TIP248: Mastermind Discussion 2Q 2019 (Business Podcast)

Episode Summary

Executive Summary: The episode centers on a quarterly mastermind stock-picking discussion: Stig pitches I Got Games as a cheap, cash-rich, high-insider-owned mobile gaming company with strong margins but concentrated game and geographic risk; Toby shorts RealPage as an expensive, cyclical SaaS name with heavy dilution and limited upside; Hari presents Slack as a powerful enterprise communication platform whose long-term value depends on competition from Microsoft/Google and valuation; Preston highlights Auburn National Bancor as a small, stable, high-margin community bank with strong intrinsic value but limited growth. The second half focuses on investment mistakes, especially mistaking secular shifts for cyclical ones and the value of momentum in avoiding premature entries.

Main Topics: I Got Games (IGGGF) long idea (Priority: 5/5): Stig argues the Singapore-based mobile game developer is undervalued despite OTC trading, citing massive user scale, strong profitability, no debt, insider alignment, and attractive cash generation. Risks include dependence on a few blockbuster games and uncertainty around regional exposure and gaming cycles. RealPage (RP) short idea (Priority: 5/5): Toby presents RealPage as an expensive property-leasing software company trading at a nosebleed multiple in a cyclical housing/rental market. He emphasizes dilution, leverage from acquisitions, and vulnerability if the real-estate cycle turns. Slack pre-IPO growth story (Priority: 4/5): Hari explains Slack’s bottom-up adoption model, strong user engagement, and product-led growth, but the group questions whether Microsoft and Google can commoditize or outcompete it and whether valuation can be justified at IPO. Auburn National Bancorp (AUBN) small-cap bank (Priority: 4/5): Preston pitches a tiny community bank with stable earnings, strong margins, conservative lending, insider buying, and a high implied return. The discussion balances that against the possibility of limited upside and competitive pressure from larger digital banks. Investment mistakes and secular vs cyclical thinking (Priority: 5/5): The hosts answer a listener question about mistakes, focusing on a failed Bed Bath & Beyond investment and the danger of confusing secular disruption with temporary cyclicality. They stress that value alone is not enough when business models are deteriorating structurally. Momentum as a risk-management tool (Priority: 4/5): Preston explains that adding momentum to his value process reduces premature entries and temperamental mistakes. The group repeatedly notes that valuation matters, but price action and market validation can improve timing and avoid short/long traps.

Key Arguments: I Got Games looks cheap on traditional metrics, but its revenue is heavily concentrated in a few hit titles, making future growth hard to predict. The gaming industry is huge, high-margin, and network-driven, which can create real moats if a company can keep producing hits. RealPage is a real business, but the valuation is extreme relative to its cyclical exposure and the risk of stock dilution. A short thesis does not require a stock to be outrageously overvalued; it needs the market to become tired of the story and price momentum to weaken. Slack has strong product-market fit and viral adoption, but enterprise incumbents like Microsoft and Google could replicate much of the functionality. Slack’s value depends on whether it can keep expanding beyond chat into a central enterprise workflow layer. Auburn National Bancorp is attractive because it is boring: stable margins, steady growth, conservative management, and insider buying. Small banks may benefit from efficiency and niche focus, but larger banks likely have an edge in digital products and scale. A key investing mistake is treating secular disruption like a cyclical downturn; retail was used as the example through Bed Bath & Beyond. Momentum helps avoid buying value traps too early and reduces the likelihood of having temperament tested by a stock that stays weak for too long.

Data Points: I Got Games enterprise value: about $1.2 billion - Stig’s valuation and size discussion for IGGGF at the time of recording I Got Games 2018 revenue: $749 million - Fiscal-year financials cited in the pitch I Got Games 2018 cash flow: $234 million - Fiscal-year financials cited in the pitch I Got Games users: 580 million - Global user base mentioned for the mobile gaming company I Got Games current ratio: just below 3 - Used to show financial strength and liquidity I Got Games cash vs liabilities: cash and cash equivalents more than 2.4x total liabilities - Presented as evidence of balance-sheet strength I Got Games insider ownership: 30% combined stake - Co-founders’ combined ownership I Got Games dividend yield: 2.6% - Described as consecutive and growing dividend Gaming industry size: $134 billion - Used to frame the market opportunity for mobile gaming I Got Games gross margin: around 70% - Industry/software-like margin profile I Got Games operating margin: around 30% - Margin discussion in the pitch TIP multiple for I Got Games: about 5 - Operating income relative to enterprise value I Got Games expected return: 14.4% - Conservative scenario-based valuation estimate I Got Games revenue concentration: Lots Mobile 80% of revenue; Castle Clash 14.7% - Risk factor discussed by Stig and the group I Got Games geographic revenue mix: 46% Asia, 27% North America, 23% Europe - Raised in response to concerns about China exposure RealPage market cap: $5.5 billion - Toby’s short pitch at roughly $59.63 share price RealPage enterprise value: $6 billion - Short thesis valuation discussion RealPage net debt: about $500 million - Attributed to an acquisition RealPage EV/EBITDA: 40x - Core reason for short thesis RealPage downside estimate: roughly $5/share - Toby’s valuation estimate versus ~$60 trading price RealPage annual volatility: around 23% - Preston’s momentum/price-action check RealPage 52-week low: low $40s - Used to argue the stock had not broken down decisively yet Slack revenue 2017: $105 million - Historical S1 data Slack current revenue (at time of episode): around $400 million - Growth story in the S1 discussion Slack paid customers: around 600,000 - Customer base discussed in Hari’s pitch Slack countries served: 115 countries - International footprint Slack international revenue: 36% - Revenue mix mentioned in S1 discussion Slack users: 10 million - Usage scale cited by Hari Slack daily engagement: around 90 minutes per day - Illustrates product stickiness Microsoft paid business customers: 28 million - Competitive comparison against Slack Microsoft monthly active users: 165 million - Competitive scale comparison Google paid customers: 5 million - Alternative competitor in productivity software Auburn National Bancorp revenue: $29 million - Preston’s small-cap bank pitch Auburn National Bancorp profit: $9 million - Bottom-line result for 2018 Auburn National Bancorp profit margin: about 30% - Highlighted as unusually high for a bank Auburn National Bancorp stock price peak: $53.85 - Summer 2018 high before the selloff Auburn National Bancorp stock price after selloff: $28 - Christmas Eve 2018 market decline Auburn National Bancorp current price: $33.79 - Price at time of discussion Auburn National Bancorp earnings per share: about $2.50 - Used for return estimation Auburn National Bancorp loan-to-deposits: around 60% - Conservative lending posture Listener mistake example stock: Bed Bath & Beyond bought at $21, sold at $15 - Used as an example of a secular-disruption mistake

Pivotal Quotes: "It might be an acquisition target, and it's very obvious to mention someone like Tencent." — Stig Broderson: On I Got Games, explaining a potential catalyst and why valuation may be understated "I don't short on valuation. It's stupid expensive. ... once it departs from underlying valuation, there's no reason why it can't go 20, 30, 50 times overvalued." — Toby Carlisle: Explaining his shorting framework for RealPage "I see them as the WeChat of enterprise users." — Hari: Describing Slack’s role as a central interface for enterprise workflows

Implications: Listeners are urged to pair valuation with business quality, cycle awareness, and momentum. The episode suggests that durable returns come from understanding structural change, not just cheapness, and from recognizing when a great product is still a bad investment price.