👋Welcome!
What is up Cruisers?!
Everyone excited for this week’s edition!?! It is going to be lit! We are going to switch up the order of things this week based off of some amazing feedback we have received from Cruisers!
The big difference is that the Spotlight piece will be lower down in order to make sure everyone’s juices are flowing properly!
We also have a new section called “Meet A Cruiser” where we will be profiling some of Cruising Altitude’s biggest fans!
Also, we love feedback and would love to hear your thoughts on CA! Feel free to reach out directly to CEO Alan & either share your thoughts on CA or just say hello at asoclof@umd.edu
Showtime!
💸Portfolio Update
The portfolio is a little bit colorful! What are all the colors about? Under the “Ticker” column we have instituted a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Absolutely Ecstatic
🟧Just Ecstatic
🟨Some Concerns
🟥Big Concerns
📰Portfolio News
🏦 Not So Soft. Portfolio pick Invitae $NVTA is receiving a massive $1.15 billion investment from Japanese holding company SoftBank Group. This is significant for two reasons: 1) Invitae now has an extra billion dollars to funnel into its growth 2) We’ve got another Invitae bull with us (and a pretty successful one when it comes to investments) in SoftBank.
🧬 Cathie Wood Thinks It’s Good… And so do we. This past week on an interview with CNBC, ARK Invest analyst Simon Barnett shared that , “Invitae is by far one of our highest conviction names” within $ARKG and $ARKK, ARK’s genomics and flagship funds, respectively. When someone like Cathie Wood (and Simon Barnett for that matter!) likes your stock picks, you know you’re on to something.
🏌️♂️ More Golf. This time our golf story does not revolve around Callaway or TopGolf, but rather ViacomCBS $VIAC. Ratings for this year’s Masters Tournament, which aired partially on CBS, jumped 62% from last year. Sports ratings have been weird all year in COVID land and seeing viewership numbers getting back to normal is exciting!
🎮Trivia Night!
A question you shouldn't know the answer to but will serve as a fun way to learn more about the portfolio picks!
Question:
1. The first Topgolf (owned by $ELY) was opened in 2000 in which city?
A. New York, NY B. Las Vegas, NV C. Orlando, FL D. Watford, UK
Answer: D. Oddly enough the first Topgolf was opened in Watford, United Kingdom, which is a suburb north of London that is also famous for being the filming location for the Harry Potter series!
🗒️Tweet Of The Week
Here is a simply brilliant tweet from this past week that basically has nothing to do with finance. Being a great investor is fun. Having a good laugh is even more fun. Check it out:
Baily Carlin, you have done it again. Brilliant!
🔍Spotlight: My Cousin and His NFT’s
Introduction
I couldn’t be more excited for this week’s Spotlight piece as I give a little view into my personal life, as well as a pretty recent and significant development in my approach to investing. Before jumping in, there are three important concepts to understand:
NFT (Non-Fungible Tokens): NFTs, simply put, are a way of attributing ownership of a digital property to one person- kind of like a digital trading card but with blockchain behind it to ensure and authenticate ownership. This limiting of quantity is what makes each one unique and in some cases, incredibly valuable— like $69 million valuable.
NBA TopShot: NBA Topshot is a blockchain-based platform that allows fans to buy, sell, and trade numbered versions of specific, officially-licensed video highlights (think of sports cards crossed with Harry Potter moving pictures edition). I think the concept is fascinating, but I think the prices of some of these things are pretty ridiculous.
3. SPACs: A SPAC stands for a Special Purpose Acquisition Company and is the hottest way for a company to currently become a publicly traded stock. What happens is a bunch of people with big money decide to create something called a shell company (aka- a company that does not have any commercial business to it). The shell company has the goal of finding a private company, buying that company, and then having that company trade as a public company using the SPAC’s ticker symbol (or creating a new ticker symbol once the merger is official.) It is great for the company getting acquired because they don’t have to deal with the headaches of IPOs (classical approach to going public) and it is great for the people leading the SPAC as there are very lucrative fees for achieving a successful SPAC.
In summary, NFTs, NBA TopShot, and SPACs are filled with so many buzzwords and so much “hot money” (people trying to get rich quick).
That is not my speed. That is not Cruising Altitude’s speed. At least it wasn’t…
😎Eli & I
My 18-year-old cousin, Eli, is currently taking a gap year halfway across the world. After months of being busy with our own lives, we decided enough was enough and found a time to catch up on our experiences over this past year.
When we hopped on the call, I was expecting to discuss our respective years, share some funny stories, and maybe poke a little fun at Eli’s little brother, Nate (Shoutout Nate!)- because we just love doing that. Instead, what I got was a totally unexpected topic that dominated the conversation. Out of the 25 or so minutes that we schmoozed, about 20 of them were spent talking about NFTs and NBA TopShot. He went on and on and on and on and on— the kid was clearly infatuated (big word) by it and wanted to see what his older, (cooler) cousin had to say about it.
Throughout the conversation, I found many times where I was faced with a choice: I could be opened minded, enjoying his positive energy for an emerging market and maybe hear a different perspective, or I could pop his bubble (pun most definitely intended) and tell him it’s just another fad bound to be over by the time school rolls around in the fall. I chose the former. I am happy I did.
I told him I thought it was pretty cool (which, to be fair, I do) but the valuations surrounding these things were outrageous. Most importantly, I wanted to hear his two cents on the matter because he is a smart cookie (chalk that up to good genes and his great parents! Shoutout to my aunt and uncle!) and because he is always keeping up with “what’s up next” in the world. After our conversation, I was left more open minded but didn’t believe in it enough to take any action on my “enlightenment.”
Then, about a week later, the perfect NFT play fell into my lap (side tangent - I hate the use of the word “play” in an investing context. So Alan, why did you use it? I don’t know, it just felt right.)The perfect opportunity (in my eyes) at a piece of the NFT pie came in the form of Topps Sporting Cards going public through a SPAC under the ticker symbol $MUDS. But before we move on to our deep dive, two things I want to make clear:
1. Family and friends - be careful with what you say to me because you could end up as content, like Eli
2. Eli - I am still and always will be a better athlete than you.
Onward.
🎴Topps
Topps Sporting Cards is one of the most respected names in the trading card and consumer products industry.
A few things about the trading card icon:
Classic Trading Cards: 55% of revenue (sell trading cards for MLB, Soccer Leagues, Disney, Star Wars, Formula 1, and many others)
Candy: 35% of revenue (RingPop, Bazooka Gum, and Pushpops)
Digital Sports Cards and trading apps: 6% of revenue
Gift Cards: 4% of revenue
Topps is going public at an enterprise value of $1.3 billion doing $567 million in sales in 2020, representing a 23% YoY growth from 2019. The company anticipates to continue seeing nice growth moving into the coming years, as shown by the chart below.
**The first takeaway from the simple revenue breakdown above is that this a real company with diversified streams of revenue with real products. This company can continue to be successful without a NFT play (play-ew!), which we’ll get to in a moment. But, if the NFT move does work out, then we could be onto something truly special.**
🏏MLB NFTS
Currently, all professional sports team have two things in common: 1) They’re all feeling the same hunger pains from the famine of attendance dollars being stopped at the door due to COVID restrictions; 2) They all see the monster revenue that the NBA is earning through NBA TopShot and most definitely want in on the fun. They are moving quickly to get involved, and Topps, with their strong partnerships in the sports world, are primed to enjoy a king size slice of the pie.
This past Monday, Topps announced that they are launching officially licensed MLB NFTs. The announcement stated that the first 10,000 people that sign up for the platform would get some of the first NFTs for free. Exactly one hour later, I checked the site and saw they were all sold out!
Additionally, the company shared that they would be selling ~75k NFT “packs” - 50,000 packs at $5/pack and 24,000 at $100 a piece. They undoubtedly will sell out of these very very fast. Using simple math, the company will make ~$2.5 million in ONE day on the FIRST day from ONE partner when the MLB NFTs go live on April 20. The growth can be explosive but it requires someone that can tell a story. Someone with a vision.
I think it is generally accepted that the greatest story tellers of all time are the people over at Disney. (Personally, I think ViacomCBS deserves that title, but I think that is the HEAVY bias speaking.) One of the greatest CEOs Disney has had is a man named Michael Eisner, where he led the greatest entertainment company ever (for now) for over 25 years.
Where is he now, you ask? At another nostalgic icon found in most American households known by the name of, you guessed it, Topps Trading Cards. If anyone can draw up and execute a vision to carry a beloved, legacy brand into the future, Eisner is the one to do it and NFTs very well may be his way of doing so. Eisner achieved great success at Disney but has also been an equally fearless and successful leader for Topps since he bought the company and took it private at a $385 million valuation. Now, as you may recall, they’re being valued at $1.3 billion, over 200% more valuable than when he started. BEAST.
🐢A Drop Of Caution
This sounds cool and all, but we haven’t talked about some of the risks. One of my biggest concerns with $MUDS is the valuation at which they’re currently trading. Topps went public at a valuation of 12.5x EBITDA (a fancy term for profitability. So think 12.5 times profits). We would like to see that number closer to single digits (because the lower it is the less upside is already baked into the company). 12.5x is already pretty hefty for my liking.
The more interesting point in regards to EBITDA, is since the deal was announced, the stock price has risen on the excitement alone, and is trading at closer to 16x EBITDA -so much for high single digits! At the same time, if the NFT madness continues, 16x EBITDA multiple may look like a joke. With all of this information and analysis in mind, the CA team and I have decided to add our first “half” a position on a stock (every other stock we have added has been a “full” position.) The growth can be massive and the management is great, but the world of NFT’s is pretty unknown and has risks. Therefore, “half” a position sounds perfect!
TOPPS/$MUDS - Welcome Home!
-Alan
🤝Meet A Cruiser: Ben Taragin!
What is your education history and current job status?
Education: University of Maryland, Class of 2019; BS in Finance and Minor in Technology Entrepreneurship. Current Job: Consultant at EY, ongoing CEO and Founder of Line A Day (download the app for free!)
What is your Favorite part about Cruising Altitude?
Cruising Altitude checks off many boxes on my list of what I want in a finance/investing newsletter. It only comes out once a week so it's not overwhelming and you know each newsletter will be worth your time. I enjoy how it's quick and easy to read, even if you don't have much of a finance or business background. Alan and the team try to explain everything in a simple way, setting it apart from other, more technical newsletters.
I also really believe in Cruising Altitude's mission of having a long term investing strategy. I believe that if there is a company that you think will continue to grow in the future and plan on holding your position for 10+ years, there is no reason to worry about a small dip, and might even be a great opportunity to add to your position and buy the dip!
What is your favorite portfolio pick and why?
My favorite portfolio pick is $ARKG. First, as it is crucial to have diversity in your portfolio, having an ETF that is comprised of over 50 companies is a great way to start. Second, the CEO of ARK Invest, Catherine Wood, is an excellent fund manager and a great model to learn from when it comes to investing.
💭Final Thoughts:
“Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.”
-Seth Klarman, CEO of Baupost Group
If you are too stressed or anxious about your investments, there is nothing wrong with approaching investing through a more conservative lens. Investing is here to help you with your financial and overall life goals- not to make your life more difficult.