Beeneet Kothari is one to watch at the Sohn Hearts and Minds investment conference next week.
His 2020 stock pick – Hong Kong-listed payments company Yeahka – fell victim to the regulatory crackdown that hit Chinese tech stocks but it did surge 231 per cent in three months.
The managing partner and principal portfolio manager of $US2.5bn ($3.9bn) Tekne Capital, which focuses on the technology behind media, digital payments and telecoms, cut his teeth working for legendary investor Stanley Druckenmiller.
Speaking to The Australian, he was able to share some background on the company that he believes will be the best tech stock investment in the world over the next 12 months.
It’s European based, with global operations and a market capitalisation of about $US30bn. For the September quarter, it reported year-on-year earnings growth of 65 per cent.
But that wasn’t just a rebound from pandemic impacts. The same quarter a year ago it also grew 65 per cent year on year.
According to Mr Kothari, it is the cheapest company of its peers globally. A small part of its business is operationally in Europe, and the industry is “last-mile logistics”, he said.
“We are super bullish on the last-mile logistics industry,” he added. “It’s quite large today, but it’s sort of like Amazon in the early days.”
Mr Kothari sees parallels to the start of e-commerce when it started on the back of the traditional mail systems designed to be make deliveries five days a week.
“As e-commerce became 24-7, these things started to break down,” he said.
Another example was the food delivery “ecosystem” which needed its own logistics network.
Now there’s a brand new industry called “quick commerce”, which is basically a convenience store accessed by an app, with 15-20 minute deliveries.
“I don’t know if you have this in Australia, but you will,” he said. “They have it in New York … it’s truly a magical experience.
“Toilet paper, toothpaste, medicine, anything you would buy at your local (store) on an app, delivered to you in 20 minutes.
“We were headed toward this world anyway, but with Covid it just happened sooner.”
He said the “great irony” was that while Amazon was the “great innovator” in e-commerce and logistics, a two-day guaranteed delivery item on Amazon is now considered “too slow”.
“Amazon is accelerating its Prime delivery options to be ‘next day’, but next day is too slow, because there are options here in Chicago, New York, Miami and London to be faster than that.”
Amazon fixed a broken e-commerce logistics system, but may now be left behind by these newer businesses which have figured out even faster delivery models.
“The point of all of that is the world needs a modern, digitally enabled, last-mile logistics ecosystem,” Mr Kothari said.
“We don’t have that yet, but it’s starting to get developed and we think this is going to be a $US5 trillion to $US10 trillion opportunity – it’s going to be bigger than e-commerce.
“There’s a private company here in the US called InstaPark – they have about 20,000 people who will go to the local grocery store that you selected, buy the milk, put it in a bag, bring it to your home. But that model is quite inefficient so it is now being developed, using ‘dark stores’.”
A dark store is a grocery or convenience store in the centre of the city but without checkouts.
“Whereas Amazon has enormous warehouses outside the city, the new model is ‘what if we can do 10-minute deliveries with a bunch of mini-warehouses spread throughout,” he said.
“Today, these companies, which admittedly are not profitable – but frankly neither was Amazon for the first 20 years – are operating without offering a big price premium.
“So you’ve got three ways of buying toothpaste – walking down the street, Amazon, or these new quick-commerce companies, and the price differential is zero.
“These quick-commerce companies are offering a convenience that’s unmatched.”
While he found it hard to imagine drones flying around New York City, Mr Kothari said drone delivery might make sense for some items in the suburbs.
The largest company in China doing quick commerce now is Hong-Kong listed Meituan, a company with a market capitalisation of about $US220bn. It began with food delivery and is now getting into quick commerce.
Mr Kothari said if you could do food delivery, quick commerce was easier. “Food delivery is what we call ‘many-to-many’ – but in quick commerce, you’re not going to one of 10,000 restaurants, you are going to the local warehouse and delivering to apartments in your neighbourhood.
“Sydney may have 10 mini-warehouses, each staffed by 10 people doing the picking and another 10 delivery people. Each morning, a giant delivery truck will come and stock the shelves and it’s all fully automated.
So could this company be a takeover target for the likes of Amazon? “Yes,” he said.
This article was originally posted by The Australian here.
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