Q2 2022 Investor Audibles: Worm Capital, East 72, and Alluvial Fund

Episode Summary

Executive Summary: The transcript centers on multiple bullish investor letters and Q&A segments arguing that the 2022 selloff created opportunities in dominant, cash-generative businesses. The strongest themes are Tesla and Spotify as long-duration compounders, plus value cases like Liberty Broadband, Amerco/U-Haul, and special situations. Across all sections, the speakers emphasize fundamentals, buybacks, and margin of safety over macro fear.

Main Topics: Tesla as a manufacturing-led compounding winner (Priority: 5/5): Worm Capital argues Tesla’s factory redesign, speed, automation, and vertical integration create a structural moat that supports far higher production, cash flow, and valuation than the market expects. Spotify’s long-term platform monetization (Priority: 5/5): Spotify is presented as an underappreciated global platform with a large user runway, rising ad monetization, and optionality from podcasts, audiobooks, live events, and price increases. Market selloff, recession, and investing discipline (Priority: 4/5): The speakers frame the 2022 drawdown as a normal bear-market correction and argue investors should stay concentrated in high-quality businesses while ignoring short-term price noise. Value and special situations in underfollowed assets (Priority: 4/5): Later letters highlight discounted or opaque holdings such as Liberty Broadband, Amerco/U-Haul, P10, Unidata, Garrett Motion preferreds, Pegroco preferreds, and Copper Property Trust. Inflation and interest-rate environment (Priority: 4/5): The transcript discusses how inflation, rising rates, and tightening hurt valuations, especially for long-duration growth stocks, while also suggesting inflation may be peaking. Capital allocation and buyback-driven value creation (Priority: 3/5): Several holdings are praised for aggressive share repurchases, balance-sheet strength, or liquidation dynamics that should narrow the gap between market price and intrinsic value.

Key Arguments: Tesla’s production system is the real source of advantage, not just the cars; speed, automation, and manufacturing density should drive faster output and higher margins. Tesla’s stock is seen as materially undervalued versus fair value because consensus production estimates are too low and future earnings could re-rate the stock dramatically. Spotify’s scale effects can turn reinvestment into a powerful feedback loop among users, creators, advertisers, and content expansion. Spotify’s ad business and non-music content are underappreciated and could become major long-term gross profit drivers. The 2022 selloff is viewed as a normal bear-market phase that should not alter portfolio construction for long-term investors. Concentrated portfolios are defended as the best way to own a small number of dominant businesses and reduce true investment risk. Liberty Broadband is essentially a levered, discounted play on Charter’s buyback machine and asset value. Amerco/U-Haul is underpriced because the market undervalues its integrated moving, storage, and insurance assets and its monopoly-like market position. Special situations such as Copper Property Trust and preferred securities offer high yields and liquidation upside with limited downside if underwriting is correct. Inflation and rate fears are acknowledged, but the letters argue fundamentals and earnings growth matter more than short-term macro noise.

Data Points: Tesla free cash flow: $2.2 billion - Q1 2022 free cash flow, cited as a 660% year-over-year increase Tesla Q1 free cash flow growth: 660% YoY - Worm Capital’s discussion of Tesla’s cash generation Tesla expected 2024 vehicle production: 5 million units - Worm Capital’s base-case expectation if factory ramps proceed as planned Tesla sell-side 2024 production estimate: 2.4 million units - Average Wall Street estimate cited in mid-2022 Tesla implied 2024 revenue: $250 billion - Derived from 5 million units at $50,000 average selling price Tesla implied 2024 net income: $50 billion - Based on roughly 20% net margin assumption Tesla implied EPS: $50 per share - Worm Capital projection for year-end 2024 Tesla target stock price: $3,750 - Year-end 2024 implied value estimate Tesla implied upside: ~400% - From current 2022 share price to target Spotify MAUs: 422 million - User base referenced in the letter Spotify long-term MAU target: 1 billion by 2030 - Goal reiterated at the June investor event Spotify revenue target: $100 billion - Company long-term goal discussed in the transcript Spotify target operating margin: 20% - Long-term goal stated by management Spotify podcast listening hours: 7% - Share of listening hours on platform, up from about 1% in 2018 Spotify podcast monetization rate: 14% - Portion of podcast hours monetized today Spotify stock decline from highs: ~60% to 65% - Noted as a temporary dislocation between price and value SP 500 Q2 decline: 16.4% - Cited in East 72’s quarterly report NASDAQ 100 Q2 decline: 22.5% - Cited in East 72’s quarterly report ASX 200 Q2 decline: 12.4% - Cited in East 72’s quarterly report Liberty Broadband discount to asset value: ~18% - Estimate versus the value of its underlying assets Charter market value: $81.2 billion - Referenced in Liberty Broadband analysis Charter free cash flow yield on equity: 10.6% - Based on 2021 operating cash flow and capex Liberty Broadband share retirement: 16.3% - A and C shares retired over 15 months since 2020 Amerco market capitalization: ~$9.4 billion - At $478 per share Amerco enterprise value: $12.7 billion - Based on net debt adjustments U-Haul owned storage footprint: 50+ million square feet - Self-storage space owned by Amerco/U-Haul U-Haul managed storage footprint: 23 million square feet - Additional managed storage space U-Haul fleet: 186,000 trucks, 128,000 trailers, 46,000 towing devices - Scale of the moving business as cited in the letter U-Haul locations: 23,000 - North American network of locations Alluvial Fund Q2 performance: -9.9% - Return in the second quarter of 2022 Alluvial Fund YTD performance: -16.5% - Year-to-date return through Q2 2022 Russell MicroCap Q2 performance: -19% - Benchmark comparison Russell MicroCap YTD performance: -25.1% - Benchmark comparison Copper Property Trust market cap: $956 million - Liquidation trust for JCPenney properties Copper Property gross annual rents: $111 million - Gross rent from JCPenney under master lease Copper Property annual distributions: ~$100 million - Net cash distributed to shareholders after expenses Copper Property expected liquidation value: $18+ per share - Estimated outcome within about three years Boston Sand and Gravel operating profit: $80 per share - Annual operating profit cited in annual report discussion Boston Sand and Gravel net cash: $250 per share - Balance-sheet strength cited in the letter Cuisine Solutions Bain investment: $250 million - Convertible preferred investment by Bain Capital

Pivotal Quotes: "Speed is cash." — Worm Capital / Elon Musk cited: Core thesis on Tesla’s manufacturing advantage and cash generation "gone are the days of ads accounting for less than 10% of Spotify's total revenue." — Spotify Chief Content Officer (quoted by Worm Capital): Used to argue advertising is becoming a much larger revenue driver "I don't worry about falling stock prices. What I do worry about is permanent loss of capital." — Dave Waters: Alluvial Fund letter explaining margin-of-safety investing "The best way to lower risk is to own the best businesses." — Arnie Olson: Q&A on concentration and risk management

Implications: The episode argues that investors should ignore macro panic and focus on durable, cash-producing businesses, especially those with pricing power, buybacks, or hidden asset value. It also suggests the selloff created fertile ground for concentrated, research-driven stock picking.