$PLATED – Using Mosaic to ballpark unlisted company financials

This is a companion post to walk through our methodology for our post on WFM.

For full transparency, we wanted to go through in detail our math on the subscription meal-kit industry, where all players are unlisted. This is where Mosaic starts to come in handy to estimate real numbers.

Guesstimating Blue Apron as the anchor

The latest delivery number for Blue Apron is 8 million meals/month (more than double the June 2015 rate of 3 million meals/month) That Fortune article equates it to a $960m run rate on an ASP of $10, but we are skeptical as customers never pay the full list price with the myriad referral bonuses and other promotions common in the business. We reckon the real number is closer to $9, which puts Blue Apron on a still-impressive $720m revenue run rate.

Hellofresh as the other end of the vector

Hellofresh’s 2015 pre-IPO numbers were $290m globally, of which 60% is US revenues. That’s $150m for calendar 2015, over which the company quadrupled, so they exited with closer to $375m run rate in US revenues.

Using Mosaic and two known points to triangulate

We don’t know much about Plated and the other smaller players in the subscription kit space, but fortunately, they all run similar business models in the most transparent traffic market in the world. We used Mosaic to pull together three independent reads on Plated’s traffic and got extremely close results:

Using the market share data and known revenue numbers, we can put an estimate on Plated of about $135m in annual run rate:


This sounds in the ballpark considering it was pinned at $100m from this Inc article in June 2015. The closeness of fit of a linear curve shows that the revenues are strongly tied to traffic acquisition, but also that there is no clear barrier to entry or topline benefit to scale:


Getting a Handle on Industry Growth

So we now know that the industry is doing roughly $1.4bn/yr today but that number is meaningless in isolation because the rate of growth presents a constantly moving target, something traditional investors in retail and staples aren’t used to. We need get a handle on growth as well. Wouldn’t it be nice to have a platform where you could easily pull up that data from multiple sources?

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Plated’s March peak in traffic is a one-off bump thanks to their deal with Mark Cuban on Shark Tank, but we reckon that the industry has roughly doubled year-on-year, which means that there was at least $700m in incremental revenues over 2015, backend weighted. What is a reasonable estimate for forward projections?

Forecasting the future is more art than science. If the industry saw 100% growth in 2015, is it fair to say it will grow 100% again in 2016? On the one hand, you are starting off a higher base and are going from early adopters to followers. On the other hand, you have better funding and cash flow and scale in everything from customer base to marketing campaigns to logistics. It is hard to take the over/under. We think a fair conservative estimate is $800m in incremental revenues, which is a slight acceleration year on year in dollar terms but actually a sizable deceleration percentage-wise, to +60% forward growth. We think the risk to this number is higher rather than lower as more funding and entrants like Amazon come into the space.

Calculating the Comp Sensitivity for WFM

1% of WFM’s 2015 revenues of $15bn is $150m, and given that WFM is not closing stores in any meaningful scale, this is a directly applicable number to calculate impact on comparable store sales. Every $150m taken away from WFM is 1% less in comps.

However, WFM does not solely bear the brunt of the disruption. A number of WFM’s peers, from Kroger to Sprouts Farmers Market, have all called out or commented on the potential impact on subscription meal-kit services. While WFM is a major player, it would be unfair to attribute the full amount of the disruption to them. Since WFM is approximately 25% of grocery industry revenues, we think somewhere in that ballpark would be appropriate, though pricing and demographic characteristics make WFM more susceptible to disruption than the general industry.

Taking all of the above into consideration, we are able to stress test a simple model of WFM comp sensitivity to the subscription meal-kit services, which is how we finally arrive at our Comp Sensitivity table used in the main WFM blog post.



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$JCP – I have a bad feeling about this (earnings report)

Here at Sentieo we’ve been tracking JCP and their Instagram account and see a storm brewing. We will walk through 3 Sentieo products that you’ll wish you knew about sooner, and see how we are able to tie together Mosaic’s Instagram data, Document Search on Broker Research, and Realtime Google tracking to get ahead of the Street’s concerns. Sentieo is a new financial platform that supercharges your research process & returns by combining deep document search, tracking of new web and social datasets and an integrated research notebook into a seamless web + mobile experience.

What is Mosaic?

The idea of Mosaic Theory is simple:

  1. Look at publicly available data harder and closer than everyone else
  2. ???
  3. Profit!

The truth is, ??? is not so easy. Data is expensive and yet everyone wants to sell it to you, what do you use? Data is messy and unreliable and constantly changing, who do you hire to help you? And once you have it, how do you tie it together and not go crazy?

The way Sentieo helps with ??? is by providing a multifaceted platform that interlinks to serve up pieces that are, together, worth more than the sum of their parts. Let’s walk through how we found, then investigated, a recent case study that is only just starting to get traction on Wall Street, hopping between the various Sentieo products.

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$CMG – Sentieo Index catches positive and negative inflections in Chipotle comps and correctly forecasts continuing April weakness

Lets take a look at how Sentieo could have helped you generate returns by tracking Chipotle’s (CMG) web and social data over the past six months. Sentieo is a new financial platform that supercharges your research process & returns by combining deep document search, tracking of new web and social datasets and an integrated research notebook into a seamless web + mobile experience.

The graph below represents CMG’s trends over the past nine months, showing data before and after the food safety scare. The red line represents CMG’s historical and expected revenue growth, while the yellow line with dots is CMG’s weekly same store sales as disclosed by the company. The faint orange line is Twitter mentions of “Chipotle E coli” and the faint green line is Twitter mentions of “Chipotle free burrito.” Between the two they demarcate when the scare began and when CMG tried to entice customers back with a marketing push and free food. It’s also noteworthy that although the orange line spiked highest during the initial scare, it has continued to spike periodically through February, giving some credence to management’s comments about the impact of the February Boston news stories on February and March comps. Finally, the heavy dashed dark blue line represents the Sentieo Index, which is a proprietary aggregation of CMG’s Web and Social data, including website/mobile traffic, web searches, app downloads and Twitter mentions. This daily index is intended to track CMG’s revenue performance and has been highly predictive over the past year.

Sentieo Index vs. CMG Sales and Twitter Mentions


We can see the spike in the faint orange line signifies the start of the scare, and the weekly comps (yellow line) drop immediately. The Sentieo index initially pops as people discuss the scare but then goes meaningfully negative, tracking the trend in comp store sales closely. This decay in trends and comps continues with a trough -40% comp in late January, before the marketing push & free burrito coupons begin. As expected, those actions drive a recovery in both trends and comps.  However, the recovery is short lived, with the Sentieo Index nearly roundtripping to pre-marketing levels by mid-March. Comps take a bit longer to turn down, as there is a lag between when buzz is generated and when customers go back into stores. However, by the week ending March 12th (the last reported datapoint before today’s earnings call), comps are again deteriorating. Since March we can see the Sentieo Index continues to deteriorate throughout April, so its not a surprise to learn today that April month to date comps are at -26% (ex Easter shifts). There is some fodder for both bulls and bears out of today’s news, however, it certainly appears that the turn at CMG is going to take longer than bulls are expecting.

The Sentieo Index is broadly applicable across Consumer, Internet, TMT, and consumer-focused healthcare & financial companies. Similar analysis for the names you follow is as simple as a few clicks in Sentieo, request a trial today. While creating this analysis requires pulling in data from many sources, what used to take hours takes only minutes with Sentieo. To gather the sales comp data, we simply search “CMG, sales comp” in Sentieo’s document search engine, which searches all filings, transcripts, company presentations and broker research in a single click-

Sentieo CMG Document Search

While searching, we can highlight, annotate and tag text with one click. All such text gets aggregated in your Sentieo Notebook, where you can organize and search all your highlights, meeting notes, clips from the web and important emails in one place. Moreover your notebook is available offline and online, as well as in the Sentieo iPhone and iPad apps.

Sentieo CMG Notebook

The first Sentieo Index chart can be created by simply calling CMG, however, you can also call and analyze each individual dataset in Sentieo, such as web traffic or web searches. Setting up alerts against these web datasets is also a snap. Sentieo allows you to upload your own datasets into Mosaic, and Sentieo’s team of former buyside analysts is also available to help generate and interpret Mosaic data. Come be the first to check out Sentieo today and start generating insights for this earnings season.

To see how Sentieo can inform your revenue predictions, simply go to Sentieo.com and sign up for a free trial. If you would like to continually receive content related to topics of interest in the markets, don’t forget to subscribe to the Sentieo Blog so that we can notify you of new posts by e-mail. 

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The Accounting Neverland: Software that refuses to grow up

One way to perform due diligence on a company is to look at the estimated useful life assumptions behind the depreciation and amortization calculations.  Overly optimistic assumptions will inflate reported earnings while overly conservative assumptions will deflate reported earnings.

One outlier is Continental Resources (CLR).  This oil and gas producer estimates that the useful life of its “Enterprise resource planning software” will be 25 years.  So let’s take a trip down memory lane and examine what software looked like two and a half decades ago…

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Verifying oil and gas estimates

Performing due diligence on the accuracy of oil & gas reserve estimates requires two elements:

  1. An understanding of the art and science of reserve estimation.  This blog post will provide a brief overview of reserve estimation techniques.
  2. Technical information on the methodology used and its key assumption.  Places to look for technical disclosures would be investor presentations, CORRESP filings, and (occasionally) the 10-Ks / annual reports.  However, this process can be tedious whenever investor presentations are difficult to locate.

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E&P Revolving Lines of Credit

In today’s article, we will be covering a very hot topic in the E&P sector right now: liquidity. More specifically, how you can use Sentieo to quickly find out about a company’s credit facility as well as any restrictive indentures that might be out there limiting the amount of debt that a company can take on.

Most E&P companies are financed with some combination of equity and debt. Often times, these companies will supplement their equity and debt financing with revolving lines of credit that can come in two forms: asset-based or a more traditional facility based on earnings.

Asset based revolving lines of credit are tied to the present value of their proved reserves (reserves with a high degree of certainty that these resources can be extracted from the ground) and are typically assigned to non-investment grade companies since they do not have the creditworthiness to have a facility that is simply governed by earnings. The amount of borrowing capacity on these reserve based lending credit facilities is typically reassessed twice a year, once in the spring and once in fall. Read More

Performing due diligence on Martin Shkreli

The pharma CEO Martin Shkreli has been attracting attention lately after taking a very large position in KaloBios Pharmaceuticals.  After Shkreli made his initial investment, the stock has risen roughly 40-fold.  One of the more interesting documents that I found was the Retrophin 8-K filed on August 17, 2015 (EDGAR, snt.io).  Shkreli’s former employer seemed a little unhappy with its former CEO, accusing him of:

  • “repeatedly breaching his duty of loyalty to Retrophin”
  • being the “paradigm faithless servant”
  • using “his control over Retrophin to enrich himself, and to pay off claims of MSMB investors (who he had defrauded)”
  • diverting “47,610 Retrophin shares for the benefit of himself and his MSMB Funds, resulting in a benefit to him and to them of more than $4.5 million (at current market prices)”

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When did Valeant first talk about Philidor?

Valeant Pharmaceuticals (VRX) has drawn a lot of controversy over its ties to the specialty pharmacy Philidor.  An October 21, 2015 report by Citron Research was provocatively titled: “Valeant: Could this be the Pharmaceutical Enron?”. Making note of the report’s impact on Valeant securities, a Bloomberg news article remarked:

The company’s bonds erased more than a billion dollars in market value after the Citron report was published.

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