIS stands well positioned to grow alongside customers and through continued bolt-on acquisitions. ARIS has also rebuilt its operating margins, which were hit by inflationary pressures, through price increases, cost reductions and strategic initiatives like replacing diesel power with hook-ups to the electric grid and reducing the use of rented vs. owned assets. Additionally, while we have ascribed no value premium to ARIS ESG activities in our price-target, we think these benefits are compelling and could highlight ARIS as an attractive investment for ESG minded investors. Its ESG positives include replacing trucks with pipelines and reducing ground water depletion through treatment, reuse, and aquifer recharging. Also, through its new research partnership with Conoco, Chevron and Exxon, ARIS has gained approvals from Texas to use treated water to irrigate non-consumed agriculture products like cotton and ryegrass to trap carbon, and is evaluating the potential to extract and sell minerals from its treated water streams. We believe ARIS represents a compelling valuation opportunity at $8.39, as it trades for 6.4x and 5.4x 2023 and 2024 EBITDA estimates, respectively, including the potential burden of its legacy partnership tax sharing agreements. We think consistent execution will help propel the shares higher over time, while the 4.3% dividend yield provides a near-term tailwind.

BSD Analysis:
Rewey Asset Management presents a compelling value thesis for ARIS Water Solutions, a specialized water treatment company serving the Permian Basin oil and gas sector. The manager highlights the stock's significant discount to its IPO price and emphasizes that revenues correlate with oil production volumes rather than volatile oil prices, providing more stable cash flows. The investment case centers on ARIS's critical infrastructure role in treating produced water at a 5:1 ratio to oil production, creating a defensive moat through its pipeline network and recycling facilities. The company's strong customer relationships with major operators like ConocoPhillips and Chevron provide revenue visibility, while the 2.3x net debt-to-EBITDA ratio and $24 million cash position support financial flexibility. Management's operational improvements, including margin recovery through pricing and cost initiatives, position the company for enhanced profitability. The ESG angle adds potential upside through water conservation and carbon capture initiatives, though not factored into the $12 price target. At 6.4x 2023 EBITDA, the valuation appears attractive for a company with defensive characteristics and a 4.3% dividend yield.