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I forgot about the Robot energy cost - hadn't even thought about that!
Even the robots require lots of human intervention - i.e. regular maintenance, repairs, replacement at periodic intervals as you outline - all of that is very capital intensive, requiring huge investment. A customer assistant in tesco say £20k, engineer / progammers repairing robots etc £60-£100k, plus capital outlay, financing etc. It's fine with high value products - e.g. car manufacturing. Profits per car are large, profits per delivery are relatively small. What I would love to know with Ocado is whether anyone has actually done the calculations - surely they should be able to calculate some sort of breakeven size for an operation to be profitable? or even how many 'adopters' they require to license their technology - it looks like they are picking up a lot of the capital outlay - that's intensive and unlikely to ever produce decent ROCE. Could be wrong. Ocado was founded 22 years ago and still it can't make money. How much longer does it need? If something is going to be profitable then 22 years should be long enough. Don't buy it - as I say love the UK shop window as a customer - but Ocado is niche as a supermarket. We will still be here in 25, 30 years post Ocado starting (Hopefully!) saying it's getting there etc. Just doesn't stack up to me.
Is it at the Amex in Brighton?
:)
Always got to look under the bonnet with any portfolio.
I also added a few at 528 last week. I almost want it to drop lower but I probably have enough.
Ahmex = AGM
Ocado have recently unveiled a new framework for the robots- much lighter, more energy efficient and can be built quickly from 3D printed parts.
They won't suffer from staff shortages through illness or union organising like is happening with Amazon, demands for higher pay due to inflation.
The UK business is primarily a showroom for their technology to enable sales to other supermarket customers, although I believe they are exceeding the targets from the M&S partnership.
I can't see picking by humans being a sustainable solution. It already seems to have been effectively dispensed with by the major supermarkets.
Maybe one way to look at what Ocado is doing is to consider early car makers. The technology is developing and there will be setbacks or lean periods. I imagine the pandemic upheaval was probably not the best time for businesses to consider wholesale change.
Thanks for the quality debate. I topped up. Scary times.
Hopefully we will get more detail on grow portfolio especially if any are net profitable and the runway lengths for those who are not. Ahmex is a place we can ask those qs if not. Might look much better under the hood than the rest of the sector.
ps I don't think it looks bad for freetrade at all - so it's worth less than the last round - that's not a problem, unless you invested in that round. A price is only valid at a specific point in time. If it becomes profitable and can generate free cashflow that will be re-assessed. Softbank made investment losses of £22bn which means that almost half of the cumulative gains of the Vision Fund (since it's inception in 2017 have now gone) - not the end of the world if you invested in 2017 - big problem if you invested right at the top. Again it's price.
I'm yet to be fully convinced by the RPA piece - I think Ui Path could be worth what it's valued at further down the line, but given the risks I don't want to pay that price now. That's what investing is about though ultimately - price. It's not what you buy a lot of the time, it's what you pay. Can be a great company, but if you overpay...
My fear is that whilst a small number of tech companies will go on to have great success a bigger proportion won't go anywhere at all. I remain unconvinced by Ocado. I love the service I get and use them weekly - great product, but I'm not convinced that using very expensive robots and expensive grid technology enabled warehouses isn't more expensive than paying a person to shop in a supermarket. They guy that programs, repairs and maintains those robots earn high salaries, the shop assistant doesn't. Plus the capital outlay is immense - I am yet to be convinced that it's not always jam tomorrow because the model doesn't and won't ever make money, similar to Uber. If you have to pay large tech salaries for C-suite, large below c suite salaries and to maintain the app, can it really compete with say a Black Cab in London when you are competing on a level playing field - i.e. VAT, holiday for drivers, sick pay etc - I'm not convinced. Whilst having a long financial credit line or runway gives you the opportunity to grow to scale whilst still unprofitable at an operating level, it also means those companies that should be effectively stopped in their tracks don't get stopped. It's basically a confidence game - how long does the market give you to produce real cash flow / net profits - a lot won't ever make it. But that's the game, we might see 10 companies go to the wall for every company that 20 bags. That's the game we are in all told.
Also take Blue Prism. An RPA pioneer that stopped investing to try to become profitable (didn't work) allowing UI Path to achieve 5 times their annual revenues partly by winning Prisms clients.
So what could have been a UK tech success story ended in a damp squib with Prism sold for £1bn.
Yeah it doesn't look good for them right now.
They must be doing something right if AJ Bell feel the need to launch a competing product.
If you have a portfolio like this you are going to get winners and losers.
Markets are a bit bipolar sometimes. They can go quickly from wild optimism to abject pessimism. No doubt the truth resides somewhere in between and can also be found in the right companies.
No doubt there are some excellent value stocks. But probably others that will suffer from the monumental changes the world is going through.
The UK may offer more conservative valuations to their stocks but then we have not birthed and grown a company like Google, Apple, FB, Amazon, Tesla, Illumina or Moderna.
I mean look at Illumina. Trading at $40bn but would be a fair bit more if it weren't for the biotech crash.
Illumina is built on technology developed by the UK company Solexa, which had to list on Nasdaq to get anywhere, and Illumina bought them for $600m.
Pretty much the same story with Arm. UK investors thought they had hit the jackpot when they sold it for a $1bn or so.
Incredible progress is being made from the investments coming out of US funding.
It is mind blowing that thanks to gene sequencing technology and RNA vaccines we could have been getting dosed with Moderna within days of sars cov2 genome being analysed.
Something that would have taken 5 years was available in days and it seems to now be generally considered that the Moderna and Pfizer vaccines were more effective than the AZN adenovirus one using more traditional methods.
So by our cautious witholding of funds we end up with a false economy it seems
US valuations have, for a while, lost touch with reality and are very out of step with UK / European markets. I think anything that has a strong value bias will hold up much better in any crash that may come. All will be hit, but toppy valuations will be smashed. I think we are in for a bit of a reset overall - I am not sure what that looks like though. It could provide an opportunity to buy some great companies with future growth potential at more reasonable prices.
The other bit that worries me re what Freetrade were saying is that this method of funding avoids a valuation at this time - primarily as such a valuation would not be helpful - i.e. would be less than the prior valuation. If that's the case for a lot of what we have then that is not a positive. Valuations should be up to date as part of valuation process - i.e. downgraded if they need to be. There is likely more latitude on private valuations - ultimately though, the multiple utilised to value should be coming down.
There were reports last week that some investment banks have added the risk of major social upheaval in US, Europe to their business continuity planning.
I think they are freaking out a bit unnecessarily. I lived in Southern Spain with the fallout from the 2008 crisis. Even in a country with a strong socialist tradition there was little upheaval apart from the 15-M movement, which fizzled out other than leaving the Podemos party as a legacy. Most people just stayed at home watching TV.
I do have concerns about the US social situation and the rise of MAGA candidates who all seem to be trying to outdo each other with their extremism. CPAC are actually holding an event in Hungary talking about how the US needs to follow an authoritarian path like Hungary. Yet I think the US tradition of individualism may lead these extreme right wing figures to devote themselves to fighting each other for the crown of fuhrer or caudillo.
Also I don't like the volatility on US markets. It seems reminiscent of the months before the 1929 crash as per J K Galbraiths account of it.
Also what was lost in the Target and Walmart figures was that people were shifting spending to service industries like travel and entertainment.
I think the portfolio is well positioned and sufficiently diverse in terms of sectors and stages of development to withstand shocks.
Hardware crypto wallets
Menstrual and female health app
Leading Supercomputer candidate
Tech that is in high demand from banking giants
Company preparing for first European SpaceX style launch
Concert and travel app
Radar imaging for floods with military applications
Synthetic data provider
Medtech diagnostics already selling globally global market
Pay as you go insurance
Distributed computing power for simulators and metaverse
As for valuations the Edison report emphasised the conservatism involved in the estimates.
Yeah I don't think MV did participate. They issued an RNS acknowledging there had been a raise.
No doubt the Revolut valuation was overcooked at the time.
I just think Freetrade and Klarna are not the best indicators of VC funding opps as Thought Machine, Form3 and Aiven demonstrated.
Funnily enough if Affirm had as many customers as Klarna claim to have they would have captured double the spend on the app.
Affirm 11m users and $15bn
Klarna 100m and $80bn
I personally think there will be a recession, primarily because interest rates will rise (only a little). Mortgage rates will hit hard given the amounts people have borrowed, even a couple of extra percent on £250k is £5k per annum. That's a lot to someone earning say £40-£60k - £415 a month roughly - more than a 10% drop in net salary. That's going to have an impact on spending, on top of which there is inflation so they can't buy anywhere near as much. Not so sure about social upheaval - people will just have to live with it. Give up Netflix, buy value food, turn the thermostat down and have a holiday less etc. Either way I don't believe there is anyway the Grow NAV won't fall - it just cannot realistically defy gravity - or at least that is what the market very firmly believes. Of course there will be some success stories in there where NAV rises - but I am not sure they will be enough to change the overall outcome re NAV. The portfolio is too broad and diverse to avoid a decrease in NAV - just no way they are so good that they avoid what is happening everywhere else. What I don't like is the fact that our share price has fallen so much already. Any decrease in NAV will likely cause a further fall - I really hope we haven't been overly optimistic in terms of valuations in the hope the market will turn in time. That could come back to bite us very hard if it's the case.
It doesn't say anything in that article that isn't realistic - it's downbeat as that is where the market is. I think Revolut will find it difficult to raise any capital at a valuation that exceeds the prior valuation, I certainly hope Grow don't participate if they do. In it's last raise Revolut raised $800 million led by SoftBank (who just announced the biggest loss in its history - $27bn) and Tiger Global. Revolut was valued at $33 billion - that was a sixfold increase on the $5.5 billion the company was worth the year before. Nothing really changed to warrant the 6 fold increase in the valuation. I could understand it if there was a paradigm shift in the business - big new territory, huge success - but it was instead valued at around 100 times revenue. To me Freetrade look like they are telling it as it is.
Klarna is mentioned in the article. They are due to take a 30% cut to NAV but they are after raising $1bn.
I invest in Affirm which is also in the BNPL sector and at a similar growth stage. However, in their last quarterly they said they think they will not need to raise any more capital and anticipate being profitable by next year. So maybe this is a Klarna problem who will also be suffering from the recent collapse in Affirms value.
Chrysalis Investments are a bit like MV albeit with a much more concentrated portfolio. Their SP has suffered and they have written down NAV mainly due to their massive Klarna allocation. Interestingly, their SP has continued to drop in recent weeks despite their portfolio company THG attracting at least 3 bidders.
Hopefully we have enough companies in the portfolio that are profitable and have less need to raise capital. I mentioned Hadean the other day who haven't raised since 2019 yet seem to be doing some very impressive stuff. Revolut CEO was saying he thinks they won't need to raise more before future listing.
It is a very good sign that the likes of Form3, Aiven and Thought Machine have had their later funding rounds led by the likes of Goldman Sachs, Eurazeo and Temasek.
So for me it seems a bit of lazy analysis in the FT article judging the state of VC funding valuations on 2 companies, Freetrade and Klarna, who can be seen as among the biggest casualties of the tech rout in Robinhood and Affirm.
It seems that the market does not believe the MV NAV of 924p and expect a major reduction. I remain optimistic and I think market fears about a deep recession with major social upheaval is excessive.
A bit of doom and gloom here about private tech valuations.
Not sure Freetrade is the best bellwether given the scepticism around broker platforms like Robinhood.
MV seem to have participated in the latest raise.
https://www.ft.com/content/933897a3-1a7b-447e-8d4e-48759fdbd151