JFrog – Quick Cal.

💡 Intellectual exercise only. Don’t take the projection seriously.

JFrog recorded accounting profit in the last quarter. The company has been cashflow positive for a while. The business is a typical software business which enjoys high gross margin. Once the business breaks even, the operating leverage might kick in faster than consensus expects because people are not good at predicting something non-linear like operating leverage.

The product seems mission critical but I’m thinking that even without competition, is the TAM large enough to support 10x top-line growth for JFrog which has ~$160M revenue run-rate currently?


(Reuters) – The company said it now expects its IPO price between $39 and $41 per share, up from between $33 and $37 per share expected earlier.

Unity – IPO Note 2

Unity filed S-1/A yesterday so now we have a better grasp on pricing. I’m not going to do a sensitivity analysis table which shows the relationship between market capitalization, estimated revenue / revenue growth and the multiple since FinTwit has done a great job.


Since it’s typical for IPO stock to pop, what you would like to do is extending the table to X dollar per share and check whether the corresponding multiple for the traded share makes sense to you. Jamin has done a great work on the SaaS valuation comp categorized by the growth.

Unity: Benchmarking the S1 Data by Jamin Ball at Clouded Judgement

I talked about the runway and opportunities. By being very long-term oriented and aggressive (or naive), the posts probably make most readers identify more execution risks than opportunities on the business fundamental. Now let’s look at risk of paying too much or what might make the share drop.

  1. Category Change
    If Unity is trading at a multiple of high growth category, it might face de-rating when it’s not able to consistently deliver that high growth or when investors realize its fundamental actually has lower growth (sentiment change).
  2. Overall SaaS Multiple Contraction
    The SaaS multiple has expanded significantly since April, it’s difficult to predict whether it will expand further, stay within a band or even contract in the future.
  3. The Robustness of Operate Revenue Growth
    Operate revenue (~60% of total revenue for the six months ended June 30, 2020) is primarily generated by Unity’s advertising product at the moment. If the advertising revenue growth derailed, Unity might experience severe revision on valuation.
  4. Market Might Not Be Willing to Attach SaaS Multiple on Operate & Others Revenues
    Create Solutions revenue is subscription-based which is recurring. However, Operate Solutions and Others revenues are more like re-occurring revenues which might not be suitable to be valued as SaaS business. More investors using sum-of-the-parts (SOTP) on Unity will depress the share price. While I fine with a stretched revenue-based multiple, it’s still difficult for me to swallow valuation method mismatch. Be careful when you know your counter-party is very savvy.

Two tweets about Peloton after earnings release might be related point 4 above. To me, Peloton is a software-in-a-box. It generates revenue streams and contribution profits from boxes (Peloton’s bikes and treadmills are actually lucrative) and software (subscription). Hardware contributes large portion of total revenue and this revenue stream is re-occurring by market penetration, product penetration (offering market more products or selling existing users different product. For example, a bike user might further purchase a treadmill) and long-cycle product replacement (how many bike you need in your lifetime?). Software contributes smaller portion of total revenue at the moment and its monetization is subscription which is recurring.

Lastly, market is willing to put premium on valuable strategic asset (game engine). Sellers will definitely take advantage of that.

Previous posts on Unity:

  1. Thoughts on Unity and Game Engine before Unity IPO
  2. Unity – IPO Note

Wendy’s – Breakfast Relaunch Modeling

Wendy’s (WEN.US)

[October 29, 2019]

* Breakfast Relaunch Modeling *

Download the spreadsheet here to play around. The reason why I add this page which increases the friction and might affect “conversion” is that I’d like to know where the audience comes from.

On September 9th, 2019, Wendy’s announced plans to launch breakfast across the U.S. System in 2020. The daypart expansion includes recruitment of approximately 20,000 new U.S. employees.

The stock reacted poorly due to concerns including initial investment, incremental labor-related costs in a tight market, additional marketing spends for Wendy’s at company level during the ramp up period and poor track records the Company had in previous breakfast attempts.

The initial model tries to understand the economics of this initiative and to quantify the value added to the business if any.

On-going twitter thread below:

Pinterest – Initial Model

Pinterest (PINS.US)

[October 19, 2019]

Initial Model

Download the work-in-progress model in excel here to play around 🙂

It’s been a while since I put together initial analysis and deck skeleton on Pinterest. However, I have some difficulties to convert my thesis (particularly business development and competition) into numeric assumptions and found it’s not easy to validate those assumptions. So I just built an initial model and decided to wait and see.

More detective works required to build up conviction and to determine margin of safety.


Cosmo Lady – Initial Thoughts

Cosmo Lady (2298.HK)

[August 29, 2019]

Interim Results Announcement @ Mandarin Oriental


I was attracted by the ugly stock price chart and had a feeling that the company might be struggling like other traditional retail players.

Initial Thoughts

As expected, the company is struggling and delivered terrible financial results in the first half of 2019 with operating profit declined by around 80% year over year.

  • Top line declined mid single digit without any noticeable performance among product lines or sales channels. The e-commerce channel grew only by 6.9%.
  • I expect there won’t be turnaround of sales trend in the short term.

The company spent most of the time discussing reasons for weak operating performance and turnaround initiatives it had taken.

  • Appointed a new CEO of the Group in mid August
  • Hired a new sales head
  • About to recruit a brand management head and a retail operation head
  • Engaged Boston Consulting Group on a long-term basis
    • YN: the reason for engaging external consultant is that the management team is not capable to formulate strategy and/or implementation to turnaround for the last two years
    • The scope of engagement is quite broad
  • Engaged Shanghai olBP SCM to reform product merchandising management
    • At least the company understands that IT/SCM infrastructure is the backbone of data-based decision making and operation. This also shows that the company under invested in this area leading to disadvantage.

It seems the company is left behind the race but trying to catch up. So the question is how much time it takes for the company to show the turnaround result if implementation goes well? Maybe it will decline further before things get better. Considering the timeline, I think the “initial results” should reflect in the second half of 2020 no matter it gets better or worse. If the progress is beyond the expectation, probably the company will aggressively attend roadshow between earnings season.

It’s turning around but not a story yet. Existing investors face execution risk and onlookers face the risk of being trapped because the stock might be cheap optically on certain metrics at some point in the future.