Good Investing Talks - After the crash: What are the chances in European Tech, Daniel Kröger?

Episode Date: August 9, 2022

Daniel Kröger runs the global ELM Global TICO fund with a strong tech focus. With him, I have discussed how he manages his portfolio during the current volatile market.

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And now, enjoy the video. Hello, audience. It's great to have you back at good investing talks and it's also great to have Daniel Kruger back. He was here in 2018, I think, in the early innings of this channel when I still was doing German content. Now he's back to talk about tech. Daniel also transitioned since 2018.

He started his own fund. fund and maybe you can tell a bit about your history since then yeah of course so first all thank you to them for for having me so it's a great work what you're doing for the community so appreciate it um yes i start in 2017 18 my my own fund so it's um it's um it's the lm global tico it's a yeah it's a use it fund so it's um about it's a very concentrated portfolio only around 30 companies um digitalization is the main factor and that, but that doesn't mean it's not only software or semiconductor, so you have digitalization in all areas, and maybe we talk about that later, that's the focus.

And so the main focus is as well that you meet the management and you have a feeling about how they think about innovation, and that's the process that takes a long time. So sometimes, I don't know, I need a year to invest in a company. and when you travel a lot in Europe in U.S. or in Asia to meet all the companies. But, yeah, it's a lot of fun. And, yeah, that's my fun. And, yeah, you asked, well, what's my background? So I'm not a typical guy around a business.

So I'm a science guy, so I study computer science. After that, I start as a trader at Universal Invest. So it's a company or a CAFOG, we say here in Germany, in Frankfurt. And after that, I worked 10 years for Akkad's investment. I think it's well known in the value community as well. And, yeah, I was there the head of portfolio management with Dr. Henrik Lever. So we do the decision around selection and allocation. And I have run their European fund for six years.

And then I start my own funds with my own vision. and yeah it's good a lot of fun you already mentioned travel and in your profile in the community you say you're based in frankford and in san francisco if i'm right um so how have you observed the tech scenes in both geographies like let's say germany and the west coast in the us how are they different um so um i i lived for around one one year in san francisco in two sales 14, I think, yeah. And now I travel in a year, I don't know, around one or two months in San Francisco or in the Bay Area. And I think the difference is, but this is for the whole U.S., that it's very easy to connect with your network.

So when you're right after a year, so hey, guys, I'm back. So everybody welcomes you and drink with you a coffee. So that's very good. And in Europe, I think sometimes it's a little bit hard. So in Europe is like the way you have to plan, I don't know, two or three months before, before you travel and the U.S., you don't plan everything. So you say one day before, so I'm here, so let's go out for a coffee. People are more spontaneous. And in the end, so everybody is have fun to meet you or to introduce it to another guy.

That's one thing. But the funniest thing is, or maybe it's not funny, this year when I was traveling in San Francisco, so the city is, it changed after COVID. So nobody is in the city. The city is completely empty. Everybody is in the home office. When you meet some guys, they told me, so, yeah, I'm only here in the office for you. So that's very crazy.

And you see that in restaurants as well. So they open only from Thursday to Sunday. Then they're very packed because everybody coming from outside. All this now is the other way around. You have lots of restaurants outside. They're becoming much popular. because everybody's sitting in the home office, but going out with his family to eat there.

So, yeah, but that's not good for restaurants in the city. You have a lot of places now they're closed after COVID. And I'm not sure if that will change in the future. So when you look, I don't know, to Airbnb, so they don't have to go to the office. And I know lots of people from Airbnb now they move to Miami because you pay their less tax. So, yeah, it's, yeah.

We'll see what's happened. Maybe San Francisco, a city is a little bit dead and you see a shift around Austin or Miami, something like that. Coming back to the change you already mentioned in the last year, like if we would have a time machine and move one year back, it would be like crazy to get back into the bubbling atmosphere we had then. I think Kavana, one of the stocks you also have in your fund or are interested in was that. 330 or something one year ago now it's a 20 so the environment totally changed um yeah what are this kind of challenges through the changing environment you could observe like in europe for tech companies you're interested in and like in the u.s what has changed there in the whole environment and your observation yeah the funniest thing is i think i i can't remember when this was happening

in the past, when you now look at European, especially tax stocks, now they're much more expensive when you compare to American companies in the same business area. So maybe when you look at in Germany to the Nemechek, it's very, very expensive. And when you look to an auto desk in the US, now you get the company for free cash flow yield around 7 or 8%. So that's crazy. I think American companies or most of the companies have a much bigger hit than European companies. Maybe it's coming in Europe as well, so I'm

not sure. So when the ETC will raise the interest rates as well, much higher than discussed now at the moment. So yeah, we'll see. That's one factor. When you look at you mentioned Kavana. So when you

look at the valuation, so it was very, very crazy last year, but it was crazy the year before as well. You have the fuel with low interest rates or no interest rates, and that was the driver. But in the end, you see it is important to do your math and your valuation and you don't buy any stories. So it's important that you do your valuation. Yeah, I think, and now you have the chance to decide what is the best way.

You can invest in Google and Amazon, but they are not really, really cheap. so and maybe it's better perhaps you look to to companies say they fall 80 or 90% and they are close to make some some earnings maybe that's because that could be better companies for the next 10 years so that's my approach at the moment and there are lots of good companies like I don't know hub spots so they're not so cheap at the moment but maybe when they become cheaper it could be in a good opportunity you're tracking relatively wide area of tech companies like what were the most remarkable reactions you saw to this changing environment we are in? What would you mean in the company inside or in companies inside or?

What way were you surprised when you heard the press release or like the investors call? What has changed for some companies and what are like remarkable things that come into your mind when thinking about the last year and how companies transform or adapt to this changing environment? I think when you talk to companies, I think they see very late that you have some change in the maybe consumer behavior. I don't know. When you look to Salesforce, I talked to Salesforce, I don't know, one month ago, they don't see that any company is closing a contract. So I think they are in good shape and everybody wants to do a business with Salesforce.

That's good. I think it's more the digital fuel. I think it's very hard in a recession to cut your connections to Salesforce. I think that's good for Salesforce. That's one thing. And the other thing, that's very funny. You have a lot of people with stocks options. But when you have startups out there and they get money, many billions, so they hired,

or they try to hire people from, I don't know, Salesforce with more stock options. And people try to change. And that's very hard to hold your talent in the company. And especially on Salesforce, there's one guy, a very talent guy. He moved to another company and his stocks options, I don't know, was worth around 30 millions. And now with the crash, it's only $200,000 US dollar. They come back to Salesforce and say, hey, guys, sorry, it was.

a mistake can i can i come back and sales for sales force is fine so they don't pay any more stock options they that's good and the people now coming back so yeah but they look maybe i don't know what's happened but it's that's the main thing that they all the companies now fighting about for for the talents but with low prices so yeah we'll see what's happened and is there anything else you could observe in this kind of environment that you never would have thought of like one year ago i think you know you see in a lot of companies that they they they cuts some jobs they have they have a freeze in hiring new people i think that's that's i think i don't know that could happen a year ago that's one thing um and the other thing is from from a from a culture point

when you're a company maybe you started 10 years ago you have a market environment where the market goes up and up and up and your business running very very well. You have high growth rates. And now maybe your business get hit. And it's very hard from from intern to make that clear for your people to say, hey, guys, now you have to save some money. And now you have to change in your mind. That's not a very good time. And I think that's hard. That's one point. And the other point is when the recession maybe is over. And I think we have a recession, we will see a recession. The question is only how hard it will be, but that you as a company need to be ready

when the business goes up. And that's very hard to do things in a company to manage. And so, yeah, we'll see which company has a good management and which company has not a good management to do that. So look in Germany, I see the Luftanzer. Yeah, so I think they missed that now people want to travel. at the moment they don't have enough people to do to all these things yeah to be honest it's super hard for companies to manage this kind of volatility um especially in such periods where

demand goes up 200 or 100 percent in a year and then there's the buyer strike in the next month or it's even harder to acquire customers and to hold them because they are now in some other interesting occasions traveling again or whatever like There are many interesting examples where it's hard to manage this volatility and will be something that will take some time to manage this. And I'm not sure of the stability we had before we'll come back. So it's a quite interesting environment to observe. But what kind of changes in the current environment in your eyes are causing the biggest risk for companies and the companies you're investing in? So what I mentioned before thought that the management now has a need to to to form the company and now tell the people so be aware of the crisis and save money.

That's what I mentioned before. That's that's very, very hard. And on the other hand, so look, now it is for every company the best time to do great business, right? So when you, I don't know, in Germany at Salando, now it makes sense to spend maybe more money to get more clients. Or when you're a small company, now it's the right time to get bigger market share. But in this environment now, it's changed. The investors say, look, please don't spend more money and grow. We want to see some earnings like the investors buy at Gorilla, something like that.

And maybe that is a factor that could, it is not good. because you get the easy clients and then you stop after two years become profitable and you lose some clients or not you lose some clients but you don't get more clients because you don't spend more money and maybe that could be a risk to manage this environment in the on the other hand you have this expectation from the investors so and it's yeah that could could be a risk for companies that you lose some market share because you don't invest much more so look at 2008 and 2009 It was the best time in this crisis for companies to start and to grow and to merge. So I don't know.

Why can't Salando buy about you or about you by Salando? I don't know. It could be happen. It makes sense, right? And yeah, that is a chance, but it's tough for companies to manage this way. And on the other hand, you have big waves of technology shifts in the semiconductor area or in the software area. and this will go on and go on. So when you have enough money

and you have to focus on this kind of product, so yes, you have a recession. Maybe people buy less smartphones, but it will come back. I don't know, you have a busy. It's a Netherlands company. Maybe we talk later about that. There's some big technology shift,

and they're the only ones. And it doesn't stop because you have to install much big technology. It costs you a lot of money. And nobody says, okay, we stop to invest in is new technology. You have to be ready for the for the next shift for the next growth cycle. Where do you see chances like investing is also about standing out out of the crowd and looking for opportunities wherever those don't see them? Where do you see chances that other investors might not see at the moment with the focus you have when you fund? So my focus is so as I

mentioned all investors at the moment have the same problem. So over 10 years, everybody has the same in the portfolio. You have a value investors. Now they shift in Amazon and Google, or they have a shift in Google. You have gross investors. They had Google Amazon as well. So they lose it's the same way, right? Then you have high gross investors.

They lose a lot of money. And on the other hand, maybe you have a classic value investor, I would say. And when they invest in the wrong car company like, I don't know, BNW, so maybe you you lose money as well. Then you have the ESG side, so you have no oil and something like that. In your portfolio, you lose as well. So at the moment, the only winner is who has cash or an investor who invest in oil companies and something like that.

So that's the risk or that's the situation at the moment. And my focus is to say, look, my investment horizon is around three to five years. And I want to look to small or middle companies. they are with technology ready to create new markets, right? So I like Google and I like Amazon, but maybe people outside think when you have an Amazon in your portfolio, you have innovation, it will go on and go on forever. But that's not true.

Look in the history. And my view is, or my chance is to have companies, they fight against maybe Amazon. I don't know, look at Snowflake. It's a great company in a small area. They fight against Amazon. Amazon and Amazon is losing much more, a lot. And I don't know, look at small companies like a Nocado in UK.

They provide a fulfillment technology set up for supermarkets that you can delivery e-foods, something like that. It's very small. Nobody believes that could happen or it works. But when you go to the companies, you see it works. And in small areas, you see your revenue growth and you see the market. And that's my focus to say, I have in mind to connect the dots in the future of these three years and find the right companies in small areas, they will be there. That's one thing. And the other thing is, I don't know, there's a narrative, there's a narrative for many companies out there, right?

You know, you have meta or Facebook, they say, oh, everybody goes in the metaverse. So what does it mean? Well, what is the metaverse? Nobody knows, right? And Facebook don't know us as well. But I know my portfolio as I start with the fund, I have see Toby, who see the main company in terms of eye tracking. You need eye tracking for augmented reality and virtual reality. And yeah, so I believe in this augmented reality thing.

I don't know if it's meta or not, but this is exactly three years ago. I connect the dots and say that will be the main driver for the future. So now it's a lot of rumor there and Facebook say it's meta, yeah, but I invest in this area as well, but I don't know it's meta or not. It's interesting. Like with your portfolio, you have like 30 stocks due to your user structure. Do you think such a diversified setup is an advantage right now, like compared to like having 10 stocks, which is way more concentrated? So I like funds with 10 stocks. it makes a lot of sense.

You can go deeper and deeper. There's one thing on the other hand. So at the moment when you start a hedge fund with 10 stocks, maybe it will be hard to get money. I don't know. But when I have 30 stocks, you have a little bit more diversity. And so look, in my fund in the EM Global TICO, it is real diversity in technology, right?

because I don't invest in Amazon, something like that. So it's more, much smaller company. And that's, that is the advantage. My fund goes down obviously as well as this year. But it could be a good start when the market in returns. And maybe these small companies and have the better chance to come out because there's a big business on, on the door. How important is like with yours set up, like thinking about a recession, how important

is cash or positive cash flow in this environment for companies. Is it something you're especially looking for that there is this path to profitability or if they are making losses that they have enough cash buffer, that they're independent from the capital markets? Yeah, that is always a point in my, say, checklist when you discover companies. So in my fund, 80% of all companies have revenue growth around 25%. and the EBIT margin around 20%. So that's good.

The rest, the rest 20% are companies. They will make money. They have a positive cash flow and they will make money on the EBIT side in the next three years. So that's the main thing. Look at companies. I know I like companies with their, so in my fund, 1% is in Ginko BioWorks. So maybe you know the company. So they don't get money in three years.

It's the only company, obviously. but it could be the next Amazon in this biotech area. So look at the share price. It's down 90% as well. But in my view, it makes sense to have companies always that are close to generate cash flow positive because then you can do a valuation, right? When you only have this price to sales multiple, yeah, so then it depends on the markets and which kind of mute is the market.

It is now it's 100 better or good or is the 20 better. So, yeah, I like the real cash flow in my hand. And yeah, when I look to my portfolio, 80% doing very well in terms of growth rates and in EBIT margin. Yeah, it also helps to not have to raise capital in this environment because I think the terms, if you're 90% down and have to raise capital aren't that good. maybe it means that you have to raise capital of like 95% down level which is painful yeah and you mentioned depth as well so right so I'm a little bit debt is fine but yeah most of the companies say they have nothing in terms of of that for the end of our conversation you've brought maybe three names we could take a deeper look into it's SAS Imagotak is one of the names

I hope I spelled it, right? What do they do and what is you thinking around them? What is interesting about this company? Yes, I mentioned before. So I'm looking for companies. They are ready to create big markets. And so, SESi-Magotech is at the beginning in my fund. And it's a French company.

And they provide for supermarkets, but not only for supermarkets, electronic labels. So the big issue in supermarkets, market is you have to change the price and now somebody you have to shift or to change the paper label. But with SCIC micro tech, you can install electronic label and then you can pay a computer change the whole environment or the whole prices. That's one thing. The other thing is that you have now a small camera in this smart label. that means you see the other side of the shelf and you see if it's empty or not.

So in a supermarket around, you lose 5% in terms of revenue because you don't know that your shelf is empty. So that's the second thing. And the most important thing is that you have a software for dynamic pricing. That means, I don't know, when it's 8 o'clock in the supermarket and you have lots of strawberries and you say, well, next morning, maybe you can't eat it. Then you change the price in your storebase. It goes down. On the other hand, maybe you shift or you increase the price for cream.

Then you have the same mix in terms of margin, but you can sell more. You can upsell the whole strawberry. So that's the three main areas. So when you look at the companies, then you have a market share around 50%. So the market leader in this area. that's one thing and the market you have a lot of growth there right so at the moment you have 600 millions on smart labels and around 26 you will have around 5 billion so that's an enormous growth rate and everybody now wants yeah gross and so look now they say the biggest supermarket in the

world is obviously war marked and now they have a contract with war marks it's 5,000 stores around this contract means it's a value of 2.5 billion in terms of revenue and it's the moment they're doing around 700 millions in revenue so they will go out over the next three or four years to install this thing so it's very predictable what it means in in terms of revenue that's one thing you have the founder is the CEO he holds around 2% it's very good and yeah in the end it's very cheap so when you have this growth in place in three years you have a PE around 14 and I think for this quality company it's it's very good when you look at the share price it's very stable this year so it's when I look against S&P or something like that so it's very good because it's in in good

hands and good shareholder structure. Is the revenue they get recurring in a certain sense or is it just like you buy a label, place it in your store, the label has a duration of like, or lifetime of five years and then you replace it again? Yeah, after five years, exactly, then you have to change the whole label because it doesn't make sense to change the battery, right? So you change the whole label, that's one thing. and you have recurring revenues over the cloud what I mentioned with the dynamic pricing

so you have 20% of your revenues or no not 20% 20% of your clients at the moment they are connected to the cloud and that's recurring revenue as well and yeah cloud becomes more and more but not in Germany so no German supermarket wants to join the cloud I think they have little as a customer so yeah you know the Germans have these privacy concerns but someday maybe a German supermarket will shift as well. And in the other hand, so when you're looking forward, you have this thing that you can say, Hey, Terman, you have, I don't know, two kids and very young kids,

and for you, we have a special offer, right? You get some, I don't know, baby powder for half of the price. And that is possible that you connect in the supermarket or in this market with the customer as well. So coming in the future, and that's very good, that you have a much better experience in the supermarket, maybe have an higher-up sell as before.

Yeah, still in the supermarkets, you usually have the system that you have some things on discount, like basic things like bread and butter, for instance. They are subsidized that customers come to the supermarket if they are on sale and people buy there. And now, if you have this labels, you could do more dynamic. also like attached to the things you have in the shelves that are like an oversupply or an

under supply which allows supermarkets to get better. It's an interesting technology for sure. And so the funniest thing is you mentioned after five years you have to switch the labels. There's a competitor in Sweden. It's a priser, but technology is not on this same level. And the good thing is all these labels working with these. a wireless network in your supermarket. And it's not an extra hub you have to install in the supermarket.

So they have deals with all routers provider like Cisco. So it is implemented in the Cisco router. That means for a customer like Best Buy who signed a contract with price, it's very easy to switch, right? So after five years, you obviously have to switch this price tax. But no, as the SEC Market Tech, you can say, hey, you can switch, but you don't have to install any hubs. You can switch because you have a Cisco router,

and you only have to switch this kind of label. So it's very easy to grow with the whole market on the one hand, but you can grow with new customer who switch from Pricer to GSC MarketTech because the technology is much better and that will happen in the future as well. Okay, so there's a chance that they take market share with a better technology as well. But it's also, yeah, it could be also a risk if like competitors get better, but if you have a certain scale advantage in such markets and you don't mess it up

it might usually lead to the market leader winning if they are better. Interesting idea for sure. Then another company you already mentioned is B.E. Semiconductor it's another European tech play.

It's a Netherlands company, right? Yeah. What is the interesting thing here you've observed? So that's for a long, long time over one of my favorite companies. Norm is an excellent CEO. He's 30 years in the company, Richard Blickman.

He's around, I don't know, 62, 65, I don't know. But he's really, really amazing in many terms on the technology standpoint, from the technology standpoint, in terms of capital allocation. So it's really good. And so what basically do? So it's very hard to explain. So, BASI is the manufacturer of machines for the semiconductor industry. And the machines are more on the back end.

And one of the main products is that you do package for semiconductors. So when you have a semiconductor, you have like this plastic package around the semiconductor that you wear against, I don't know, some heat or chemicals and something like that. And when you package a semiconductor, it needs to be very, very accurate. So we're talking about nanometers that is very accurate around this semiconductor. And in this terms, they are very good to produce this kind of machines. And so the business at the moment is that you have, I don't know, Apple as a client, that you, when you have a new 5G ship that you place this 5G chip in this Apple iPhone on the right side,

on the main board, as you say. And so that means you grow with new changes in the, this environment of smartphone or other things like cameras and something like that. They do a really good business. So the revenues are around 800 millions and they're becoming more and more. And very good margins around 35% EBIT margins, gross margins around 60. And now the main drive at the moment, and that's very, I'm very exciting. And that is that changed the whole business for B semiconductor.

When you produce a semiconductor, now you have this transistors and they become smaller and smaller and very much more closer. And at one point, it's too close. So from the physical standpoint, it doesn't make sense. So that means now you go 3D more in the, you go higher and higher. And in this terms, you have a new technology. It's called hybrid bonding. That means you have from copper on copper and you put it two semiconductors together on together. That means that you have to work very accurate as well. I don't know. It's 130 nanometers

exactly to put one semiconductor and on the other side, on the other semiconductor. And that's the main driver because B semiconductor is the only one who has these kind of machines. They're working with applied materials. It's a big American company in this field or around the semiconductor area. And that's the main driver for more revenues over the next years. All main, manufacturer like TSM orate machines, I think the revenue on top next year will around 100 million, a gross margin around 70, and it will be coming the next industry standard for high-end ships, and B. Cemiconductor have market share around 90%. When you calculate it, it depends how many machines you will sell, you will see that it's very cheap the company

and with this extra business, you can, you know, semiconductors. business is a cycle. At the moment you see, you have the Chinese business. With Corona, it's very bad. You have some overbooking. So now you have the cycle. Maybe you have a recession. People don't buy much more smartphones. That's not good for BASIA as well, right? But with this new business, you can work a little bit against this cycle, that you have more stable revenues. And that's very good. And yeah, when you look at this new business, it will main driver for earnings you have in three years much higher earnings as with the normal business and for me now then it is a buy and you look at the capital allocation they buy stocks

back and something like that how energy dependent is the business so does like a lot of investors now vary as it is a European business that it's like that we don't will run out of energy so the question is how much energy do they need to produce the machines is this a risk So, yes, they need energy to produce the machines. I think it will not be the main driver on the cost side. I think that's not the main driver. I think for them, it's more that you have higher steel prices and something like that. And obviously, in the supply chain, now when you're waiting for something, then I think

that's a main driver for higher cost. But I think energy is not so important for them. It is, but not this big risk. and with this more cyclical semiconductor space they could be also like semiconductors are structural growth industry but they are cyclical as well so they could be also like this are they more like

tied to the cycle with the machine investment or are they that small or that specially positioned that they are more like a compounder the characteristics over the last years hey tell man here I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investor day by day.

If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to Good minusinvesting.net slash plus. you can also find this link into show notes i'm waiting for your application and without further ado let's go back to the conversation sounds like an interesting idea and the last idea in the current environment you find interesting is Airbnb it's a quite popular name so what do you like about Airbnb yeah so i look at Airbnb for a long time it's the the IPOs and yeah now it's coming down as well and it's one of the first position after this crash we start to invest now it's a it's a moment of smaller position it's 2% but we will increase over time um i know brencheski very well i met him

in in in in in silicon valley um abbey was a small small company it was a startup so it was very easy to to have a beer with him but yeah now it's it's much harder or not possible um and i and I like the idea to have a like a sharing community that you have on one hand host and you have on the other hand some people who need space and the good thing is they have so much power to increase this business. At the moment you have only flat on the platform, maybe a professional, maybe on the private side. You have a take rate around 30%, so you get some percentage from the host and you get some percentage from the client. So it's very good. And you get this completely money up front.

That means in Airbnb, you have a negative working capital. On the other hand, it means you have a much higher fricatory year. So that's amazing. Now it's starting in the experience area. So that's very cool. And so the main thing is that could help. maybe in the next years. So, I don't know, two or three years ago, the marketing to revenues was around 30% and now it's around 20%. They don't need much more marketing

because everybody knows Airbnb. And the thing is, everybody wants to travel to, I don't know, New York or Stockholm or to Berlin, to Frankfurt, whatever. And so when you do more marketing, people want to go to go more to Frankfurt to New York and something like that. It means you have maybe a price increase. But the main issue is when you have, I don't know, a small town where you have an Airbnb as well,

but nobody knows this town, so nobody is coming, right? So the main thing is in the future to show people, hey, look, you want to New York. Yeah, that's cool. But when you don't know, drive to the next city, maybe you don't know it, but there's this cool Airbnb and you have this kind of experience that you go out and show people, other things they don't know. That is the main thing for the future. That's good.

So I've discussed with Airbnb. So that could be a funny thing. Now you're term, you live in your flat, right? I don't know. You're paying $1,000 fee for your flat. Maybe you skip it and you say to Airbnb, I have $1,000, please show me for one month where I can travel in Europe for $1,000, and I paid $1,000 or euros to live there and work from there.

So I think that's amazing. There's an audience, they're very much younger, and that could work us very well. And in the end, so when you now look at the prices with the free cash flow, look, you will have in 2024, you have around $2.3 billion. in free cash flow, you have a revenue around $10 billion, so it looks amazing. So maybe in a recession, the prices comes down, but at this price, around 90 or 80, it's so cheap, so it's a great company. And I think in 10 years, so Airbnb will dominate this whole industry.

So you have booking, you have Expedia, that's the other two guys in the hotel bookings, things. yeah and why don't could Airbnb could have the same margins like Expedia or booking so the business a little bit different so on booking you have this advertisements so they have much higher margins Expedia buy some hotel rooms before and then sells to the clients less margins but maybe in this middle you can find Airbnb and it's possible it's like with with higher tax rate and B&B also means that this means a price increase for both sides, like the host and the customer. Is it then getting more attractive for like hosts to list on other platforms like booking and for customers to also look at other platforms like Google or booking or what Expedia?

Because like Airbnb is getting so like the interesting thing about Airbnb what I liked is what it was attractive priced or the price was more attractive compared to other alternatives so it was like each pull factor to go there the price point but if they rise prices and increase their margin this diminishes less and less so I think the space for Airbnb might not be that big as it could be in the imagination of many investors so the tech rate at the moment in the whole sum is around 13%. So in my model, I don't increase this kind of number. And I think Airbnb, I don't know, yeah, it doesn't make sense. It's, it is very expensive at the moment. So when you look at booking, the fee is a little bit less on one hand, and you only get money from the client,

not from the host. So, yeah, so Airbnb has both sides. I think that is not the main driver, that they lose business when they increase the prices. So maybe there could be a door, but I don't know. But, yeah, I think that's the main driver. I think what you have is that you have some regulations in some cities. Maybe it makes a little bit unattractive for Airbnb compared to hotel rooms. That could be a risk. But, yeah, you see over time that cities are willing to change in their politics

because a city becomes more attractive when more people coming in, look to Berlin. There's a lot of people in the city from people around the world and Airbnb is one driver, right? And when you stay for them more than one day or you have more people, so it makes sense.

You have an Airbnb. What is the risk for Airbnb in the future in your eyes? What are you tracking in terms of risk for this business and this investment yeah there's a thing so look when the recession will come nobody knows to where the the price per night will go so last year the price was 185 around that so maybe it's it will come down i think it was a peak in a recession it could come down as well um i think the main risk we saw it was corona i think it was a worst case for an Airbnb.

So in a recession, so look, when you look to 2008 and 2009, when you look to the hotel business, the utilization rate of hotel room was around 62% and the recession comes down to 56%. So you lose around 5% to 6% in revenues. That could be a risk for Airbnb as well, on the one hand. On the other hand, nobody perhaps will, will. cut this whole holidays only perhaps say they shift you don't drive i don't know to las Vegas maybe you go to the luneboga hide or something like that and you don't pay too much

that could be a risk and then the price per night is is a little bit less i think that's the risk for Airbnb for the next i don't know two or three years okay then thank you very much for the insights you shared and the stocks you shared with us for the end of our interview is there anything to add from your side we haven't discussed you find interesting as a point. You have the chance to share it now. So, yeah, the one point is everybody now is a little bit depressed because share price comes down and it hurts.

But on the other hand, don't forget, so that volatility is the main driver to get stocks, very good stocks to a cheap price. And I think now it's the right time to find these stocks. Now it's the right time to prepare for much. higher yeah for much higher increase

quality exactly and now that's the right time and maybe in two or three years you will say oh wow this was a good time in 2021 or 22 sorry to to buy some of this kind of quality stocks and hopefully

will be in the future yeah the risk what I observed is we did this in the pandemic one year ago that we have the estimates we had from this kind of volatility peak we estimated them in the future and the risk is I think now at the moment is to estimate or to based on the current depressive mood we are in there are good reasons for this we already explained them a bit but to estimate them into future project them into the future because it's it's also not like the clear future factory we are on. Yeah. In some points, it is not clear what happened, right? So, look, the last recession is 10 year or more than a go.

But in this 10 years, we have new products like Netflix, like Spotify. But how the people react when recession comes? Nobody knows if somebody is killing his Netflix account or not. But we will see. And that's right. What you say, Thurman said, now it's hard to predict what's happening in the future in terms of running something like that. And when you look to the Netflix model, so it's, yeah, it's,

crazy as well. So spend a lot of money in this wheel of new content. Everybody saw, oh, when they spent a lot of money in new content, then this wheel with new clients go up and go up. And now you see, no, it's stopped there. So I don't know what's happened in the futures. So it's, it's super interesting. It's, it's, if you take the comparisons to the 1970s or to the 2002 or something, it is in the comparison. You do. on totally different operation systems or structures if you think about like this this thing here it's my smartphone covered into cover then protection to keep the asset long alive it's it's a totally different structure the world runs on now and it's a totally different impact it has with with

consumption patterns like 10 years ago i wouldn't have imagined that i just buy my whole food via an app and not like go go to supermarket anymore because I don't need a supermarket anymore so it's not like easy to say this is the outcome for the from the past we've learned and this would mean it for the future so it's it's interesting yeah and that's a reason so why we invest in in small companies they show that there's a market and they can can go on right so when we invest in companies we discussed before maybe there's an outcome in 10 years yeah it's it's this risk is much much higher when you have concentrated portfolios so i think it doesn't make sense then thank you very much for our interview thank you very much tillman

goodbye as in every video also here is the disclaimer you can find a link to the disclaimer below in the show notes the disclaimer says always do your own work what we're doing here is no recommendation and no advice so please always do your own work thank you very much