Zooplus vs Amazon in Battle for the European Pet Supply Market

Zooplus is the largest e-commerce pet supply company in Europe. If you happen to be familiar with Chewy.com in the US, Zooplus is the European equivalent.

Like Chewy, Zooplus has built up significant market share compared to both Amazon and the traditional bricks and mortar pet supply stores. The total pet supply market in Europe is still very fragmented with over 50% of pet supplies being purchased in grocery stores. Including bricks and mortar, Fressnapf is the largest pet supply company, but Zooplus is #2 and should surpass them within a couple years.

If we zero in on e-commerce, the pet supply market is much more concentrated. In 2018, Zooplus had 52% of online market share, followed by Amazon at an estimated 17%, and then the traditional pet supply companies behind them—Fressnapf and Pets at Home. Not surprisingly, e-commerce as a percent of total pet supply sales has increased every year, and I expect this to continue for many years. I don’t see any reason that online can’t make up 40%+ of pet supply sales in the future. E-commerce going from 10% industry penetration to over 40% is a major tailwind for Zooplus.
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Why Public Companies Should Put More Effort into Investor Relations

A private company that has long-term investors who add value is going to have an advantage over a competitor with less knowledgeable investors who pester them about hitting short-term numbers. I doubt anyone is going to disagree with that. I’ve met plenty of small entrepreneurs who list their investors as either a huge advantage or one of their biggest sources of frustration (sometimes, both). A public company may have far more investors, but it’s the same dynamic.

I believe investor relations can be a legitimate advantage for a public company. Unfortunately, very few CEOs put in the effort. Most public companies file a 10-K that was written by a team of lawyers, don’t write an annual letter, don’t post anything helpful on their investor relations site, and their conference calls are the bare minimum quarterly updates followed by vague answers to analyst questions.
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Interactive Brokers Maintains Its Strong Moat, But KPIs Worsen

Interactive Brokers is an automated electronic broker-dealer. Because they automate virtually everything they do, their cost structure is lower than their competitors. This results in Interactive Brokers having the lowest prices and highest margins in the brokerage industry. They also have fewer conflicts of interest than their competitors. All orders are sent directly to the exchanges or internally matched between clients. They don’t sell orders—like the retail brokers—and they don’t trade against their own clients—like the big banks.

Interactive Brokers is more akin to a tech firm than a traditional retail broker such as Schwab or TD Ameritrade. Interactive Brokers was founded by a programmer, Thomas Peterffy, and the man overtaking him as CEO, Malin Galik, has been a software engineer at Interactive Brokers for 28 years. Peterffy has said before that around 50% of all employees are programmers.
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Will Zillow Homes Build a Durable Competitive Advantage in the iBuyer Market?

In 2014, Opendoor started buying and selling homes online. While many other companies have since entered this growing industry, Opendoor remains the leader in what has become known as the iBuyer market. For an extra ~$6,000 (on a $300,000 house), a homeowner can be out of their house in a week or two and avoid the normal selling process—listings, showings, dealing with a realtor, negotiating prices, and months of uncertainty.

In April 2018, Zillow entered the iBuyer market. On their Q4 conference call two weeks ago, they made it clear that their new segment, Zillow Homes, will be the main focus of theirs going forward. Not very often does an $8 billion-dollar company that dominates its niche (real estate traffic online) announce a strategic shift as big as this—especially when the new business is going to be low margin, capital intensive, and cyclical.
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The Future Looks Bright for Where Food Comes From: China Exports, Sustainability, and Progressive Beef

From 2013 to 2018, Where Food Comes From more than tripled their revenue, yet their stock price is basically flat. I think there are two main reasons. While they have expanded their scale quite a bit, they have yet to show much operating leverage. This is fine as long as the investments widen their moat and improve their long-term economics, which I believe they have.

Second, there is already a lot of growth expectations built into the stock. This is because Where Food Comes From benefits from many large tailwinds including animal rights, food sustainability, and increased transparency in the food supply chain. It seems like a few of these trends may be approaching a tipping point. In my 2016 Where Food Comes From write-up, I predicted:

I think the most likely scenario is a few more years of 10-30% growth and then at some point a watershed of business comes via ADT’s next phase kicking in, more states (or the federal government) requiring non-GMO labeling, McDonald’s or one of the other giants forcing their farmers into audits, China ramping up meat imports, etc.

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Netflix: The Powerful Combination of Scale and Network Effects

Netflix has the most scale of any streaming service. They have the most subscribers, the most content, and the largest content budget. This scale advantage benefits their business in many ways.

Having the most users allows Netflix to buy content cheaper than their competitors on a per user basis. The cost of a new show gets spread over Netflix’s 139 million paying members while their competitors have to spread that same cost over a far smaller membership base. All things being equal, Netflix can pay more than their competitors for a piece of content and still get the same, or better, return on their investment.
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YouTube Joins Facebook in Fight Against Human Biases

YouTube made an important announcement two weeks ago regarding how they are changing recommendations. In summary, YouTube is trying to protect us from our own cognitive biases. Unfortunately, humans are more likely to click on things that are sensational, negative, or fear-inducing.

To be fair, this didn’t start with the internet. For many years, the adage of news programs has been “if it bleeds, it leads.” Basically, news stories get better ratings talking about murder than about decreased childhood mortality.
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