giofranchi

Well, you seem to believe that to replicate the network of credit risk bearers (banks) V/MA have partnered through the years on a global scale requires only minimal effort and no capital. If that is correct, then I agree V/MA moats might become weaker over time. Cheers, Gio

I would really like to understand… but I don’t! How is all this supposed to handle credit risk? The article ends with the following sentence: But the fact “everyone is known” (whatever it means…) doesn’t automatically imply that everyone knows if everyone else is worthy of credit or if he/she is not, right? As long as consumers want credit, there must be credit risk bearers. And those credit risk bearers have partnered with V/MA in two global networks that work very efficiently. Who is going to replace those networks? How? And why? If new entrants are supposed to be profitable, and have to build a similar infrastructure to the one V/MA already have in place, how could they compete with V/MA on price? Could someone tell me what I am missing here? Thank you, Gio

Well, basically I agree… But 30x earnings is a very high price to pay… Therefore, it remains a small position right now, while I keep track of business developments, and hoping to buy more in the future at an attractive price. Cheers, Gio

Which is peanuts for a company that could convince 700 million people to use its service… If they have to build from scratch the global infrastructure of “credit risk bearers” that V/MA already have in place, it doesn't look like worth the effort. This might be true, and it might be true for Apple too. But if for both of them their payment services are only a mean to reach more people, it is not clear why they should invest all the time and the resources need to build from scratch new global infrastructures of “credit risk bearers”, while instead they could decide to simply partner with V/MA and use those two infrastructure built throughout the years, already in place, and perfectly functioning. Cheers, Gio

Ok, thank you! Cheers, Gio

Ok, I understand. But, whoever bears credit risk, it is a business establishment that is very long dated and that works extremely well. V/MA have built a worldwide network of card issuers that work with them and are willing to bear credit risk. It doesn’t look like an easy thing to replicate… Especially if the incumbent enjoy an advantage of a couple of decades… Therefore, the question remains: why should Apple, Google, etc. make such a huge effort for little or no gain? If, instead, they want their payment services to be profitable, how is it that V/MA, with the huge advantage of having their networks of “credit risk bearers” already in place, should fail to be the low cost producers? Cheers, Gio

I am reading [amazonsearch]How Google Works[/amazonsearch] by Eric Schmidt. And I find it very interesting. I have a question for those who think Larry and Sergei engage in value destroying activities: is it simply because they are not good at what they are doing, or is it because technology works that way? I mean, isn’t technology much like venture capitalism? You bet on 10 small things, 9 go to zero, while one becomes really huge? Thank you, Gio

They wouldn’t. And that’s why I have said that to separate credit from payment will entail new costs. Cheers, Gio

If you assume that, then you are obviously right. No need for any further discussion. But I am not so sure that consumers will accept credit and payment to be separated… Once people are used to doing just one thing, they won’t go back to the need of doing two separate things… Therefore, I assumed instead that P2P will put pressure on V and MA’s margins, but without disrupting their business altogether. If this is the case, will their earnings trend lower? As I have said, it is not clear. Cheers, Gio

Now consumers have a service that does both. And it works very well. They have to do just one thing instead of two. I don’t see why consumers will ever accept to separate the loan making process from the payment process… Especially because it is not clear their overall costs will diminish substantially, since the loan making process, if performed by banks, will entail new costs. And the service, taken as a whole: the payment process done by Apple Pay + the loan making process done by banks, will lead to a much worse user experience than the service provided by V/MA. Will V/MA have to reduce their fees in the future? Probably yes. Will they penetrate new markets like India and China, where payments are still 90% cash payments? Probably yes. Which factor will prevail? Difficult to say, but it is not at all clear to me V/MA’s future earnings will be lower. Cheers, Gio

If it were so easy, banks would be doing that already, wouldn’t they? But the job of granting credit is not that easy at all. It would require many costs banks are not sustaining right now, and therefore it would certainly not be free to consumers. My understanding is that V and MA are able to assume those risks exactly because they are just two players in a very large market: they couldn’t extend credit like banks give loans, they couldn’t be studying in detail the spending habits of hundreds of millions of consumers. Instead, it seems to me they extend credit much like insurance companies underwrite insurance contracts: basing their judgements on statistics. The fact V and MA share between themselves the whole market gives them access to a large enough population, assuring that overall delinquencies will be manageable and, as a consequence, overall results will be satisfactory. The larger the number of players which grant credit to consumers, the lower the population each player will be able to reach, the higher the required controls will be, the higher the costs. Am I wrong? I am attached to neither V nor MA… I have just started a small position to study and monitor them… If I am wrong, no problem: I’ll sell them and buy GOOG instead! I just want to understand their market better. Cheers, Gio

Isn’t this supposed to be a global service? If consumers have to travel abroad, a service that grant them access to credit wherever they go is surely valuable. Isn’t it? Why would consumers choose a service that provides them with credit in the US, when they already have a service that provides them with credit globally? Cheers, Gio

What I meant is that to grant credit to consumers is not like developing video games. Whenerver you grant credit, you'd better make it your core business, or don't make it at all... The risks are much higher than putting together a bunch of smart app developers and producing video games. Am I wrong? Cheers, Gio

I am assidous buyer of both Amazon and Apple's products... And to do so I always use my credit card... Cannot say about Google... Though I think I can see how Apple and Amazon might compete in the payment business, I don't think it will ever become their core business. Cheers, Gio

Thank you SD! Just let me put it this other way: do you have a name?... I mean of course the name of a company that could disrupt V and MA business. A technology is never enough imo. There must be the willingness and the ability to take away business from incumbents so much entrenched and mighty as V and MA are. Which is that company? Thank you, Gio

The Evolution Of The Biohacking Ecosystem http://techcrunch.com/2015/11/19/the-evolution-of-the-biohacking-ecosystem/ Cheers, Gio

Well, I have never followed Colfax closely; therefore, I cannot be sure about what has actually happened. However, if what you say is true, imo it only corroborates what I was saying: Colfax share price went south despite the fact its multiple hasn’t contracted much. The losses were generated by a business which didn’t perform like shareholders expected, rather than a PE that went from very high to low. Also what you call a “decent balance sheet” is imo a business judgement: how much debt can I safely use? Which are the risks associated with the amount of debt I see on the balance sheet? What is conservative and what is aggressive? The answers differ from business to business. By the way, Mr. Klarman in Margin Of Safety says these things very clearly. Cheers, Gio

Well, that is exactly how I invest in both CSU and TDG (and now in V and MA too): as long as P/E ratios stay high, I’ll keep my positions relatively small and leave lots of room to average down. Cheers, Gio By the way it is not much clear how a low PE would protect you when an highly indebted company gets accused of fraud... The same is true for Colfax: after it got "cheap", it went on getting much cheaper... You have chosen the right businesses so far in V, MA, and Google... Good for you! But imo the choice of the right business is what matters the most when you plan to hold an investment for years. Cheers, Gio

Well, that is exactly how I invest in both CSU and TDG (and now in V and MA too): as long as P/E ratios stay high, I’ll keep my positions relatively small and leave lots of room to average down. Cheers, Gio

I have read every post by SD on this thread… And sincerely I have understood very little… Can someone explain in easy to understand terms what is supposed to have so dramatically changed in V and MA’s business during the last 5 years? Thank you, Gio

I know, and I agree it’s selling for very high multiples. Unfortunately, it is selling at these levels since at least 2010 (the beginning of this thread)… Therefore, as usual, I have opened a position, leaving room to average down. Cheers, Gio

I have opened a position in both V and MA. Apple Pay might be a competitor, but I doubt it will impair V and MA’s business: Apple Pay imo is meant to be a valuable service in the Apple’s ecosystem, but it will never be Apple’s core business. And even a company with Apple’s wherewithal might have an hard time competing against V and MA, if it doesn’t make the payment business its core business… Furthermore, if Apple Pay is truly so much successful as to impair V and MA’s business, my investment in Apple could be viewed as a sort of hedge for the positions I have opened in V and MA. Cheers, Gio

+1 +1 Cheers, Gio

I am not talking about “sentiment” alone… Usually, the bear have a thesis, and usually it is not easy to disprove it. What I was talking about is: are you able to disprove the thesis of the bear? If you think you are not, why won’t you consider simply waiting for the company to disprove it? If they do it convincingly, the stock price will certainly be higher by the time you’d be able to get back in… But if the company has a very long runway, you might still catch a lot of its upside, and the confidence in your investment will be much greater. I understand, though, all your other points. Cheers, Gio

My idea is you might never truly know a business 100%, unless you sign all the checks. Period. In my businesses I sign all the checks every month. I’ll never be able to do so with a public company. Therefore, 15-20 companies are the result of “acknowledged ignorance” from me. At any time I usually can find more than 10 businesses I truly like… And although diversification will always end up in diworsification to some extent, I think that effect won’t be too pronounced. Cheers, Gio