Yet Another Value Podcast - Marathon Partners' Mario Cibelli on how $XMTR is creating a marketplace for industrial manufacturing

Episode Date: June 3, 2024

Mario Cibelli, Managing Partner at Marathon Partners Equity Management, LLC, joins the podcast for the third time to share his thesis on Xometry, Inc. (NASDAQ: XMTR), the global AI-powered marketplace that connects buyers with suppliers of custom manufacturing services. Chapters: [0:00] Introduction + Episode sponsor: Fundamental Edge [2:23] What is Xometry and why is it so interesting to Mario Cibelli [5:42] $XMTR creating marketplace for industrial manufacturing / problem the company is solving [19:48] Value proposition of the $XMTR network/marketplace [24:20] Mechanics of the marketplace, customer experience, how it works [26:26] Cutting out the middleman ($XMTR in this case) risk / are they more like Uber or Angie's List? [35:05] "Instant Quote" / what can $XMTR evolve into [41:15] Cyclicality [46:47] Valuation / headwinds (and addressing them) [58:01] Short interest and what keeps Mario up at night about $XMTR [1:08:54] Execution risk Today's sponsor: Fundamental Edge You’ve probably heard about the Analyst Academy from Fundamental Edge by now. So instead of repeating the basics, let’s talk a minute about what the Academy is and is not. The Analyst Academy is a practical course on the tools and skillsets required to succeed in the buy-side analyst seat. The instructors have experience from firms such as Maverick Capital, DE Shaw, Citadel, Balyasny and ExodusPoint. But what is the Academy NOT? It’s NOT a course on stock-picking. It IS a rigorous guide to learning a process. It’s NOT a guide to pod shop investing. The Academy attracts a wide range of equity investors, from multi-managers to long only to family offices. Rather than teaching a particular style, Fundamental Edge equips learners with the essential skills required to hit the ground running and support their PM. It’s NOT a financial modeling course. Modeling is, of course, part of the curriculum and plays a central role. But the Academy is more than that. It teaches idea generation, thesis communication and how to add value as an analyst. To learn more and access a 10% discount code, go to fundamentedge.com/YAVP

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Fundamental Edge alumni get access to exclusive webinars, case studies, and an invite to their first annual analyst spring training conference in Arizona. If you want to fast track your byside career, go to Fundamentedge.com for more info. That's Fundamentedge.com. All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe, review it wherever you're watching or listening to it. With me today, I'm happy to have on for the third time, my friend, Mario Sabaeli.

Mario, how's it going? All right. How are you doing? Doing good. let's start with the disclaimer, same disclaimer I give every time. Nothing on this podcast is investing device. Please consult a financial advisor. Do you own work?

Remember, this is an investing device. Mario, I'm so happy to have you on today for the third time. I cannot believe it's been so long since the first two appearances. But the main reason I'm happy to have you on, you're a great guest. You do great fundamental work. But I know how seriously you take these things because you were texting me and you said, hey, I'm ready for time number three. We've got to go three for three.

The past two stocks that we did, January 2021, we do at the time, WWE, it's morphed into TKO. That's roughly a double in just over three years since we did it. The first podcast we did, Uber, we do that August of 2020. Stocks under 30. Today, it's over 60. So again, about three and a half approaching four years over double there. And you said, we're going three for three. So I'm excited to have you on.

I'm excited to how seriously you take these things. But the company we want to talk about today is exhaust. The ticker there is XMTR, and I'll just toss it over to you. What isometry and why are they so interesting? Yeah, and we're going to attempt to go three for three. This is an attempt. Nothing's financial advice, no guarantees. We're attempting.

But I think this is a really interesting story. So I'm excited for you to get the attempt at least. Attempted a repeat for, you know, for sure. This company is, it's something I've been working on for here. I think I know it pretty, pretty well now. it's a confusing thing to get to understand and get to know but I think I think this company a little company you know look it's a class of 21 IPO which we were kind of

chatting a little bit before you know be wary of the class of 21 and 22 IPOs I found a couple of good class of 21 IPOs you know we did pretty well with Ida cocoa I think this company remotely is interesting I think Zomitri is pretty interesting you know but there you know there's a lot of DREC during that period, I think this is not one of those companies, though, of course, it came public at a very high valuation. I don't know, it might have been 38 or 40 or something like that, it's, you know, versus the current stock price. But I think they're working on a very big problem.

It's not a small problem, and that there's not another kind of, you know, company easily in sight that's working on this problem in the same way they are. And it's a very big market they're addressing. They're, you know, they have classic marketplace attributes, so I don't actually think it's technically a marketplace. Many people wouldn't consider it. And the market they're addressing is the bespoke parts, custom manufacturing. These are, you know, 100,000 plus job shops all over the world, all over the world, over the place every state of the union here that you know are kind of the basic building blocks of industrial manufacturing um there has there is not a marketplace uh that exists yet and i think

there's been attempts at a marketplace in this in this sector going back to like the early 2000s and no one has successfully done it um until this company so i think they're working on a on a very big problem. And they've gotten traction. I mean, they're going to do kind of close to a half a billion dollars of revenue this year. I think the addressable market here is absolutely massive. You know, in the S-1, I think they use, you know, a huge, huge number.

So I don't know. I don't have it off the top of my head. But this would be all manufacturing, and they have operations in the U.S. and Europe, all manufacturing that would kind of fall under prototyping or not. on skewable parts that are generally speaking, not massive production runs. These are unique items, small production runs. And so it's just, it's a, it's a massive market. So, so this is great.

So I'm with you. Right at the front, you said it's not, it took you, you've been following it for a year and you've got a good end. It took me, you and I started to discuss. this company three months ago, I think. And it's taken me, you know, it's not like I studied it every day for three months, but it took me looking at it quite a few times to really understand the network and what they're doing here. So I guess the basic start is just tell people like what the network is they do. Because when I heard I said manufacturing demand, I was like,

well, BMW is a customer. Why would BMW go with them? They manufacture a ton of stuff on their own or like, you know, they've got the tier one auto suppliers. Why don't they just say, hey, tier one auto supplier we need more parts give them to us like kind of explain what they're selling and why why the buyer and this i guess that's the whole thing with the network but why the buyer and the seller are working with zometry well um a couple different things you're just you know broadly speaking manufacturing is going to fall into you know one or two buckets you'll you'll have you know large mass production run so you know BMW is going to make you know a lot of this this part No, they're not going to go to zometry for that.

They'd be going to flexronics or some other manufacturers or some auto port manufacturers that, you know, where price really matters. And we're going to need, you know, a million, a million pieces of this exact same part over the course of the next two years. And someone else is kind of getting to get that business. And I think those kinds of industrial buys

would represent, you know, the majority, I think the vast majority of the total spend on parts that come together to kind of build something in the end. Then you have this other kind of longer messy tale of all the kind of things that wouldn't fall in that bucket that are shorter production runs or one-off's, unique, even prototypes, anything that a very large contract manufacturer

or a manufacturer entity, it just wouldn't be economical for them to make such things. And these job shops happen to be, you know, they're very small. They're, they're entrepreneurs, they're run locally. There's not, there's only one, there's actually one public consolidator of that business, company called Proto Labs, which isn't that big, you know, they're not that big themselves, but the vast majority of these job shops that, you know, numbers somewhere close to 100,000 job shops, I think domestically, and doing all sorts of things.

like one of the things here it's hard to grasp a little bit is the variety of things these companies do the variety of parts materials they do the variety of finishes everything like that it's it's limitless you know so anyway there is this long messy tail of unique parts that are that are used and consumed and made by these job shops job shops could have as few as just two or three employees. You know, many of them are independently owned. And so they're not big. So say a company like Boeing that has a manufacturing facility,

and they're all over the place, but in the Northwest, they're going to have kind of a go-to group of job shops that they know do good work that they've used before in the past. You know, maybe there's 8 to 12 or 13 of them that they continually go to. But for the kinds of orders that we're talking about that are not, you know, not, you know, super large, they'll have a, they'll kind of have a group of suppliers that they're comfortable with. And so I think broadly speaking, those would be two of the main buckets that manufacturers would kind of fall into.

Now, I guess where Zomitri sprung into being is that the job shops haven't really, you know, of course they have software and whatnot, but it's the exact opposite of how e-commerce is today. It's not an easy thing to get quotes on. It's not like anyone could buy from them and actually funny with Zometry. you go in with a credit card, you and I could buy something today, we could design something, have it, get shipped to us in a few days with a credit card. That really didn't exist before. But most of these job shops are not able to, you know, haven't made kind of a, or not even able to make the kinds of, you know,

investments that would allow that to happen. So, you know, they are mostly living in the non-digital world, and they're struggling for orders. They want to fill capacity intelligently as best they can. And the buyer of an aerospace part in Seattle that needs something very specific would have really no way of finding a job shop in Indiana that happens to have excess capacity and can make that part next Tuesday and deliver it out and get it there on time and offer a better price

than what exists with their kind of known set a group of suppliers. So Zomitri has kind of, you know, stepped in in this marketplace and has kind of added value to both sides. And I'll kind of get into that, you know, with the buyer is thinking and what the supplier is thinking

on why Zomitri is attractive in a second. But, you know, essentially what somatry does and it's i think most basic you know i've thought about this a lot and i would say that they're they're experts in pinpointing areas of expertise and excess capacity in these job shops and no one has had no one has figured out kind of how to do that and like i said there have been multiple attempts in the past to do that so i think it and it's very essence they're actually not selling a part or a thing as much as they are the service. And that service is very valuable.

It's lacking. And, you know, therefore, I believe that they're opening the door to a very big potential marketplace over time. No, look, I'm going to let you dive into the marketplace. But the thing that's really, as again, I've been looking at this company going on for three months. The thing that's really struck me is what you said. if you've got the local job shop in Indiana and they have excess supply, that's really tough if they're without zometry because, you know, I think it's the zometry CEO in a recent call. He said, look, this was business basically still done over the yellow pages, right?

You call up, or if you're Boeing, you call up the local job shop and you say, hey, do you have excess capacity? And you just keep calling your list of suppliers so you find one who's got access capacity. But if you're the supplier with excess capacity, yeah, you can go to all of your buyers say, hey, do you need any jobs? But if they don't need them, like, how do you find new business? And Zometry can solve that really quickly. And the other interesting thing, I'll let you go into it.

But the other interesting thing about this network to me is they said, hey, look, because these are also custom, you know, if you call up two different small manufacturers and you're the buyer, one might quote you, hey, it's going to cost me two weeks and $2,000 for this job. And the other, if they have access capacity, might say it's going to cost me, it's going to take two days and $1,000. So, you know, it's a large network. It's non-digitized thousands and hundreds of thousands of suppliers and some buyers.

You can really imagine how, as this network is going, even before we start talking instant, how there could be some really powerful benefits of a networking matching effect where, you know, Boeing in Seattle needs jobs done. There's a lot of excess capacity in Indiana. Without this online market, they're never going to get matched up. Yeah, that's exactly right. it's, you know, it's, I do view it a little bit of a high cost channel, you know, for, for the suppliers, but it's, it's orders that they really would have no right getting otherwise. And so that's a,

it's a very valuable thing. I mean, you could look at it, you know, a job shop. Look, it couldn't make sense for them to take a job at break even because they know they have a workers, you know, sitting there and, you know, if you do it at break-even, you have some absorption of variable costs and hourly wages and stuff like that, that can make perfect sense to do. So, you know, I guess for the first time on the buyer's side, the buyers are essentially getting to test, you know, a global marketplace against their local, local suppliers. Now, yes, there's a markup. You know, the marketplace has 30% a little bit higher than 30% gross margins, and that'll probably improve over time.

So, you know, they are taking, you know, a VIG commission for putting these parties together. But the market's so inefficient that they're very competitive on prices, you know, despite doing that. You could imagine if you're only sourcing from Seattle and the Seattle area, just to go back to the bone example, the Seattle area has a lot of demand. And you can imagine how having, for the first time, opening up to Indiana or wherever, you know, if the pricing is 50% lower and, you know, you would have paid $1,000 in Seattle, you pay $500 in Indiana, even if Zometry marks it up by 30%, 40%, like you're actually getting, despite the margin, you're getting it a lot cheaper. So I really like that aspect of the story. Yeah, it's also, there's something that we noted that you can actually just do on Zometry site, which is, you know, you could, they have. some standard designs of things that you can order. Like I said, you can kind of order something without designing it.

If you get a part, if you buy a part, you know, and they have kind of three delivery speeds, you know, I think is expedited, you know, regular in economy, the fall off in pricing between those different delivery speeds is kind of breathtaking. I mean, a part tomorrow that costs, you know, $50, you know, might cost you know, might cost you $30 a week from now and might cost you $24 two weeks from now. So it really, really emphasizes that, you know, this is this is about a service and about available capacity more than, you know, hey, what's this part sold for? And I do think that that's an important thing because, you know, you know, used to be, you know, go back a couple years ago or how many years ago now would be five or six.

And Amazon was kind of going to go into every business. And that was kind of a not, a death knell. Amazon put it that dreaded press release out. This is very different than that. You actually can't just come in and bash on price. It almost doesn't exist. The early attempts, and this goes back to the early 2000s, I recall the early attempts, digitizing this marketplace

I think multiple companies I couldn't tell you the names of the ones that did but multiple companies tried to do it where they got caught up on was a request you know okay you uploaded your file this is what you want okay request quote you know request quote

and you have people would request quote the problem was is that you kind of then went into the old school way of getting quotes which is trying to get these job shops to drop what they're doing and to respond to make an offer that would be honored. So the request for quotes slowed up the whole process.

The stroke of brilliance, I'll say the aha moment for somatry that the CEO Randy came up with was essentially a buy now button. I'm going to kind of Amazon this space and make, I'm not going to bother with the quote. I can figure that out. So what I'm going to do is you uploaded it. This is what you want. I'm going to quickly estimate what I think I can buy that part at.

I'm going to offer you at this price that I'll honor, irrespective of whether I guessed correctly, estimated correctly, what this part will cost me. And you could buy it now, and it's going to be on the way. Like, done. So the buyers, the industrial buyers that had that opportunity to do that for the first time and didn't have to wait around for like, will they honor this quote, all that kind of stuff,

or even their internal system to do things, emailing, all that kind of stuff, calling everything. He essentially made Zometry, the Merchant of Record, and took the risk on that part, but made the buyer, gave the buyer certainty for the first time. So he started getting a lot of volume. With a lot of volume, he got a lot of data.

With a lot of data, he made better and better estimates. of what it would what what what would cost where areas of expertise were who were good and this kinds of finishes you know if the if the capacity is closer to the final destination well that shipping costs may be different than if it's farther all that kind of stuff and they've gotten better and better better at that so that was really the big moment that i think that this marketplace started started jelling and it's still quite small but it's it's a heck of a service to offer in this in this in this marketplace where nothing like that existed before. I just want to make sure we drive this on because I think this is the most important

part of the story here. So in the old way of doing this or when people used to do it online, you know, you are a buyer. You would literally have to, if you were coming through Mia's network, you would say, hey, I want a part and I would have to, you know, buy phone, call up 20 different job shops and say, hey, here's the part, what's your pricing, what your timing, get that, and then come back to you and then you'd have to accept it. And you could imagine calling 20 job shops like that would take multiple. days, right? What zometry does is you come to them and you say, you upload, I'm looking at

their page, you upload the cat or whatever for the part you want and say, here's the part I want, here's everything. And they say, great, we'll get it to you. $100 if you want it tomorrow, $75 if you want it a week from now. And you can accept it. And zometry, as you've put it to me, they're basically short a part, right? Once they give you that quote, they need to go find a job shop to fill it. And since they're charging 100, preferably job shop to fill it at 80 or 70 or 60 or 50. They find the job top to fill it, get it done, but they're short a part. And then as you're saying, it's a great business because you get a lot of data and you start learning, hey, the first quotes we did were 100 and we were spending 120. So you can kind of look. And these quotes were 200 and it only costs 80. So you can learn over time what the actual costs are. As you said, you learn more about the suppliers and everything. So that's kind of where the AI learning piece of this is and the thing that's unlocked the network. Am I thinking about that correct? Did I describe that correctly? I think that's right. I kind of used a tongue-in-cheek term that, you know, because I'm not surest the part to the buyer and buys it back from its suppliers later, lower. I think, you know, technically, I think very quickly, you know, they have a very good idea where they're, what it's going to take to motivate suppliers to make that part. So, you know, I think their risk is, is, is somewhat minimal. And I think they've gotten better at it. I mean, there's certain certain categories. that they get better and better at where they have kind of they have clusters of categories

one of the long-term kind of growth drivers for them will be adding more and more services and adding more and more levels of expertise but essentially there's this bell curve kind of like you know like you know the median order is where they get kind of the margin that they want and then you kind of have these outlier orders where you know they made you know too too little over here or lost money and kind of made too much over here and you know over time, they've kind of cut out, they've made the curve skinnier, and that's been a gross margin driver for them. So I think, you know, technically, you know, what happens, that they have, they figure out, you know, about where the price of that part should be,

where they could buy it. And then they show it to, and there's a number of criteria, They show it to the job shop that they think is going to, you know, be the best fit for that part. And I believe, I don't want to, you know, this is not, you know, I can't say this is a fact, but, you know, from recollection, I believe there may only be like 60 or 90 seconds that that job shops gets that first look at that offer. Then it goes to another one and that first one still seeing it. But they bump the price they're willing to pay. pay up slightly to the second one, and then to the third one. And so, you know, the faster a job shop, the network takes an order kind of better on their margins. And I think the vast majority of orders

are gone in a couple minutes. So that's a metric they pay attention to, whether they guessed right on the first one, or is it the second or third one that takes the order. Brett Coffron, founder and Lee trainer of Fundamental Edge, barely remembers his first year as a hedge fund analysts. Most of the year was spending a blind panic. Was his research any good? Was he learning fast enough? What did his PM really want from him? Training on the by side was non-existent 15 years ago when Brett was a new analyst at Maverick Capital, and he actually got demoted. Then he worked harder, found mentors, and asked for uncomfortable feedback. Eventually, he turned it around, learning by osmosis from the talent of people around him, and rose to managing director. But is this

the best way to develop talent? Brett doesn't think so, and that's why he founded Fundamental Edge. The Fundamental Edge Analyst Academy provides students with the tools, frameworks, and confidence to excel in any fundamental equity analyst seat in the industry. Lose the panic and fast track your career on the by side. Find out more about their next cohort at Fundamentedge.com. How can a job shop take a job in? You mentioned 60 seconds, 60 seconds, two minutes, three minutes. Because if the old way was literally on the phone dialing up job shops, these are mom and pop job shops, right? One to five people for a lot of them.

I think there's a quote, where is it? Most of their suppliers have less than 25 employees, right? I understand there's automation and Isometry actually offers a lot of their suppliers some free software, which we can talk about is kind of an interesting angle. But how are they accepting a job in 60 seconds when all of their other jobs are coming over the phone? Like these guys are actually out there welding and building parts. How do they see the DoorDash order pop in and say yes or no, price everything, figure out if they've got capacity within a minute or two?

Yeah, you know, DoorDash and Uber Eats is not a bad analogy there. You know, there's going to be a screen. They have a, you know, a workshop screen where the order comes in, and that software actually can take all their orders, and if they want to use it that way, it's free software for the suppliers. You know, a lot of them, you know, some of them will have software solutions, other ones well. So they do offer that, you know, and there's going to be a floor manager.

There's going to be someone looking for orders. There's someone always thinking about that. and they can set it up with alerts. I think they could get an alert on their mobile phone so they know and they can react quickly to it. You know, and it's a competitive world. That's the marketplace. So, yeah, they're able to react. I assume that there's some orders every now and then that go out.

That's what it would have took if they had known it, but kind of missed it or they're too busy. So I think, yeah, they built it to, you know, bend over backwards a little bit, as best they can to make sure that the suppliers that, you know, want alerts and want to know about it, see it pretty quickly. There's no automated phone call going in or anything like that. You know, it is coming in over a screen. I think people can probably hear how bullish. Both you and I are on the network and the possibilities here. If you just start thinking about this, as you said, it's manufacturing is the marketplace. Like the thing's huge. But one risk that worries me, and I've seen this more on the consumer side than the business side, but we've seen

this happening before, you know, you start this network to match suppliers with buyers. You start it. You get great margins. But what happens is the suppliers kind of try to build a direct relationship with the buyers and just kind of end-cut the supplier. You know, I think about like an Angie's list, right, a maid service. A lot of what they would do is, hey, they'd match the maid. And one of the issues they ran into was, great, they would match the maid. And they'd really wanted to be a recurring relationship, but the maid when she went to your health, they would just say, hey, Angie charged 100, they paid me 60. Why don't, if you want to use me again, why don't I just come back next week and you pay me 80, right? So we kind of cut out the middleman and split

the difference. I guess my question is, why wouldn't that happen here? Because you could say, hey, Uber, right? You could try to cut out the middleman for Uber, but you don't because time is really a factor in the liquidity of the network. But this isn't quite the liquidity of an Uber, like it's a, you know, you're probably only doing these custom jobs once every couple weeks, depending on your size. Like, why is this more Uber than that made example I describe if that makes sense? I think the, I've used the over example, and I don't think that's a, it's a bad counterpunch on that risk. It's something that I thought about initially, you know, a year ago, and I've gotten very comfortable that that essentially isn't a real risk.

You have fractured buyers and you have super fractured sales. you know for starters and you know I think if you if you attempted to have and you could you know there's nothing stopping you but if you wanted to have a direct relationship with a new new supplier you could but then you've just gone back into the into your little kind of informal marketplace that you've been using and you're getting rid of the benefits and streamline communication that you sought to begin with so like you know I definitely say you could you could take an Uber home and you could get the person's card and you can try to cut a side deal with them, but that would start to defeat the purpose of why you,

you know, why you like Uber so much to begin with. I think the exact same, you know, analogy works here. They will try to, if you do a duplicate order the same thing, they will give the original job shop, you know, the first crack at that. But I think the last thing that these buyers want to do is to get back on the phone or get into email relationship with someone. and that's that's that's not why they found zometry to begin with um they they came to zometry because they're trying to manage this very kind of messy long tail you know kind of high friction communication for for a for a spend that's critical but not a lot of dollars so cutting out you know saving some some money on this kind of spend it's just it doesn't

do it. It's way better to beat up your large contract manufacturer for the million parts you need by a penny or two. You come out ahead versus this. So I really, I don't worry about that at all anymore, to be honest. The CEO, so two things. One, the CEO was at a conference recently and he talked about the Uber comparison. And I was wondering if he came up with that or if he'd been talking to you and you drove the Uber point home to him and he came up if I was hearing Mario through his words. But no, I'm trying to say, I've used that analogy for a while. So perhaps I used it with him. We, you know, we visited him a couple months ago. We've chat with him a number of times. I do think it's an underappreciated point, especially for people like you and me who

stare at screens all day. Like, if you're one of these large companies and you're dealing with, let's call it 50 small supply houses, like you'd actually prefer to spend a little bit more and cut down on that relationship management. Like that, that's a big headache for you. you. And if Zometry can offer, hey, go through us and maybe pay a little bit more, but you don't have to micromanage 50 individual shops. And actually, you'd probably pay less because we can kind of match excess supply with you guys and, you know, we can do it pretty flexibly. Like, just this, the time and headache savings alone of not having to manage those 50 relationships would actually probably be worth it to a big buyer. Yeah. I think, you know, like I said,

the supplier, you know, it could make economic sense for them to break even on that part if it's absorbing any of the fixed costs that are there. The virus could potentially be paying the same price, but very much great time and streamline their whole process significantly. And I do think, you know, that early on we did some, you know, some studies and looked at things. I think there's some, there is some savings there. But I really think it's time management and streamlining that is the real hook for the industrial part buyers. And, you know, and look, you could, you could use both. You could use zometry to kind of keep your suppliers honest,

or you can't raise anyone on the phone. You get frustrated a little bit, and you're like, let me, let me get this order in because it's really important. That is, that's, that's, I think it's, it's, I don't think we're going back. I don't think it's possible to go back, you know, digitization of this marketplace has kind of come. And it came in this unique way where he kind of took, you know, you know, principal risk, essentially to, to speed up the service. It's getting enough traction. It'll continue to get traction.

I don't think it's possible for it to unwind. And I don't think there's another good way to do it. I do think, and this is like kind of like, I'm thinking forward here as they add more scale, more scale, more scale. I do think there's a chance that this business evolves into looking like something different than it is right now, which is it's technically not a marketplace. Their GMV is actually their revenue and their cost of good sold is the cost of the part. So, you know, I've talked to some marketplace people, investors, VC-type growth fund people that kind of don't like this thing because they're like, oh, it's not a marketplace. I'm like, you know, I think it has marketplace attributes, but it doesn't, it's not like eBay or something else where there's a take rate on this much bigger, you know, gross merchandise value. The revenue and the GMV are essentially equal, but I also didn't point out, you know, I got a 30% plus take rate.

There's, you know, think that, what does that imply about how much value they're adding? So technically, the bucket I put it in, and it's just interesting because it took, it took me some time to kind of get, become okay with this. And it definitely puts off some growth buyers and some other types of people that may kind of be generally attracted to marketplaces. I consider it a specialized distributor. And I don't think the debate's important, but I think it's more of a specialized. niche distributor than it is a marketplace right now there there's very little inventory they actually have a little bit of inventory from time to time uh to help certain suppliers with larger orders it's it's it's almost nothing the real investment is they have some networking capital they'll

pay Boeing and 45 or 50 days um and they'll pay their suppliers faster in fact they'll pay their suppliers, these little job shops, faster than Boeing will pay them. That's one little plus that the suppliers like. So they have some limited investment in working capital to grow, almost no inventory. And so I think that it's a, said another way, I think it's a very attractive distributor, way better than your average distributor who requires a lot of capital to grow. And this has a super long runway in front of it. it, but that's one way that I kind of think about it, that I believe throws off plenty of people, you know, or makes them hesitate to even consider, you know, this company.

I'm laughing because I know some friends who invest in a lot of specialized distributors, and I texted several of them and said, hey, have you, have you looked at Tomtry? Like, it's got some blend of marketplace slash specialty distribution, so I was definitely seeing the same thing. Let me ask one more question on the instant quote. and then I want to talk a little bit about the network effects and everything and valuation everything you know I do think back to like a home advisor Angie's list right in 2021 now as you said 2021 was a different time but they started an instant quote on consumer roofing and again

consumer roofing different different space right it's consumer it's local so you don't have the benefits of being able you know zometry can pull nationwide and ship whereas I can't exactly if I give you a quote in Florida I can't say hey here's a DC a Washington DC roofer. Let's just import them down to Florida to fix your roof for a few days. But they started doing instant quotes on roofing and they tried to do it on a few other home things. And they basically blew up. They couldn't make it work, right? They found out that they were quoting too little on the roofs. There was adverse, like all these issues were popping up. I guess my question of the instinct quote is like, I guess some should pretty quickly

realize if they were doing things negative and price it up and everything. But how can you be sure that they're not, do they have any guardrails in place to make sure that they're not getting burnt and like putting out negative GM after negative GM product? Yeah, no, they track their, they track all sorts of KPIs around, you know, around margin orders that where they don't make money, they make too, too low of a margin. You know, when you think about it, right, these are uploaded into, you know, well-distributed, you know, CAD software that everyone, that all designers use. And then they kind of upload it, you know, and they ask, they ask a lot of questions, you know, what materials do you want? What kind of finish do you want? They have more data than anyone else on that. So I don't view it. And look, in generally speaking, these are pretty small orders. So like if something starts going awry, they're going to see it and they could, you know, self-correct pretty quickly. I think there's going to be upward pressure on the gross margins rather than downward pressure. When they add you,

categories, of course, and they go for more growth, that could create some pressure on gross margins on the downside, because now they're adding a new service that they have to learn about and do better at, and that there's a bit of a learning curve there. And I think, you know, over time as they add different services and different finishes, and there's so many, you know, that's one thing I really, there's so many ways to skin the cat and make things and do things. It's just limitless. You know, we still manufacture a lot in the U.S. to, despite, you know, people thinking we shipped everything off to China and other places. There's a tremendous amount of things that are still made here.

We've become way more productive. I think we sell, we manufacture more than we ever have before. We do it more efficiently in a more automated fashion in many cases. But there's just a limitless amount of things that can be made in ways to do it. And so over time, they will continue to add new services. And as they do that, they could have something where, like, that challenges them a bit. But these aren't, you know, massive orders. They're not signing a 13-year contract with someone and kind of like, oh, man, we, you know, we just promise to deliver this 787 Dreamliner and we're going to lose money in every single one.

It's not even remotely close to that. I should finish one other thought, which is what could this company evolve to? Kind of gave you the, you know, the awesome moment with, you know, let me estimate what this is going to cost. I'll let you buy it now. You know, there's value added to both sides. But I do think as they continue to get more scale, you know, a little bit maybe like some other business models out there, I do think that they could evolve into more of a pure marketplace, which is, you know, they do these managed buys. They announced two of them recently, one with a medical supply company and I think another with the European business where they'll say, let me take all your long-tail custom manufacturing business. I want to do all that.

And I'll give you a discount. I'll give you a discount off the rack rate, you know, but you have to buy this much in parts, you know, with me over the next 12 months. So they did two deals like that recently. But I can envision a time where you have helped them streamline their parts buying in such a way that you actually say, let me take your entirety of your job shop, custom manufacturing buys. And, you know, I won't need to make the same margin. If you're communicating with your existing suppliers with relationships that you have and you want to send them an order and you want to have that, you know, confirm quickly back and forth or, you know, you want to send that to your 12 or 13, you know, go to people and have them respond and, you know, you're not really using my algorithm.

I'll let you do that. And I'll take a more kind of traditional take rate off that, a very low take rate and be a marketplace. Or, you know, then if it's not that, then like a subscription. description like you subscribe you have to subscribe and you know all the job shops pay me something and I'll streamline all these customers orders into you and make your life a lot easier and so I do think as they get bigger and add more scale that the market could really evolve and they could actually become either a subscription kind of business or traditional marketplace but be underpinned by this very high value added big problem that they're solving which is you know let me let me

match capacity, you know, across time and space on all these little crazy little parts. That's one of the reasons they, so work center, I believe is the software that they provide these small job centers. And that's one of the reasons that's so interesting, right? Because trying to take traditionally Yellow Pages business and putting them, putting them into the digital age is difficult. But if you can do it, it's very, very sticky if you can grab that long tail and really integrate with them. And you can imagine exactly what you're saying, where you say, hey, you know, you do a thousand custom parts a year. Right now you're doing 900 with your traditional suppliers and 100 with us.

Why not just integrate with us? Put it all through this. You know, we'll put it through our software. I think there's really interesting things there. Let me ask you about cyclicality because I could imagine this could go two ways, right? This could rise and fall with PMI. Industries expanding. People are putting through more custom job parts.

These guys are doing gangbusters because more custom job parts are going through. industry shrinking, less custom parts, these guys are doing terrible. I could also imagine a scenario where, hey, industry is expanding, all their suppliers say, screw you guys, I don't need you. I've got people calling me up left and right. I'm completely full. I don't need any excess capacity, whereas maybe they could be countercyclical. Industries falling, all their suppliers are rushing and saying, we'll do anything just

to keep the lights on, right? So how do you think about cyclicality and macro for this business? Yeah, you know, I go back on to my old OTA days, online travel agencies, and I think the model there is not it's not terribly different um that zometry is is is growing faster than the the industry and there is a pMI recession kind of going now there's a yeah a bit of an industrial recession there's been a couple good readings you know expansion readings lately but i think for the better part of the year most most months have been a contraction phase contracting phase if you take protolabs and you back out they did an acquisition of a marketplace proto labs did by a

european uh i think it was called hub spot or maybe 3d hubs i'm not sure but they did they did some m&A in the space because they recognize that zometry is making some progress and now they want to have a competitive offering if you back that out of their business you know you look to their traditional um and again they're there i would say that they're kind of a a scaled up non-mama pop version of job shops with some areas of expertise, you know, essentially a category killer in that space. They, they, their top line has been down four out of like the past five quarters. So it's, it's definitely a tough environment right now. And zometry has grown through that. So it's clearly picking up share and, and solving arguably, you know, solving up some kind of problem

here where they're having both, you know, both buyers and suppliers use them, you know, increasingly so despite less being kind of purchased overall. Remind me the top end what your question was? Oh, I think you addressed it pretty well. It was just I could see cyclicality here going either way. You know, you could say PMI expanding or I could see, hey, PMI shrinking, all these job shops have tons of excess supply. they're all just rushing to Zammerch saying, give us a job, any job, just so we can keep the lights on. So the analogy I was going to make with Expedia booking is that, you know, you kind of could make the same analogy with a hotel owner. You know, if tons of people are calling them up and the economy's good and they got tons of rooms, you know, they're going to sell a bunch of rooms directly, you know, they're on their own website or, you know, low-cost channel, someone picks up the phone and all that kind of stuff, you know.

And so some environment, they're going to feel less need to, you know, show supply to expedientbooking.com. But, you know, on the flip side of that, you're going to have lots of consumers that are a little bit less price sensitive wanting rooms. You know, expedient booking, you know, grew through, you know, both recessions and stronger economies because essentially this is what consumers wanted. Hotelier still had difficulty, you know, in managing their entire book in generating direct demand. you know, in the lowest cost channels for, for rooms. So I view this, you know, in a similar way. If there's less capacity out there with the suppliers, they may be more choosy and more picky about the jobs that they take from zometry.

On the flip side, the buyers are going to be, you know, a bit more desperate and want things and lots of orders will come in and you'll be talking about a better environment overall. So instead of negative, you know, a shrinking PMI, we're kind of be get readings above 50 and be expanding again. That's generally speaking going to be good for zometry. You know, they may have, you know, their model may, not their model, their algos may have to adjust and kind of realize that, oh, okay, we're going to, we're going to need to charge a little bit, you know, more for this price. So we'll quote it a little bit higher because we have to, we have to pay a little bit more and you kind of, you adjust it. But I think most importantly, it's going to be, you know, are there orders growing, you know, well in excess of industry borders? And that's been the case.

I think that will continue to be the case. I think, you know, you're not going to have this massive capacity, you know, you're not going to have massive consolidation in job shops. Like, I just think that's not going to happen. You're structurally stuck with, you know, a large kind of mom-and-pop base, entrepreneurs, small businesses owned that, you know, really will exist indefinitely. They're going to have a hard time finding good orders. And the big buyers are going to have a hard time kind of pinpointing where that excess supply is. So I think that the cyclicality will have been flow, but by no means, I don't think it's a gating factor.

It'll just have to be managed. Let me ask valuation. As you and I are speaking, stock price is just over 16. Market cap about 800, EV, just a little bit over that. They've got some low interest converts, if I remember correctly, but they've got a lot of cash that basically offsets that. They've said if they can get to 600 million in revenue, and tell me if I'm saying anything wrong. They think they'll be about adjusted EBDA break even. They can probably do 600 million revenue. They'll be run rating it by the middle of 2025, maybe a little bit sooner than that.

But, you know, 800 million EV, still not break even adjusted EBITA. Obviously, you need to return on your money, so EBITDA is going to have to grow pretty quickly after that. Like, how do you think about the valuation? Why do you think this kind of attractive opportunity when I just kind of lay out that math? Yeah, well, again, we have a company that's not making money. And, you know, EBITDA break even is still, you know, gap net loss. And, you know, there's got lots of discussions about, you know, gap earnings at SBC and all that kind of stuff. I think they said five percent of sales goes to stock-based compensation, if I'm remembering correctly. So, you know,

$600 million adjusted to EBDA break-even. That's 30 million ish.com. So that's another 30 million of profits you need to find somewhere. Yeah. So I, look, I can't say, hey, I just mapped this out to, you know, know, 20 times earnings, you know, two years from now, that's not the case. That I think they're working on a very big problem. And I think they potentially have years of growth in front of them. I think that they are, you know, they are in the process of inflecting towards profitability. And, you know, the way I think about them is that if they're growing well in excessive

of the industry and you know and they currently are that that says a lot to me so i i don't think that shareholders you know that at least this shareholder doesn't i don't i don't want to put a gun to their head and say i demand that you get profitability kind of straight away i don't i don't think that makes any sense i think as long as they're continuing to make progress on this very big problem and they're you know getting closer towards you know adjusted deba da break even then eventually gap, break even, that that makes a lot of sense if you're working on a very, a very important problem that you've barely penetrated. And I think that's the, that's the case here. But they have had some missteps since they went public, you know, that they, they

promised a lot of growth initially and the growth rate came crashing down. They were going to get into the selling supply business, you know, to all these job shops, you know, because they had all these relationships and we're sending them valuable orders. Let's send them more services. And, you know, that, that didn't work out. They've cut, they've shut that business down. But, you know, I think one of the things here that's interesting is that, you know, their overall revenue growth is kind of is one number. And then there's the marketplace growth number. That's another number. And then even more importantly, there is the underlying order growth rate number, don't actually give, but you can kind of make some guesstimates. And that number is growing in

the low 30s. And now I said, like I said, we're still in an industrial, you know, kind of semi-recession here. So when I see that, and I think of that kind of extending outward, I think that they're adding, that indicates to me that they're adding a lot of value in the marketplace. Can I ask a question there? So this is just something, I was trying to think about the networks and tipping and network effects. 2023, if I've got my numbers correct, buyers, active buyers on the platform increases 36% and marketplace revenue increases 30%. So that would kind of imply that the revenue per buyer

drops. And obviously new buyers are going to do less than old buyers and everything, but I just kind of thought that there'd be a little bit more seasoning or spice where marketplace revenue would be increasing as even as marketplace revenue per buyer would be increasing. I was surprised by the difference. Does that question and that concern kind of make sense? Yeah, and this is part of the reason why I think the shares, you know, have come down recently and to me are presenting an opportunity. We bought shares a year ago around around the same price.

And then the fall, they had a very big run. And then they've kind of crashing down back to our original price. And there's been some headweds. From mid-22 to the first quarter, I think here, yeah, and the most recent peak in Revenue per active buyer was like $2,300 per quarter. Now that number is $1,800. That's been a 20% decline. And there's been two main reasons for that. The first reason, which was kind of helped present the opportunity year ago, you know, I told you before that delivery speed, have a very, very big impact on the price of the part.

People, last year, when the economy started slowing down, the industrial economy was kind of getting weaker, they started taking slower delivery of parts to save money. So you can have small shifts in delivery speed in your customer base to create a fairly big headwind. And that occurred starting, starting last year. And, you know, it stabilized.

And by the fourth quarter of 2023, you know, essentially they'd gotten to a point where that number was kind of the same year over year. And their revenue, the revenue growth rate of the marketplace closer matched the active buyer growth rate and order growth rate. Order growth rate and active buyer growth rate are probably kind of within spitting distance of each other and you know essentially you know our bet a year ago was something like okay that'll be pretty interesting um when the order growth rate the sorry the um the the revenue per per order essentially that the delivery time kind of isn't declining on a year-over-year basis anymore

and that occurred in the fourth quarter what happened more recently and why this year's got kind of weak again, is that some of their larger orders weren't coming in. So there was kind of another leg down. So that created a bit of a sequential leg down and are kind of at this lower rate of 1800 per active buyer revenue there. And that, you know, their average order size is quite small. I actually don't know what it is. But there are some large orders. There's some orders that are, you know, could be, you know, 50,000 upwards of 100,000 orders. They have some very big orders. And some of the big, in those generally correspond with larger accounts, larger purchasers.

And some of those orders didn't come in or came in light. So if they ordered 100,000 parts, Q1 last year, maybe they only ordered 75,000 this year, kind of reflecting, you know, their current outlook, you know, for, for, for, for, for demand. So that was another headwind that came that they're now fighting. So essentially, they've had a 20% headwind off the peak. In that time, they've still grown the marketplace very significantly in the active buyers very significantly. So this, to me, is presenting as kind of a similar setup as last year, where the underlying KPIs of the marketplace are exceeding The marketplace is current revenue growth rate.

But that should start to normalize as the year wears on. And there should be some convergence there. So to me, you know, we had this little bit of an insight recently, which is just how levered this business is to active order growth. And they've continued to grow active orders at a high rate. That's still in the low 30s. And then the revenue per order, which is also very influenced by the number of things that are bought and the speed at which they're delivered. So you also had the situation where zometry's rate of revenue growth could really accelerate at one point this year.

if there is a little bit of a pick-up after 12 months or so of, you know, of difficult PMI readings, if people start taking delivery, wanting delivery a little bit faster and they start ordering a couple more parts back to the kind of parts they were a year ago, they could, they could have a breathtaking acceleration in revenue growth for the marketplace. And so I kind of feel like you have, you're waiting for that convergence to occur, over the course of this year but you also kind of have a free call on any uptick in

industrial activity and we all know with all the supply chains and everything like that you know that here's another aspect of the business they have like zero visibility into their order book they get orders like you know you see two weeks ahead and three weeks ahead

now they're starting to like hey I'll help you manage your entire book and they have some companies that are kind of committing to committed by but that is a you know as a small minority the orders they don't have a lot of visibility they know the orders are coming but they don't know when they're coming and if you think about the multitude of uses here use cases here it's really it just it runs it runs it runs the gamut so you you could have um you could have de stocking that that has hurt them and all sorts of other things. And if there's any kind of whiff of acceleration, I need restocking of those parts. I want them a little bit faster. And that project that we're working on, you know,

we're all that prototyping that we put on a hold, like that's back on. Like, you could have, like, massive acceleration in order growth and revenues this year. So that's just something that that's actually worked against them for a good two years now. And it won't always work against them? Two last questions wrap up. They're related, but the answer is almost certainly different. There is a decent short interest here, about 10% of the float. So my two related questions are, number one, what is the short scene that they are,

there's, you know, it's not the greatest in history, but I'm kind of looking at my Bloomberg short model. They say, hey, this is kind of high short interest, kind of maybe some chance for short squeeze. So number one is what are the short scene or what do you think they're seeing? And then my second question, which is really a but probably different, what keeps you up most at night about the company? Yeah, I think the shorts, you know, and look, it's been a successful short. You know, if you shorted it, you know, at it around the time of the IPO, you know, that I think that that was a wise thing to do. The run up, you know, in Q4 last year, you know, that valuation definitely got aggressive.

You know, I think they're looking at a company that's, you know, not. making money that's a small cap you know those are two strikes against it you know right there they they have um they push back their um you know they they they had they had visions of of breaking even the fourth quarter and now they've pushed that back and they even actually kind of said it in a unique way which is here at this level of revenue you know we we we think we're going to be, you know, ebidob, break even. So rather than pinpointing the time, they've pinpointed a level of revenue. You know, and I think the combination of all that kind of definitely put some people back on

their heels and probably emboldened the short sum. And, you know, look, it's hard to tell which companies now are in, you know, fall in certain baskets, baskets and factors and I you know is there some you know underlying analysis that people are doing that I'm missing I don't really think so you know I think it's it's it's it's it's now at sort of a it's the market caps you know demonstrably smaller but I think they're working on a pretty big opportunity still and it's going to take really good execution I mean we haven't really talked too much about that in the management team and I'm now seeing like I barely scratched the surface on my notes here and here we've gone on for people are always like how am i going to do

an hour long podcast i'm like dude if you if you know the company and you're passionate about it we will i'll say hey we're coming up on an hour you're like but i'm only one page through my notes we we we we've barely talked about it i think it's a it's it's it's it's a hard one to get it is as i see you i think we started talking about it probably before but we really started talking about in March. And I would tell you, it took me rereading at this time the only the Q4. I had to reread the Q4 call like three times. I did some expert calls. It took me a while just to get the, because it's a network effect, but it's a business to business small. It took me a while just to get in my head around kind of what they're doing and obviously all the

benefits that you're talking about. It really took me a while. But once you see it, maybe it doesn't prove out in the economics, but you can really understand why there's a chance that this is such a powerful network and why they're really solving a problem here. Yeah. So I think, look, there was a short report that came out a while ago. And I think that was well-time that that made sense. And that was, you know, making a churn argument. I don't think you can definitively prove the churn rate out here.

But I will note, and I've talked to the management team about this, I will note, you know, as the companies continue to grow, If they were churning through active buyers at a rapid clip, it would be exceedingly difficult for them to continue to grow, especially in a bit of industrial recession and do higher and higher numbers. That means that they are really churning the heck out of active users and disappointing them terribly, and they're replacing all of them with newbies that are soon to be disappointed. I really don't think that's the case. Now, I'm not paying some super large premium to kind of make that bet and that investment here, but it seems very, very unlikely that they're disappointing most of the customers, the first chance they get to do that. I don't think those numbers work.

The company did put out a response to that, which is a cohort analysis, which talks about the revenue from each of the cohorts over the years, I think going back to 2016, and you kind of can see, you know, the revenues per year, you know, are up significantly from those early cohorts. And the more recent cohorts are starting at a much higher rate, um, of revenue in the first year and continuing to grow than the early cohorts. So I think to me, you know, my guess is, is there probably isn't, you know, a smoking gun, um, short thesis, uh, on zometry. But zometry, unfortunately, you know, they, they put themselves a bit, of in a penalty box where they have to prove now they have to prove that they have

they can they can get to where they're going and that they could break even you know even one small thing you can tell one small thing they do like they haven't done themselves a ton of favors because i generally like how they talk about the business i mentioned they gave out the uber conversation i think they do a good job of explaining the network effects but like in q4 they they say hey we're guiding based on how january's trending and everything and they said was trending kind of soft. And then in Q1, they guide and people say, hey, last quarter you talked about intra-quarter sales. You talked about how January trended. Can you tell us how sales are training in April? And they're like, nope, we're not going to talk inter-quarter. And, you know,

that type of like shifting, shifting the ball and shifting what you're disclosed. That's the type of stuff that people start saying, hey, is there, are they just kind of moving ball? Are they trying to hide something from us? Or, you know, that's just one small thing, but it's one thing that jumped out to me. Oh, I noticed that. I think the sell side absolutely picked up on that. You know, you transitioned to a new CFO. And so the new CFO is that, you know, the new CFO is wanting to be maybe a bit less granular in things and then they have in the past. You know, and I think that potentially makes sense.

And, you know, I think they, it was actually I couldn't recall the last time I heard a company say, here, here's the revenue that's going to help us get to break even. but, you know, didn't pinpoint the time. And, you know, it's, it's potentially a good way to do it. You're kind of saying, I don't know exactly where I're going to show up in revenues, but at this level, I'm kind of going to be break-even. And they're not, they're not too, too far from that. So, you know, my, my instinct is, is that it's, look, it's been a good short. A lot of small caps have been a good shorts.

A lot of class of 21 IPOs have been good shorts. It's been, it's, it's been a good short. But I don't think this company is not making progress, progress. They're definitely making progress. And they also don't have someone standing over them, like competing the hell out of them. They're the innovator. You know, they're the company that's created the market and they're growing the fastest and they're going to, you know, they have the most incentive to make it work.

So it's not like their missteps have been caused by someone else kind of coming in and changing the environment or being more competitive or trying to, you know, make them lose their money or something like that. it hasn't. It's still small enough where I don't think it's gotten kind of on the radars, a radar of would-be competitors. And, you know, I think there's a variety of ways that competition could come at them. So I don't think it's a single thing. I think there's been some missteps. And it's a bit of a show-me story right now. And, you know, I think, well, to get to the second part of your question, and this is probably the most important thing, And, you know, I guess to kind of frame my whole interest in zometry properly would be, you know, the, I guess when we talked about Uber, that was a pretty risky thing.

But it seemed very clear to me that that they were going to kind of end up where they were going to end up. With WWE, there's risks in all these companies, but like that one, that was a pretty high conviction call. And I think we've been debating that like two months to do it, talk about two months before. and it shot up a little bit, and even then worked out. I would say I'm very, very intrigued by this company. I put it in like a higher risk, high wire act bucket. So like don't run out and buy this thing. But I think it's, I've mentioned to a lot of people, so many people I've mentioned to

are I'm going to keep an eye on it, I'm going to think about it, you know, I kind of wanted to put some thoughts out there because, you know, I'm open to being wrong in this. I don't think I am, but I think they're working on such a, such an interesting problem solved that isn't going to go, you can't put the genie back in the bottle here. It's out and someone's going to get this marketplace right. And if it's not them, you know, maybe it'll be someone else. But I think they have the poll position.

So it's a risky thing. And I kind of want to have it, I wanted to have a debate with you or someone and I've talked about it with some other people too. So I want to put it out there and see what kind of with what other people think. We do own it. You know, we haven't bet the ranch on it, but we own it and we like it. We continue to dialogue with them. But the biggest factor to me, the biggest risk, the biggest concern is just it's going to be execution. That's all it's going to be.

I think this model is very interesting. That part, to me, is not the debate. I don't think people would say, hey, you know, that's not so interesting. solving a big problem here, they would say all that. But to get it to the next level, the correctness of the execution from here, it's going to have to be pretty goddamn good. Like all the best investors, Fundamental Edge believes that the learning process never truly ends. That's why the Analyst Academy is just the beginning of their journey with you. Fundamental Edge alumni gain access to exclusive content, such as their guest speaker series.

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career, visit Fundamentedge.com for more information about the next academy cohort. That's Fundamentedge.com. What do you think the execution risk is here, right? Because I think network, eBay was mismanaged for 15 years. And now that network had already been built out. That is true. But it was mismanaged for a long time. And once you get that network going, it's really hard to break the network. And here, I understand this network hasn't hit full scale or come close to it. But to my

non-knowledgeable eyes, like I don't know of any other place that's got the buyers and sellers match with that instant quote. And it's really hard to recreate five years of data with that instant quote. That buyer and seller catalog, like, what do you think the risks are? Because the great thing about networks

is once you have the network effects really going, it should tip your way and it's almost impossible to break. Yeah, well, look, you know, that they're not eBay or PayPal yet, both of which, you know, especially with PayPal have had their struggles, but they, that they do have this underlying economic engine that's been churning, you know, for years and years and years.

They're not there yet. So, like, if they get to that, you know, that to me would be a great victory, but they're not there yet. Like, let's say, I don't know, you know, 18 months from now, they hit gap, break even. The gap break even, they've covered their SBC, and they just hit break even, and they're still growing. you know, somewhere 20 to 30%. That to me is pretty darn interesting. But I just think it'll take a lot of good decision making, a lot of good execution to get there. The marketplace, their marketplace hasn't jailed yet to the point where they could kick back and be like, well, we got a profit driver here.

Like it's on autopilot. They're going to have to innovate. They're going to have to do a great job. They're going to have to add new services. You know, we didn't even talk about it. they made this acquisition of this toss that like yellow pages of industrial manufacturing that honestly you know just to be quite honest i don't know it seems like it fits in but like i do worry that that's a distraction that they shouldn't be spending any time thinking about

anything other than the big play on this marketplace one worry i have here is when networks when networks tip i mean i just remember ebabe being like hey we couldn't we couldn't handle the checks that we're getting put into the mail or something right once in that network tips, like the growth kind of accelerates. And one worry ahead, like, when you and I talk about it, it makes so much sense. And 24% marketplace growth in Q1 is nothing to sneeze at. But I kind of wonder, like, it seems so much better for both sides. I kind of wonder why we haven't seen just like the deluge, right?

Where they say, hey, you know, every buyer on our platform's increasing and buyers are rushing in and every supplier is trying to get online to fill up capacity. I understand that's maybe a little bit of a pipe dream. but it seems to me like they've got a better product, they've got a lot of levers. And I just don't know why it hasn't fully tipped, if that makes sense. And again, I'm not an expert on the company, but it's hard to tip markets that have kind of operated a certain way for, you know, 150 years. Yeah, it's really hard.

I mean, I'm a professional analogy maker. Like, you know, we on this Zoom, which is a digital remittance company that PayPal bought, I think, in 2015. And, you know, we were like, wait, hold on. Zoom is charging lower fees in Western Union. And you could do it from your phone. You don't have to walk to the store. Instantaneous, oh, my God, they are going to put Western Union in a hurt locker

over time. And the company was growing very fast initially. And then the growth rate rate rate lower and lower and lower. And then it had one quarter where it grew like 12%. And what is happening? Like, why can't this grow? And this is years into the mobile revolution, years into Internet, And it's one of those questions.

How do you penetrate the market? How do you make it go over? And their growth rate plummeted to such an extent. They ended up selling to PayPal and they got a pretty good price. And I think PayPal is like a lot of its M&A, who was probably not the best M&A they did and mismanaged it. And we couldn't believe that it wasn't growing at a faster rate, but the customers weren't ready for it. And then now, a company that I'm interested, you know, maybe next year we'll talk about that one, Remitly. Remindly is now growing at in excess of one Zoom every year, a 2015 Zoom.

Remidly is going to do like a billion in a quarter of revenue this year. And at that scale, it kind of just blows my mind. So here it is. Nine years later where I was like, this market is going to tip. And little remitly in Seattle, Washington, run by Matt Oppenheimer, kind of did it. And it's almost, and soon as going to be half the size of Western Union. And I couldn't tell you why that didn't happen 10 years ago. I thought it would, and it didn't.

So I just think it's, and this is why it's so hard to manage. Like, you know, Randy, you know, he's an entrepreneur. And I'll just got to say, so the biggest risk, I know this is the last question and we're over your hour, but Randy's an entrepreneur and he's very smart he's driven he wants to do a good job here and I think that it's a small company and you know it's to some extent the fact that he has the the co-finders own about 15% of the company and they do have voting control there's two classes of shares the second class gets 20 votes and okay I'm fine with that I'm long-term oriented. I get that. But to have kind of two co-founders involved with a real stake and they care

to make it better and they want to see this work, that's going to put them ahead, especially in small cat land, that's going to put them ahead of 90 to 95% of the management teams out there. Still, though, this is an evolving market and it's the biggest risk to me. Am I going to get like good decision after good decision after good decision, you know, from from this management team? team. I think they've demonstrated competency. I think they are very motivated to get a right. They've done a lot of good things, right? That at a ha moment, that is the very first idea to put the buy now button, you know, get a lot of credit for that. But, you know, that's in the rear rear mirror, you know, now. What are you going to do next? How are they going to execute against this very

large opportunity with a whole organization with lots of people? They're not on the West Coast. They're in Bethes, so they're not, you know, a West Coast tech company. how how good are they going to be at getting this at this this marketplace to kind of digitize I think they have the I think they have the markings of a company that could do it and they solved a lot of good problems here but I'd have to say that that keeps me up at night to could they actually do it or am I come in my more am I more in that Zoom camp where like I'm dreaming about this thing and it's actually going to be 10 years from now. Someone gets it right. Maybe it's them. Maybe it's someone else. Or the company that maybe wants to buy it and

have it for themselves? Or is it like, is it kind of like remitly and remitly is has gone over and is acquiring customers hand over fist and that stock, of course, is down on its butt now too, which kind of has made me interested in it again. I don't know the answer to that. I don't know how to like gauge that but I will say if they continue growing at this delta above the marketplace you know for another couple years that tells me they are doing it and it half a billion of revenue that they're that they're extracting from kind of the the purchasers here you know you start adding enough scale and like you get better you hire smarter people you keep getting better you go boom boom boom boom boom and then and then it's kind of yours to lose you know I think it's there's

to lose at this point. I do. I think it's theirs to lose. But that's the biggest risk. You know, it's just so interesting because the network effects of having the buyers and suppliers matched plus the data network effects of having of that buy now button. I mean, that as you said, the question is the execution. If now's the time, if they can get it right and everything. But if they can, that is a heck of a heck of a moat. But questions to execution, which that's called a cliffhanger. We'll have to follow up in 18 months. see if we've got anything else. But Mario, long-time listeners know if a podcast runs over an hour,

it's because I'm having a lot of fun and I'm really interested in the idea. And you and I talked for 20 minutes before this podcast got rolling. So this has been great. But I appreciate you coming on. I've got fingers crossed. We go three for three. And we'll have to do, we can't wait this long to do podcast number four. All right.

Sounds good. Thanks for listening to me rant about this one. I loved it. I'm really fascinated. Bye. Thanks to see, Mario. All right. Take care.

A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.