Whitney Tilson's Presentation on Alphabet and Facebook

Whitney Tilson of Kase Capital Management gave a presentation at the 14th annual Value Investing Seminar in Italy on two stocks: Alphabet (GOOG) and Facebook (FB).

Tilson starts by doing a bit of a post-mortem on a call he made against Google some time ago. He points out that the company enjoys a flywheel of network effects and economies of scale: large user base > large advertiser base > better monetization > most R&D dollars > best product > high barriers to entry.


That's obviously not anything new, but he points out that valuation isn't crazy at 28x 2017 EPS and 13x EBITDA estimates given that the vast majority of incremental ad spending is ending up on GOOG or Facebook's platforms.  And if you back out GOOG's cash ($126 per share) and 'other bets' ($50 per share), you get a valuation much more in line with the S&P for a company that he says is "vastly superior" to the average corporation.

On Facebook (FB), Tilson points out the company has higher margins than GOOG, and revenue growth is higher as well.

Embedded below is Tilson's presentation on GOOG and FB:



You can download a .pdf copy here.

Kase Capital Short Wingstop Presentation

Whitney Tilson's hedge fund firm Kase Capital has released a slide deck on its short position in Wingstop (WING).  This is Kase's largest short position.

He notes that while the company is growing rapidly, the stock's valuation is "absurd", trading at 52x trailing EPS and 29x trailing EBITDA.

Tilson points out that same store sales growth is decelerating and the company's gross margin has also declined significantly. 

Embedded below is Kase Capital's presentation on why they're short Wingstop:



You can download a .pdf copy here.

Lessons From a Dozen Years of Short Selling

Many investors have called short selling one of the most difficult things to do in finance.  There's potential for unlimited losses, the position sizes get smaller if you're right, and you're constantly going against the crowd and battling waves of optimism.

Kase Capital's Whitney Tilson has put together a presentation entitled, "Lessons From a Dozen Years of Short Selling" that he delivered at Columbia Business School.

In it, he presents both sides of the argument, listing 12 reasons not to short and then 10 reasons to short.

In a recent interview, Tiger Management's Julian Robertson said that it's hard to run a hedged portfolio in a market that seemingly only wants to go up.  But even in an ever-rising market, there will always be frauds and fads, and more often than not, that's what short sellers target.

Embedded below is the full presentation on shorting.



You can download a .pdf copy here. 

For more on the subject, we've also posted up another hedge fund manager's take on short selling.

Whitney Tilson's Value Investing Congress Presentation: Short Exact Sciences (EXAS)

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Whitney Tilson of Kase Capital who presented various short ideas.


Whitney Tilson's Value Investing Congress Presentation

Presentation has 4 parts: lessons from a dozen years of short-selling, update on 2 short ideas (LRN and LL), and a new short idea (EXAS)

Why short-sell?
Insurance (but made for painful 2013-14): pays when you need money to buy cheap good companies in big declines
Plentiful opportunities now (shortsellers run out of town: shops closing, long only launches)
Can make money
Can provide funds to buy more longs
Keeps him from messing up the longs
Big rush from winning/intellectually satisfying
Most HFs are expected to short

Finding ideas:
- Other short sellers
- Conferences
- VI Insight, VI Club, Seeking Alpha,  SumZero, Activist Shorts, Citron, Screens
- Media (look for hype)

Right now seeing incredible shorting opportunities
Be very diversified: has 50 shorts now
Offset longs and shorts (match cap/industry and the way they trade: tough to run long PG BRK and short volatile small names)

Lesson: stock follows earnings = reported results have to start showing cracks (example MBIA took a while)

Lesson: avoid "beat and raise" names = runaway trains (examples PCLN TRIP FB LNKD)

Lesson: be patient, wait for a break (example shorting CROX too early)

Lesson: look for Titanics, mortal damage but taking a while to sink (LRN, NSR, HLF, WRLD) 

Lesson: look for obvious bubbles (3D names, PLUG, Ballard, SaaS, biotechs) 


Update on K12 (LRN) Short
Losing their largest EBITDA contributor in PA (downgrade this morning)
Likely- per his contacts- to lose several other contracts in the next 1-1.5 yrs
Doing bad things, like enrolling no-shows and billing
Still overvalued


Update on Lumber Liquidators (LL) Short
Still many ways to win
Business performance is poor (dropping SSS)
There might be news on the formaldehyde end (not in deck)


New Short Idea: Exact Sciences (EXAS)
New colon cancer test: essential to detect early
Company has long history of failure, the new test is FDA approved
The "superior" results were rigged
Essentially a binary outcome based on reimbursement rate decision
Even if high price approved, it will fail in the market = requires filling up a cup with excrement vs. just swipe
New technologies coming (ie pill cameras) 


Q&A: Why short at all? Munger quote from a private meeting "every guy has to learn for himself [not to short]"

Q&A: Are you still in CALL? Yes but two Qs of bad prints so less enthusiastic now.

Q&A Options? "Options are heroin. They feel so good and they kill you." Now only two positions, LT ITM call on CP, defacto a stock position. Puts in IOC.

Q&A: VIPS? Got in at 80, covered at 120. Analyst called him after a visit in China: it is a real business and it grows at the rate chinese internet cos are growing, nothing suspect.

Q&A: IOC: not a great short now because of the Total partnership. Will take a while to see if the gas is extractable, Tilson does not think so.


Be sure to check out the rest of the Value Investing Congress presentations here.

Whitney Tilson's SodaStream Presentation: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Whitney Tilson of Kase Capital who pitched long SodaStream (SODA).


Whitney Tilson's Value Investing Congress Presentation

•    SodaStream (SODA): Home beverage carbonation system – makes money off the machine, the bottle, the carbonation and the syrup. The carbonation and syrup lead to repeat sales. Razor/blades model.
•    70% cheaper once you purchase the machine. 25 cents per carbonated liter. 30% cheaper if you add flavor versus other products. Convenience – you don’t need to carry around bottles, etc.
•    A lot of choices flavor wise. Environmentally friendly.
•    Target market? People who like to drink sparkling water. Households with multiple people – flavoring or the soda drinker in the household. 
•    It is NOT competing against coke and pepsi – they do sell coca-cola variants, but in Whitney’s experience, not the best taste – however the other flavors taste good and are popular.
•    SODA looks like Decker’s to Whitney.
•    Beaten down stock – has fallen tremendously, with a high short interest.
•    Mistaken view that it is a fad – United States don’t realize the business has a strong share overseas, only 1-2% share in the USA. 393 people surveyed for SodaStream – people love their SodaStream machines and use / recommend them frequently.
•    Are the problems fixable?  USA sales growth is decelerating – believes it is temporary, due to the worst holiday selling season and 16% growth isn’t bad! In the second half of FY13, brought on with Wal-Mart. Plus, marketing and ad spend didn’t deliver. Europe as a matter of point grew 38% YoY. Secondly, SODA did not deliver on gross margins. Missed margins on machine sales as they wanted to get machines out to consumers – drive unit growth for the consumable business (syrups/carbonation). Whitney believes this was worth the cost. 
•    Enormous Global Market: a lot of white space for future growth and market penetration.
•    Position of Market Leadership : SODA owns the market, no real competitors. Large active user base.
•    Attractive economic characteristics : 50% gross margins, not capital intensive, decent profit margins. Healthy balance sheet. Further, attractive growth opportunities, YoY growth story for the past years. Flavor is the highest margined business (margins are not broken out). In Switzerland a mature market, 80% of sales or more are CONSUMABLES – 25%+ operating margins. USA generates 5% operating margins give or take, due to machines as a mix of sales.
•    Moat? Co2 cartridges require expertise and reverse logistics as many countries consider these items dangerous, large installed base, industry know how and the brand name.
•    Samsung one example of a company that is partnering with SODA stream to install in their refrigerators.
•    Valuation – doesn’t look cheap, trading at 22x trailing earnings guidance is for 3% growth, EBITDA growth ~15%. Looks exp. On a PE basis, fairly valued on EBITDA basis. Why is this cheap? Brings up the GoodCo / BadCo example. You should look at the businesses separately.
•    Western European business – 31% growth last year, 33% previous – their cash cow mature market. Thinks they earn 2.34 a share out of Western Europe (versus 1.82 total business).  15x multiple on that business ~$35 or roughly the entire share price today. You get the USA biz for free. •    Another way is to look at the refill business – 7mm installed base, trading around ~8x refill business.
•    Doesn’t think the Coke/Keurig Cold competition – no product out yet. Chemical carbonation isn’t on par with the later, plus costs are expected to be higher.
•    If you want a cup of coffee you have to make a pot – a waste, so Keurig makes sense. If you want just a coke, you can purchase a can or go to a vending machine, what is the value add from Keurig Coke? Doesn’t make sense to Whitney.
•    What could go wrong- poor earnings next quarter and inventory levels. Q1 earnings will be bad, perhaps it will offer a better entry point. 


Be sure to check out the rest of the Value Investing Congress presentations.

Whitney Tilson Short K12: Value Investing Congress Presentation

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Whitney Tilson of Kase Capital.  He presented a short of K12 (LRN).


Whitney Tilson's Value Investing Congress Presentation

-->

Short K12 (LRN)

His largest short position.

Near its all-time high.

Says shorts have cost him and his investors "a fortune" over the past 4 1/2 years. 

Online learning in 33 states. 

Bull case:  32% revenue growth over last decade, expected to grow another 16% revenue and 32% eps over next year.  Ave rev/student rising.  High parental and student satisfaction.  He admits online education can be an excellent option for some students.  Product is fine, not a fraud. 

 

Valuation short, basically.  Trades at 50x earnings, but growth is now slowing, and EBITDA margins are under pressure. (Looks seasonal though?).  Asks why they don't use a big accounting firm.   

Aggressive accounting to capitalize its software and curriculum development costs.  Says shift is to a growth at any cost mentality.  Says their pass rates are getting worst, because they are taking more at-risk kids.  

Embedded below is the .pdf of Tilson's slideshow on K12 (LRN): 

 
 

Be sure to check out the other presentations from the New York VIC here.

Whitney Tilson's Kase Capital Q1 Letter: Pitch on Deckers, Sears Hometown & Outlet Stores

The hedge fund duo of Whitney Tilson and Glenn Tongue split up last year and now Tilson is managing his Kase Capital solo.  He just sent out his first quarter letter to investors where he outlines two of his new investments: Deckers (DECK) and Sears Hometown & Outlet Stores (SHOS), which you can read in the letter below.

Kase Capital's Top Holdings

In Kase Capital's letter, Tilson also lists his largest positions:

1. AIG (AIG)
2. Berkshire Hathaway (BRK.A)
3. Howard Hughes (HHC)
4. Deckers (DECK)
5. Citigroup (C)
6. Goldman Sachs (GS)
7. Netflix (NFLX)
8. Canadian Pacific (CP)
9. dELiA*s (DLIA)
10. Iridium (IRDM)
11. Grupo Prisa (B Shares)
12. Sears Hometown & Outlet (SHOS)
13. Spark Networks (LOV)


Tilson's Shorts & Exposure Levels

Tilson also reiterated a few stocks that he's short: InterOil (IOC), K-12 (LRN), and Nokia (NOK).  He's also holding a large cash balance, waiting for better opportunities to deploy capital.  His equity exposure comes in at 66% long and 22% short currently.


Embedded below is Whitney Tilson's Kase Capital first quarter letter to investors for 2013: