It’s been a busy couple of weeks at Spaceship HQ.
Well, not quite HQ.
For the last couple of weeks, the Spaceship team has been completely remote. We’re scattered across Sydney, from Wolli Creek to Manly to West Pymble. The Mario Kart setup is still at the office, temporarily replaced with after-hours, virtual games of Drawful over beers.
We hold all our meetings via video call, which means we get to see how and where our co-workers live. Let’s just say it’s been eye-opening and not speak of it again.
Apart from being remote, though, it’s business as usual, which means our investment team has been looking at the stocks in our Spaceship Universe Portfolio and reviewing whether they continue to meet our Where the World is Going (WWG) criteria.
We already sold a few stocks, which we wrote about here, and now we’ve sold a few more, so we can concentrate on the companies we’re confident will come out stronger as we make our way through this health crisis.
So, let’s get into the nitty-gritty of why we sold: Baidu, Boeing, Next Science, Redbubble, Samsung, TPG, Treasury Wine, and Trip.
Boeing has been on our watchlist for a while, mostly due to industry and leverage concerns.
The company has significant debt commitments, not to mention ongoing issues surrounding the Boeing 737 Max crisis.
Sales have declined, and customers (i.e. airlines) will likely cancel orders, which could impact Boeing’s cash flow significantly.
More recently, Nikki Haley resigned from Boeing’s board of directors due to concerns over the “direction of the team” after the board pursued federal assistance in response to the coronavirus pandemic.
While travel will return, after all this, our confidence was low as we fear Boeing’s leverage will be too high coming out of the crisis. And so, we decided to sell out of Boeing.
RedBubble is an online marketplace where independent artists can sell their art and design products. However, after two earnings downgrades, we felt Redbubble was struggling to gain further market share against strong competitors such as Etsy.
Trip.com (formerly CTrip) is the largest online travel agency in China. We felt the fact it has narrow margins, and structural competition in the hotel booking market against China’s Meituan-Dianping and generally against Google, made it too difficult for us to keep it.
Speaking of China, Baidu is known as the Google of China, but we have seen it struggle in the app world. Unlike Google, it has not transitioned well to mobile. A future opportunity in artificial intelligence has lost traction thanks to key leaders leaving the company.
Unfortunately, we felt the downturn we’re experiencing now due to the coronavirus pandemic is not going to help Baidu turn things around, so we sold out.
We are fans of Samsung and we saw it as a potential leader in the “Internet of things” space. However, the company recently confirmed it was still planning to invest ~US$115 billion into its foundry business by 2030, which we felt was a dangerous allocation of its capital.
The quality of competition in the foundry space, which refers to the production of chips designed by other companies, is strong. Taiwan Semiconductor has a ~50% market share. We believe Apple will be reluctant to use Samsung’s services, which would make it hard for Samsung to compete, so we decided to sell out of Samsung.
As one of the largest internet service providers in Australia, after Telstra, TPG was always an attractive stock to us. The company had a strong position in broadband, to start.
However, the Federal Court recently approved TPG’s $15 billion merger with Vodafone. We feel this will be a tricky integration, and so we decided to sell out.
Treasury Wines is one of the world’s largest wine companies, and for good reason. They have some well known brands under their umbrella, including Penfolds and Lindemans.
However, we have some concerns over execution at the moment. The US was given as a reason for the company’s recent earnings downgrade. Then there’s the fact the recent bushfires and smoke may have impacted their vineyards, and wine sales in China have been impacted due to the coronavirus pandemic.
With the CEO stepping down later this year, we decided now was the right time to sell out.
We bought into Next Science last year, as we were impressed by how the scientific research-and-development company was using its patented technology to address bacterial biofilms, the leading cause of antimicrobial resistance.
However, since buying in the company has missed expectations in two quarters, and we expect they’ll need to raise money this year due to only having US$16 million in cash with negative forecast free cash flow this year of US$8 million. Again, we felt it was time to sell out.
As you can see, we’ve been busy at Spaceship but we’re as committed as ever to ensuring the companies in our Spaceship Universe Portfolio continue to meet our WWG criteria. As and when we make changes, we’ll let you know.
The Spaceship Universe Portfolio invests in Taiwan Semiconductor at the time of writing.
The Spaceship Index Portfolio invests in Boeing, Samsung, Taiwan Semiconductor, TPG, and Treasury Wines at the time of writing.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.