The Original Platform Fund on OMR-Podcast "Ohne Aktien wird schwer" ("Without Shares Gets Hard")
In an interview with Noah Leidinger, we answer the following questions:
- Why platforms are the superior business model,
- Why platform valuations are subject to different standards than companies with traditional linear business models
- How we select our portfolio companies, and
- How classic companies are transforming into platforms
And here are our answers to Noah's questions in writing:
What are platforms?
Q: With your new platform fund, you invest in the most exciting platform stocks.Hence the obvious question: what exactly are platform companies and what factors distinguish them?
TOPF: Platforms are companies that enable interactions between providers and demanders. In the case of Uber, this means between cab drivers and passengers. But modern platforms do much more: They establish network effects between these actors so that they can benefit from each other. They build ecosystems around the core business and use inverse strategies such as app stores to bring innovations and products from outside onto the platform. And they use the interaction data that accumulates to create new monetization opportunities. For example, Alibaba now runs an entire factory using data from its one billion users and artificial intelligence to produce only those products that are most likely to sell. But only a few sophisticated platforms like Amazon or Alibaba use all four components; most are limited to 1 or 2. But the role as interaction provider is a core element of all platforms.
Are the high ratings justified?
Q: Google, Facebook, Amazon: Many of the largest and most successful listed companies are platform stocks. However, many of these companies are also valued at above-average sales and earnings multiples. What makes platform companies so attractive from an investor's point of view? And are the higher valuation multiples justified compared to other business models?
TOPF: Scientific studies show that platform companies grow about twice as fast and are twice as profitable as traditional companies. Due to the superiority of their business model, they are therefore rightly valued higher on the stock exchanges, as the Platform Index, on which our fund is based, has shown for the past five years. Currently, platforms such as Google or Facebook are no longer valued higher than Adidas, for example, due to their strong profit growth.
How are losses of the platforms to be evaluated?
Q: Many platform models are characterized by very high margins in their core business and have thus become the most valuable companies in the world. However, there are also other platforms that have been making enormously high losses since their inception and actually have no attractive margins in their core business. The best examples of this are the ride-hailing giants Uber or Didi. Can the high valuation (Uber is valued at almost ten times its revenue) still be justified on the basis of platform logic?
TOPF: Unlike traditional companies, platforms need a - more or less - long start-up phase to establish the network effects and build up the ecosystems before they embark on what is usually a steep growth path. In the case of Amazon, this start-up phase took ten years. Mobility platforms also need a lot of time, but have a clear plan in mind: to be the dominant platform when autonomous cars hit the roads and trips then become much cheaper. No other industry is currently attracting more venture capital than mobility. A big bet, to be sure, but the hoped-for returns are at least as big. Autonomous vehicles are already on the roads in the USA and Asia.
How do you choose the platforms for the portfolio?
Q: How do you go about selecting individual stocks for the platform fund? Do you simply try to cover the spectrum of all relevant platform models, or do you also look at factors such as valuation and leave out companies with rather unattractive business models, such as Uber?
TOPF: We analyze the business models and only include modern platforms. From these, we select the 25 most promising stocks, i.e., companies that we believe are particularly well positioned and have high growth momentum. However, since platforms never grow in a straight line, but always insert investment phases that are rather unwelcome on the stock markets, the evaluation of the current stage of development is so important. Uber is currently not in the portfolio because the investment phase is still quite long.
Which stocks do you particularly like the most?
Q: If you had to pick one or two stocks that you particularly like from the perspective of the business model or the attractive valuation level, what are they and why?
TOPF: Since platforms usually show their advantages better with increasing size, industry giants such as Google or Facebook are currently part of the portfolio. We also find the Israeli job platform Fiverr interesting, which is currently bringing freelancers and their customers together. From the B2B world, which is still at the very beginning of its journey into the platform economy, we like Intuit. The company shows how a rather "unsexy" industry like tax consulting can be elegantly transferred to a platform model.
Gibt es Beispiele für Transformationen in ein Plattform-Modell?
Q: When you think of platform companies, you immediately think of the big digital companies. Are there also traditional companies, for example from the DAX, that have evolved from a linear business model to a platform model over the course of their history? Or are there platform companies that don't even look like a platform at first glance?
TOPF: There are some examples of complete transformation, for example the Chinese insurer Ping An. Nike has also come a long way in building a platform around its products. In the Dax, however, I see platform models in traditional companies as an admixture at best. SAP has already come furthest on the path to a platform.
The author and/or related persons or companies may own the shares mentioned herein or are already invested in these shares, e.g. via an investment vehicle. This article is for general information purposes only and constitutes a free expression of opinion and not investment advice. Please also note the detailed legal information.
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