00:35:26 · Guillaume Moubeche, Peter Singlehurst
[00:35:26] S1: So lesson is never bet against Elon. [00:35:30] S0: So far, it wouldn't have been wise to bet against Elon. [00:35:34] S1: And looking at ByteDance, because I think it's a company you also invested in, I think it's kind of like the the opposite of of like a SpaceX. Like, I've came across some numbers, not sure if they're accurate, but I think it was like a 50,000,000 EBITDA or something like this. Like, what's why do you think the valuation is, like, so low in a sense? Because I think, like, if you look on private markets, ByteDance is probably trading at around, like, 600,000,000,000. It's hard to trade ByteDance because, obviously, there are a lot of restriction and a lot of, like... I think it's geopolitical, also, like, climate that is a bit tense between The US and China. But how do you explain, like, such a low valuation if these numbers are accurate?
00:36:24 · Peter Singlehurst
[00:36:24] S0: Yep. So ByteDance is way too cheap. And by the way, it's not as cheap as it was. We were buying shares a couple of years ago at about four times free cash flow, for a company that was growing really, really quickly. So what's going on, ByteDance? I I can't think of a company in sort of my fifteen years of investing where the price is so disconnected from the fundamentals of the business, yet for rational reasons. Let me unpack that a little bit. So, yeah, on one hand, the share price of a company should be driven by the fundamentals of the business. On the other hand, it's also driven by the demand and supply dynamics of those shares. And I think that the picture that we've seen in ByteDance over the last five or six years is where the demand supply dynamics have swamped the, the business fundamental dynamics in the share price. So if you look at who owns ByteDance and who might buy ByteDance, well, anybody that owns ByteDance, if you're an early stage investor in ByteDance, even, you know, at a $23.45, $600,000,000,000 valuation, it's the best investment they would have ever made and probably will ever make. And it's probably 99% of the value of their funds. And they probably have their LPs saying, great job, guys. Please, can we just have some money back? And by the way, if you give us some of that money back, you are gonna crystallize astronomical amounts of carried interest. Please just sell some. And a lot of those early stage investors will say, yep. That's a very rational thing to do. Even if I'm gonna keep a large amount of my, you know, position, I'm gonna sell a little bit. And because the company is so big, selling a little bit of an early stage VC portfolio can be hundreds of millions of dollars or billions of dollars of supply. So that's actually quite a rational, you know, supply dynamic in the shares of ByteDance. What about the demand side? Well, ByteDance is, like, probably the most controversial company in the world. I mean, it's probably a little bit less controversial now, but if you go back a few years ago where it really looked like TikTok might get banned, it was the most controversial company in the world. Like, who wants the headache of buying a really controversial company? Plus, you had a lot of US investors that were just, you know, not gonna touch it with a barge pole.
00:38:40 · Peter Singlehurst, Guillaume Moubeche
And so there were actually quite rational reasons as to why, there wasn't, much demand for the shares. So lots of supply, not much demand. What happens? A low share price, low multiple on on free cash flow. We, I guess, were a fortunate position of having owned the shares for quite a while. We knew the company really well. So, of course, we have really good information rights. We spent time with the management team. And we sort of came to the view that, well, hey. Even if the worst case materialized around TikTok, and it was worth nothing and it was shut down, so, like, worst case scenario, we could still see a path to the company being very fast growing, very, very profitable, and still massively undervalued. And we could see these demand supply dynamics, and it felt it felt as close to an arbitrage as as I've ever seen. You don't see many arbitrages in growth equity investing. It kind of felt a little bit like one. It felt like you you were just being paid to take risk. You're being paid so much to take the risks that were inherent to the business, not to mention a geopolitical risk. They exist. They are there for real. But when we were buying shares at kind of four times free cash flow, it sort of felt like we were being paid to take those risks. And so we were kind of able to kind of step into the middle of these demand supply dynamics and quite materially top up our position. It's an astonishing business, and and it's it's... And it's so misunderstood. Like, people in the West think about TikTok. It's really not about [00:40:09] S1: TikTok.
00:40:09 · Guillaume Moubeche, Peter Singlehurst
[00:40:09] S1: TikTok. [00:40:10] S0: It's... Yeah. It's... Oh, yeah. It's about their their... Yeah. They're the biggest e con... The biggest online advertising company in China. They're on track to be the biggest ecommerce company in China, and they've arguably got one of the best foundational models in China. Yeah. So in the form of ByteDance, you have this company that is potentially Meta, Amazon, and OpenAI slash Anthropic all rolled into one, and you can buy it today for, as you said, about $600,000,000,000. It's, you know, it's on... You know, there's not much to put between it in terms of size with Meta, and Meta's, what, 1.5, 1,700,000,000,000, something like that. ByteDance is already 50 times larger than than Meta was when it came to the public markets, and it's still private. So I think ByteDance is a phenomenal business. I think it's drastically underpriced. I'm a very happy owner of it in the portfolios. I'm really glad that we're able to give our end clients exposure to the business.
00:41:03 · Guillaume Moubeche
[00:41:03] S1: And to build up on that, because I agree with you, like, I think everyone think it's about TikTok, but it's a lot more than this, and it's actually, like, really interesting that you that you mentioned it. Like, what... What's kind of, like, your your view as a as a global investor? Because if you if you think of it like from a pure like media perspective, I think like we know that the The US globally control a certain narrative. Like they have Meta, they have Google, they have LinkedIn, they have basically, like, every source of communication is coming through The US. I don't want to go into, like, a conspiracy theory or whatever because I think it's but it's it's just the fact that they own, you know, like how the messages is delivered. And The US is also like attracting a lot of capital just because, you know, they have like a a great public market. However, if you look at China, I mean, in many ways, they are doing things that are better than, you know, what what is happening in The US. If you look at robotics, if you're looking at at cars in AI, I think they are like very, very close and sometimes better in certain, like, so from a from a private investor perspective, like, how exactly do you look at China? Is it something where you feel the risk of the regime is is actually too high sometimes to actually go invest or... Because as you said, you know, it's driven by also supply and demand. And right now, the truth is the demand is always going to The US at the moment, at least for retail. So what's your view on it, and do you think that the mindset and the mentality of people is gonna evolve over time?
00:42:50 · Peter Singlehurst
[00:42:50] S0: Yeah. So I think the first thing to say is, like, we're we're a global investor, and so we will look for businesses, exceptional businesses, wherever they might arise. And, actually, our very first private investment was in China. Okay. Alibaba was our very first Good private start. Bad. Good start. Think there's a narrative that people have about China, which which is consistently wrong and goes something a little bit like this. It goes, well, we in the West or we in America, like, we can do x. X is really hard. China is not gonna be able to do x. Don't worry. Like, we've got this. And x could have been Internet companies. You know, it could have been... You know, if you kind of go back to the, you know, the two thousands. Like, China... China's Internet companies are never gonna be as good as America's Internet companies because, hey. It's just really hard, they'll never figure it out. Then there was... And even probably going back before that, there was a narrative about cars on that, and this probably came a little bit more from Europe. It was like, well, you know, China's never gonna be able to make cars because cars are really hard, and, you know, they're not gonna be able to get the sound of the door closing right or something, or they can't make internal... Yeah. Just some kind of basic nonsense. Right? But there was a narrative that China wouldn't be able to make cars. And then you know what? It turns out, actually, China can make really good cars, and they can make really good Internet companies. And that narrative currently today applies to AI and applies to semiconductors. And that narrative goes like, well, hey. China's never gonna be able to do this. It's just really hard. Do you know what? There's, 1,400,000,000 people. Like, they're smart. They'll figure it out. And so history tells us that any narrative that says China can't do x is wrong. And, you know, added to that, it's the biggest market in the world by people. Like, it's not gonna be long, and it'll be the biggest market in the world just in terms of, you know, economics. As a growth investor, think, like, ignore China at your peril. I I was out there in the summer last year, and I was meeting companies actually, you know, along the lines of what you were saying.