Biden passes the torch to Trump today and a tenuous cease-fire agreement starts in the Middle East. I think everyone can agree that less fighting is a positive. Further, while the change in regime in the U.S. may have been a catalyst, I personally find the rush to take credit a bit beside the point. One person can’t force peace. It is a credit to all the parties involved including both U.S. administrations, the Qataris and other foreign concerns and most notably the Israelis and Palestinians. Let’s hope it holds. From an investment perspective, the markets have mostly ignored the Middle East as well as what’s happening in Russia and Ukraine. China and Taiwan are more front-of-mind for U.S. based investors as far as I can tell. Nevertheless, international cooperation and agreement are generally better for the market than bombs and missiles flying.
Another entity benefiting from a cease-fire is TikTok. Congress passed, Biden signed, and the Supreme Court upheld a legal ban on TikTok which was enforced starting yesterday. The law was on national security grounds. The main business of TikTok, per the law, is really to collect data and build dossiers on U.S. citizens to be used by China for future nefarious purposes. The app’s function as a serious waste of time, drag on productivity, and diffuser of an unnecessary number of cat videos was not considered in the ban. Nevertheless, Trump and Biden apparently now agree that all the effort to craft, debate, sign and defend this law was a waste of time. America’s need for unlimited short-form video entertainment is more important and has earned TikTok a first-day Presidential pardon, Chinese spies be damned. I have little to add on the subject of national security. However, I find it challenging to understand how the concerns behind the law are brushed away so easily. Of course, I may be biased. I am a longtime shareholder of TikTok competitor META which operates Facebook and Instagram. On this front, I am okay with hostilities resuming.
Whether or not TikTok resumes operations, social media’s impact on the real economy is growing, a point reinforced by comments from an investment conference I attended last week in Orlando, FL. The ICR conference brought together about 3,000 professional analysts and portfolio managers, investment bankers, salespeople and the management teams from nearly 100 companies in the consumer space. The first two days featured primary public companies, mostly restaurant operators and retailers giving canned presentations that mostly put me to sleep. The third day, which most attendees skip, was a forum for private companies to introduce themselves with the objective to go public or find a buyer in the foreseeable future. These businesses were more entrepreneurial, usually led by their founders, and had a wider range of business models including start-up packaged food brands like Once Upon a Farm and Oats Overnight or a vertical indoor produce grower, 80 Acre Farms. There was also a gimmicky carbon-fiber insole maker for athletes called VKTRY (that’s short for victory). I was on board with the force transfer properties of carbon amplifying speed or augmenting jumps, but the claim that carbon inserts in your shoe could simultaneously reduce injury raised my skeptical ire. One of the most entertaining talks was from the founder of PSD underwear. He described how he grew his Gen-Z focused brand by first renting an RV and driving between college campuses and cultural events like Lollapalooza. The brand later leveraged up-and-coming influencers to connect. I reviewed the two dozen influences on his roster and recognized none of them, which served as the latest indicator that I am no longer cool.
One message from the presentations was that it is much easier to scale brands quickly today. The reason is TikTok and the others. Social media platforms with algorithm-driven content are amplifying both organic and manufactured marketing messages with a power well beyond what was possible in the past. I can think of three examples from businesses I follow closely that experienced social media “glow-ups” in 2024. One was Mediterranean fast-casual restaurant operator Cava, Inc. (CAVA) which is a hot new brand. However, the other two might surprise you, and indicate that the power of social media is extending beyond new brand development with wider investment implications. These are grocery-store operator Sprouts (SFM) and casual diner Chili’s (part of Brinker, Inc. (EAT)) both of which experienced accelerating store traffic and sales that I attribute at least in part to viral social posts. A food retailer and a multi-decade-old chain restaurant? Yes. I sure hope we can keep this info from malevolent foreign powers.
On Running (ONON), which we own in client portfolios, also presented at last week’s conference. *
On Running came into portfolios in early 2024. If you haven’t heard of On, don’t worry. Brand awareness is only now reaching 20% in the U.S. The stock is not cheap, with the company having a market capitalization of $18B, representing 6x forecasted 2025 revenues. It was less expensive when I started buying but it still wasn’t cheap by any measure. The investment case is that On is taking share and feeding off Nike’s (NKE) atrophying carcass along with other fast-growing athletic brands including HOKA, part of Deckers (DECK). I am a runner and even though I am not a fan of the shoes, I recognized that On is a brand with momentum. Further, without exception the athletic footwear retailers I follow want more of the product for their shelves. This tells me that On can keep growing at a fast enough pace to justify the current valuation.
But if I was hoping to feel inspired by management of the Swiss brand at the conference, I was sorely disappointed. Talk about low energy! In contrast, I recall past visits to investor days at Nike’s Beaverton, OR headquarters. Nike always kicks off its events by hyping everyone up with videos of elite athletes and championships. They are so effective that you want to quit the meetings and immediately start training for a marathon or go on an expedition to climb Mount Everest. At least that is how it was before Nike lost its way. After the On guys spoke all I wanted to do was curl up and take a nap, hopefully remembering to sell the stock first.
That said, this is one of those instances where cultural differences need to be considered. For example, I have learned that Switzerland the country is governed by a council of seven members who work together nicely as co-Presidents. Imagine that happening in the U.S! Similarly, On Running has an unconscionable number of co-CEOs and operates with a partnership management structure. Also, these guys were really jet-lagged due to long trip from Zurich. But the bottom-line is that I don’t buy stocks based on management sizzle. The investment in is based on the strength of brand, its rate of growth, and growth opportunity, among other factors. Nike’s current retrenchment has opened a door, and On is taking advantage.
Travel update: As I mentioned, I recently returned from Florida where I visited my parents in Naples and then drove up to Orlando. In early February, I will attend another investment conference, this one in Klosters, Switzerland. Klosters is in the German-speaking part of Switzerland about two hours from Zurich. (The same city where On headquartered.) VALUEx Klosters, hosted by Guy Spier, is a value-investing conference that brings together a global community of investors who espouse or are inspired by the Warrant Buffett/ Charlie Munger approach to evaluating and investing in companies. It is an idea-sharing conference where conference participants are asked to present a stock idea, or “idea worth sharing” in a collaborative environment. I will give a presentation on a stock I own (name to be revealed). If you’d like to receive a copy of the slides, please send me an email and I will forward the deck after the event.
*This is not a recommendation. Please consult your advisor for investment advice tailored to your risk tolerance and investment profile.
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John Zolidis
President & Founder
Quo Vadis Capital, Inc.
John.zolidis@quovadiscapital.com
Mr. Zolidis has 25 years’ experience as an equity analyst. In 2017 he founded Quo Vadis Capital, Inc., a Registered Investment Advisor (RIA) offering investment management for individuals and an idea service for professional investors. He is a frequent presenter at value investing conferences around the world and a guest lecturer at Columbia Business School. Prior to founding Quo Vadis, Mr. Zolidis was a sell-side analyst following the consumer sector. He also managed money in a buy-side role at a long-short equity fund over 2013-2014. He was named in the Wall Street Journal’s Best on the Street list in 2005. He started his career in finance in 1996 following degree studies in Philosophy at Kenyon College and the University of Oxford. Mr. Zolidis and works from New York, NY and Paris, France or wherever he has his laptop.
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The author of this letter and accounts managed by Quo Vadis Capital have a long position in shares of META, and ONON.
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