Good Morning!
I am excited to kick-off today's newsletter with some exciting news! Last month, I was accepted to Contrary Capital's Research Fellowship Program. As part of the program, I will be: - Publishing deep dives on some of the biggest private companies in the venture space
- Learn from weekly guest speakers from firms like Index, Greylock, Altimeter, Coatue, and other notable firms
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Direct mentorship from GP Kyle Harrison and Francis Odum, the B2B SaaS legend himself
The experience has been excellent to this point, and today I am excited to share my first memo below on Public, the community first investment platform.
The writeup today is ~1,800 words where I stripped out some of the highlights vs. the 3,300+ word full deep dive you can read here! I am also excited to share some of my thoughts below on Public and their future prospects as I see them!
Random Fun Fact before kicking things off - Aaron Judge officially signed a 9 year, $360M contract with the Yankees which means he will be making $109,589 a day for the next decade. I would take just 1% of that. Showtime! |
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Thesis
While US retail investors owned over $50 trillion worth of assets as of July 2021, only 40% of Americans have investments outside of their retirement accounts. Very few people engage in the stock market directly. For example, only 15% of Americans directly own stock. If you count exposure through retirement accounts, the percentage of American’s with no exposure to the stock market has increased since the 2008 financial crisis to 38%, down from 45%.
Owning stock is directly correlated with wealth creation. Demographically, stock ownership is largely concentrated to older white populations. Baby Boomers hold 55% of stocks, valued at $22 trillion, while Millennials own 2.5%, valued at $1 trillion. White Americans own 90% of stocks, with the average white investor owning 3x as much stock as the average Black or Hispanic investor. Those trends are starting to change. 15% of the retail investors active today got their start in 2020, with younger people becoming more engaged with the stock market.
Public is a fintech company that seeks to capitalize on, and encourage, the expansion of retail investing. The company’s mission is “ to advance financial literacy around the stock market and change the culture of investing” via its commission free investing platform which focuses on social investing, with features that encourage on-platform interaction between users.
While lack of accessibility is one possible reason why many retail investors don’t actively participate in the markets, Public believes psychological and intellectual barriers to entry are also common obstacles. Public looks to solve this by offering retail investors easy access, not only to company metrics and real-time analysis around stocks, but also a space to connect with other investors and share investment strategies. Founding Story |
Public’s two co-founders, Leif Abraham and Jannick Mailing, were successful entrepreneurs prior to launching Public. Mailing had two successful roles as an entrepreneur/operator. In 2008, he was a part of the founding team and product for CFH Group, a holding company for four separate entities that operated in the fintech space in prime brokerage, clearing, API, and cloud and education services. In 2012, Mailing became the co-founder of another fintech company within CFH Group called Tradable that was a unified API platform for fintech developers. Ultimately, CFH Group was sold to Playtech LTD in 2016.
Abraham also had two successful stops as a co-founder prior to Public. First, in 2010 he started Pay with a Tweet, a referral marketing tool that he sold to Hanse Ventures in 2013. The company was later sold again to Aklaimo in 2017. In 2015, Leif started And.Co, a software company for freelancers that he later sold to Fiverr in 2019.
With Mailing’s experiences in fintech, along with Leif’s marketing expertise, the two decided to launch a company together, which later became Public. Originally, Public operated under the name Matador, but always had the same mission of making a simple, social, free, brokerage community that promoted long term thinking and strong investment principles. |
Product
Public is focused on creating a community of investors built around collaboration rather than competition. The focus of the product would also attempt to put users first. Over the years, Public has emphasized those values. The company built its own fractional share system, and banned the controversial practice of Payment For Order Flow (PFOF).
Public’s app has three key components: Community, Portfolio, and Explore.
The Community page is unique to Public when compared with its competitors. The Twitter-like interface enables community members to discuss prospective investment opportunities, follow famous investors like Cathie Wood and celebrities like All-Pro Linebacker Bobby Wagner, and see what investments they are making and their thought processes. The social features on the app include an interactive comment section, the ability to see the amount of views that a comment has received, and the ability to message the author of the content directly. Additionally, at the top of the page, the user is able to easily navigate different community topics including trending, crypto, following, saved tweets and several others.
The Portfolio page is the location where the user can view all of their holdings, deposit new cash, and make new investments. More than half of the Portfolio page initially shows the users account balance and daily investment performance. The Portfolio section has two different subsections within the Portfolio: Portfolio & Long Term. Portfolio is where investments go by default, but the Public user is able to move stocks into the Long Term section when the user views it as a long term hold. This is done in order to help the user remind themselves of their long term goals.
The Explore page is also a unique offering on the Public app. On the page, users can find top stock movers, most popular crypto, and stocks with upcoming earnings while also offering investors the ability to look at stocks under specific thematics like cannabis or streaming. In addition to a mobile app, Public also enables their users to access the platform on desktop. Users can find Public Live shows, which are 15-30 minute podcasts on recent happenings in the market. Investors can also find Public Exclusive “Town Halls” with executives of Fortune 500 companies as well as educational pieces from key finance personalities, like Kyla Scanlon and Kevin Mathews.
Within the Explore page, users can also buy fractional shares of alternative assets including NFTs and collectibles like a professional athlete’s game worn shoe. This was made possible through the acquisition of Otis, an alternative asset company that coined themselves as “the stock market for culture. Otis had over 100K users and 125 listed assets at the time of the acquisition.
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Market
Public is primarily targeting younger, more tech-forward retail investors. The company’s focus is on enabling more people to get involved in the stock market at a younger age. As of 2020, 68% of 18-29 year olds do not have any money invested in the markets. Younger demographics are also open to using alternative platforms, as 81% of Americans aged 18 to 34 shared they would consider seeking out financial services from a fintech platform, in place of traditional financial services.
Over the past several years, there has also a significant increase in participation in the public markets by retail investors. In 2010, retail investors accounted for just under 10% of total trading volume, a number that doubled to 20% in 2020. The trend of retail investors participation in equity markets is expected to continue. Increasingly, users expect every aspect of their life to be digitally enabled, and financial services is no exception. Millennials, in particular, have those expectations, and they represent the largest generation in the US at 72 million members. Finally, there is an estimated $30 trillion in assets being passed from baby boomers to subsequent generations.
As of 2019, the total amount of money invested in the stock market globally was $78 trillion. Digital platforms accounted for around 20% of these equities, for an estimated addressable market size of ~$15 trillion in equities. The market for serving these retail traders is estimated to be ~$13 billion by 2026, with meaningful successes in the space, as stock trading apps generated over $20 billion in revenue during 2021.
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Business Model
The standard method for stock trading apps to monetize comes from Payment For Order Flow (PFOF). PFOF is the process of brokerage firms routing trade orders to specific market makers for execution and in return receiving compensation for forwarding the order to the market maker. Payment for Order Flow is one of the key revenue sources for competitors like Robinhood and eToro, as well as larger brokerages like TD Ameritrade and E*trade. Specifically, Robinhood makes ~80% of its revenue from PFOF.
This practice is 100% legal, however, there is controversy surrounding the practice. On one hand, this allows brokerages to offer commission free trading to its customers. On the other hand, the market makers make money on the spread between the price at which the investor submits their order, and the price the stock is actually sold at. Therefore, in many instances, market makers are not inclined to execute trades at the best prices for the consumer placing the trade.
On February 16th, 2021, Public announced that they were officially PFOF-free to ensure its community members were getting the best prices on their transactions and not exposed to the risks associated with PFOF.
With Public’s approach to PFOF in mind, the company has 8 key revenue streams varying from interest on cash balances, Public Premium subscription fees, alternative asset fees, and others. |
Traction
In February 2021, the company shared that it achieved unicorn status and reached over 1 million users in just 18 months after launch. Additionally, Public has seen traction in new investors as well as from diverse backgrounds. Specifically, 90% of Public’s members made their first investment on their platform, 45% of members are women, and 40% are people of color.
In March 2022, Public shared that their success from February 2021 continued as they reached the 3 million user mark. |
Valuation
Public’s last funding round was in February 2021, where the company raised $220 million at a $1.2 billion valuation. The round included investors like Accel, Greycroft, Lakestar, Intuition Capital, Tiger Global, as well as celebrity backers like the Chainsmokers and Will Smith, bringing the company’s total funds raised to $310M.
Along with this raise, Public shared some key data points including the fact that the company eclipsed 1 million members in less than 18 months valuing the company at $1.2K per member. When speculating on Public’s current valuation, there are multiple factors to keep in mind. First, Public has grown their user base to 3 million members and extrapolating the $1,200 per user valuation, this would give Public a $3.6 billion valuation.
However, when looking at the publicly traded Robinhood, the company currently has 12 million MAUs at a ~$8 billion market cap representing a ~$583 value per MAU. To contrast this, when Robinhood filed their S-1 in July ‘21, they had 17.7 million MAUs at a $32 billion valuation representing a ~$1,800 value per MAU.
From here, the decrease in value per MAU at Robinhood could be viewed through either a positive or negative lens for Public. The positive perspective would be that the community-less, trading driven Robinhood approach to retail investing is less valuable and validating Public’s approach solidifying the value per user. At the same time, the negative lens would be that retail investing users are not as valuable as previously thought – specifically for Public, who does not generate revenue through PFOF and likely has less revenue per user than Robinhood.
For additional perspective, as of March 2022, Acorns had 4.6 million paying subscribers at a $2 billion valuation, indicating a value per subscriber of ~$435. This is down from May 2021 when the company shared they had 4 million subscribers and were planning to go public via SPAC at a $2 billion valuation, representing a value per subscriber of $500. Due to its strong community and differentiated offering, Public likely has significantly more monetization capabilities than Acorns, accounting for the difference in value per subscriber.
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Alan's Angle How do I feel about Public? Well, honestly, a little burnt out. I spent more hours listening to interviews and podcasts about the founders and the company than I ever imagined, but hey, we are on the other side now, and it feels good!
I think many of the bullish theses are more easily deductible (easy to deduce? I think that is English lol) so I will spend more time focusing on some of my bearish concerns. However, first a bullish thought.
I think one of the most interesting parts about Public and their potential is their community offering and ability to tap into investors that historically have not participated in the market.
Also, the fact that Public has going for them is the fact that they have a couple million verified and engaged users that could be an absolute beast for advertising dollars - especially if advertisers continue to pull away from Twitter.
My biggest concern with the company is the ability to monetize the platform. The Robinhood's of the world make a significant amount of their revenue from PFOF and Public obviously does not. They do offer a tipping feature where investors can thank them for not doing PFOF when they place a trade, but I have to imagine that not many users do tip. Personally? I have absolutely no problem with my brokerage engaging in PFOF.
I also am pretty confident that if you were to look at Public's financials compared to competitors like Robinhood, you would see that Public is trading at a significantly higher valuation than Robinhood due to the lack of revenue. This does not mean to me that Public will be unable to grow into their valuation, but it does mean that they will be reliant on venture funding to fuel their growth, which is not necessarily bad, but something to keep in mind.
Another couple concerns I have are around the alternative asset acquisition of Otis. I think so much of the money being spent or invested in alternative assets like cards, shoes, etc. was really due to low interest rates, stimulus checks, and overall economic euphoria. I anticipate that assets that lack utility will continue to see a decrease in valuation.
Finally, a little bit of spice. Management at the company stressed that the move into PFOF was one towards putting the customer first and business second. I am a drop skeptical that this is the case. Why? I think there is great branding around the fact about being PFOF free and being on the side of the average person. However, I think that having 30 plus crypto coins on the platform, including one like Dogecoin which to the best of my understanding has the ability to reach infinite supply, does not seem like a long term focused, consumer first asset to offer. Rather, one helping customer acquisition in retention. There is absolutely nothing wrong with this. Just the opposite. It is good business. But I do think it is an interesting point to emphasize.
As a relatively young, long term investor, I think that Public is incredible for the investment community, and I would much rather have my funds there than Robinhood. Specifically, I love the feature where you can move a stock to a "long term investment" part of your portfolio where they remind you multiple times before trying to sell a stock about your long term thesis. Although I am rooting for them and think their valuation will continue to grow, the current macro environment, like for so many other companies will give them a choppy path forward. |
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Missed a recent edition? That's okay! Now you can just click on these links below to catch up on what you missed! |
Rent, SPACS, AND Music Streaming
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Note: The Crossover Portfolio is a mock portfolio of how I would be investing and not with real money. All trades are shared publicly @ The Crossover Twitter as they are recognized. |
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Paramount CEO Bob Bakish spoke with David Faber of CNBC. It looks Bob broke his hand and we hope he gets well soon.
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MoneyLion hosted an investor day and released this deep and dense 140 page slide deck! I will share some thoughts on the presentation, hopefully, next week
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We are officially out of $FIGS representing a ~$300K loss to the portfolio. Right company, wrong time and we have felt the burn. I think the company has their hands full over the next couple of years
- We continued to clean up the portfolio by getting rid of $BWAY. We want to invest in the best and hold the best. Sometimes I get distracted/excited by unique opportunities, but moving forward that is something I want to avoid
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MarginEdge's $45M Series C |
The Rundown: MarginEdge, a restaurant management and bill payment platform, announced a $45M Series C led by Ten Coves Capital and takes their total funding to date to over $70M. Three Key Points: - MarginEdge offers industry leading invoice processing, inventory management, recipe and menu analysis, and so much more
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In the past year, Margin grew its revenue by over 100%, has 4,000 customers, and 700 employees
- The company processes 80,000 invoices per week, representing $2.5B in purchasing power.
Alan's Angle: I am incredibly bullish on the restaurant tech industry due to the significant size of the industry (expected to be $14.7B by 2030) and how many old school processes are still in place.
This bullishness is exemplified by The Crossover Portfolio investment in Toast. Even though the valuation multiple of Toast freaks me out at times, the company is just phenomenal and crushing it.
I actually think that Toast could look to acquire MarginEdge in the long run. Toast is a much more general POS and restaurant management platform while MarginEdge has more unique back office features and capabilities as mentioned above.
The two already have an existing partnership and have the ability to integrate and compliment each other with ease. If Toast can continue to grow and either generate profit or increase equity valuation, we might just have ourselves a nice little acquisition. |
1. Hastings @ NYT Book Summit
Netflix CEO Reed Hastings spoke with Andrew Ross-Sorkin at the NYT Book Summit and shared some really interesting golden nuggets. Some of the things he touched on include that he wishes Netflix bought Wordle, his admiration for Bob Iger and how he was hoping he would run for president, as well as describing the current state of the Streaming Wars as a "brawl."
For a while, I always thought Netflix's issue was Hastings and Sarandos over looking some of the realities in their business like the fact that so much of their content just isn't good.
However, it seems as if the past few months, Netflix has really changed their tone by sharing they will be more fiscally responsible regarding how much they spend on movies like Red Notice and Gray Man as well as being open to theatrical releases, albeit limited, like with Glass Onion, and the new ad supported model.
Reinforcing this point even further was something that Hastings said in the conversation attached above:
"You are right to say that I did not believe in the ad supported tactic for us, and I was wrong about that. Hulu really proved that you could do that at scale and offer consumers lower prices and that is a better model. Credit to Hulu and Jason Killar for figuring that out, and I wished we had flipped a few years earlier on it." This is some serious humility from Hastings, and I am sure he has made similar "I was wrong" comments in the past, but we haven't seen it in a while and this feels different and significant. Netflix bulls should rejoice. 2. Bakish @ UBS
Paramount Global CEO Bob Bakish spoke at the UBS conference and shared many interesting nuggets. The most noteworthy remarks were likely around the fact that Paramount is expecting to see their Q4 ad sales decline over Q3, something that just a couple weeks ago CFO Naveen Chopra said would not be the case.
The Crossover Portfolio was all over this as we have been selling a significant amount of our holdings ~$20 after WBD CEO David Zaslav shared that the ad market was worse than during COVID a few weeks back. Also, as one of my good buddies pointed out to me, all you had to do was watch NFL on CBS to see that the ad load was extraordinarily light. Even when you are watching football you can be making money which is reassuring as a Browns fan!
Click here to check out Bakish's full transcript including comments on the Simon and Schuster deal, Showtimes continued consolidation, and the power of Paramount's ad offering in the long run. I continue to be a big believer in $PARA in the long run even as FinTwits biggest names are throwing shade at the company. 3. Killar & WSJ
Jason Killar, former CEO of Warner Media and before that Hulu, shared a very interesting opinion piece in The Wall St. Journal breaking down the history of media into three acts including how he sees the future of media. Interestingly, Killar believes that streaming will be extraordinarily profitable in the long run for the companies that are able to achieve global scale.
My favorite part about the piece? Well, really what happened the next day as WBD and Amazon announced that the two launched HBO Max on Amazon Channels, something that Killar undid when he was leading HBO Max's charge.
I think there could be a deeper strategy play going on between Amazon and WBD. WBD is negotiating hard when it comes to NBA rights and Amazon is looking to dive deeper into sports through the launch of their live daily sports coverage, TNF, Overtime, etc. MAX with Amazon partnership/distribution likely gives WBD all of the leverage in their conversations with the NBA. Media Tweets of The Week: |
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JP Morgan CEO Jamie Dimon calling crypto tokens "pet rocks"
- A little Adobe analysis... one of the names that are hopping on my watch list... #FIGMA
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Tiger Global was up 1.4% in November. Their YTD performance is now just -54%!
- Fun little or should I say big Aaron Judge stat. #BartoloColon
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Massive $50M inside buy from $DDOG director
- Damon Jones and Daniel Gibson dabbing each other up before Lebron plays the Cavs in Cleveland is everything
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Thanks for the read! Let me know what you thought by replying back to this email. — Alan
Disclaimer: The Crossover is not a professional financial service. All materials released from The Crossover are for educational and entertainment purposes. The Crossover is not a replacement for a professional's opinion. Contributors to the Crossover might have positions in the equities in the The Crossover Portfolio or mentioned in the newsletter. |
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