The main type of business are low cost producers. For instance, Geico or whatever the lowest producer insurer is. The key point is firms that genuinely pass the savings onto the customer. Firms like Costco, Sam's Club, Geico. Maybe Amazon, for instance in the early days of Amazon what Bezos did to save money they got rid of the light bulbs in the vending machines at work. That's real cost cutting to give the customers savings. Any firm that genuinely passes the savings onto the customers instead of lining their pockets.
Frankly, eCommerce platforms are practically commodities now BUT I strongly try to avoid giving Jeff Bezos more $ - I noted in another post:
"Interestingly enough, Tucker Carlson just interviewed an Amazon seller https://twitter.com/TuckerCarlson/status/1789052798870471092 who appeared in a recent documentary (Amazon — Market. Power! Monopoly? | How Amazon Hikes Prices & Copies Product https://youtu.be/8L6MaNVNBuQ ) and sells a $17 product - of which, Amazon takes $10 leaving him with just $7 to cover the product’s cost, rent, employees, etc. And if he tries to sell his product cheaper elsewhere, Amazon’s computers will detect it and he looses his Amazon “buy box” along with most of his sales."
I've ordered all kinds of stuff from Temu when visiting the states - 4 garden trellises, security cameras, etc... My dad has ordered a food dehydrator, battery operated pruning shears etc... Usually pretty good deals - you just have to wait up to a week+ if in California... Not so sure I'd want to own the stock though as like I said, eCommerce is almost a commodity!
Thanks for the post and sharing Nick Sleep wisdom.
Just one note regarding your IRR calculation quoted below. In your scenario, the market cap increase would be 44% and the IRR over the next 5 years would be around 7.56%.
“Assuming it can trade at a conservative P/E of 10x we get a market cap of $248B. With a current market cap of $172B this represents a 144% increase from current market cap or a CAGR of 19.2%.”
Furthermore I really think 10% per year increase in net income is extremely conservative. However, regarding companies in China its best to be very conservative. If this was a American company I would probably estimate it to be at least 15%.
You are right. Sorry for this mistake ill fix it now. I wrote this very late so I must’ve been tired. Not a good excuse but ill do my best to be better in the future to stop further mistakes.
I love your work, man! When considering the economies of scale shared model, do any other companies come to mind?
The main type of business are low cost producers. For instance, Geico or whatever the lowest producer insurer is. The key point is firms that genuinely pass the savings onto the customer. Firms like Costco, Sam's Club, Geico. Maybe Amazon, for instance in the early days of Amazon what Bezos did to save money they got rid of the light bulbs in the vending machines at work. That's real cost cutting to give the customers savings. Any firm that genuinely passes the savings onto the customers instead of lining their pockets.
I linked to your post in my Monday EM links collection post: https://emergingmarketskeptic.substack.com/p/emerging-markets-week-february-17-2025 plus had written about my experiences ordering from Temu/Shopee/Lazada/Amazon: https://emergingmarketskeptic.substack.com/p/can-temu-take-on-amazon-and-the-rest-of-world
Frankly, eCommerce platforms are practically commodities now BUT I strongly try to avoid giving Jeff Bezos more $ - I noted in another post:
"Interestingly enough, Tucker Carlson just interviewed an Amazon seller https://twitter.com/TuckerCarlson/status/1789052798870471092 who appeared in a recent documentary (Amazon — Market. Power! Monopoly? | How Amazon Hikes Prices & Copies Product https://youtu.be/8L6MaNVNBuQ ) and sells a $17 product - of which, Amazon takes $10 leaving him with just $7 to cover the product’s cost, rent, employees, etc. And if he tries to sell his product cheaper elsewhere, Amazon’s computers will detect it and he looses his Amazon “buy box” along with most of his sales."
I've ordered all kinds of stuff from Temu when visiting the states - 4 garden trellises, security cameras, etc... My dad has ordered a food dehydrator, battery operated pruning shears etc... Usually pretty good deals - you just have to wait up to a week+ if in California... Not so sure I'd want to own the stock though as like I said, eCommerce is almost a commodity!
How do you compare PDD with JD?
Thanks for the post and sharing Nick Sleep wisdom.
Just one note regarding your IRR calculation quoted below. In your scenario, the market cap increase would be 44% and the IRR over the next 5 years would be around 7.56%.
“Assuming it can trade at a conservative P/E of 10x we get a market cap of $248B. With a current market cap of $172B this represents a 144% increase from current market cap or a CAGR of 19.2%.”
Furthermore I really think 10% per year increase in net income is extremely conservative. However, regarding companies in China its best to be very conservative. If this was a American company I would probably estimate it to be at least 15%.
You are right. Sorry for this mistake ill fix it now. I wrote this very late so I must’ve been tired. Not a good excuse but ill do my best to be better in the future to stop further mistakes.
I don't know how you can look at that market share chart and not be more concerned. Things just move too fast in China.