Long Post for Investors (redflix S6E06) Come in
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Posted On: 02/22/2020 7:28:21 PM
Long Post for Investors (redflix S6E06)
Come in here, dear boy, have a cagr
You're gonna go far...
TTM, ARPU, AAR, CAGR, MRR, ARR...
Does anyone understand it all?
What Is CAGRRRR?
Time for a little rEDU
If you like to invest in tech stocks, you might want to figure this out
Maybe keep rereading, until you do as this one thing is going to mean everything
CAGR stands for ‘compound annual growth rate’
The CAGR is a mathematical formula that provides a "smoothed" rate of return
mathematical?
OK, there goes 1/2 the viewers...
What the hell does "smoothed" mean?
Well it would be great if every stock just goes up and even easier if it goes up at the same percentage rate every quarter & year
But life doesn't work that way
If you tried to figure the average annual return over a period of years, it doesn't work very well. You might have a big gain one year and a drop the next
Let's say you invested $1000 in VERB and it goes up to $3000
That would be 200%, right? Easy Peasy
But what if the next year it dropped 50%?
Now you have $1500
What's your annual average return?
((200) + (-50)) / 2 = 150%
Pretty simple math, right?
But it's wrong.
If it was right, you'd have
(($1000 * 150%) * 150%) = $2,250 plus your original $1000 for a total of $3,250
But you don't, you are sitting on $1500 only, up $500
Enter CARG to the rescue...
CARG makes it simple
Take the nth root of the percentage gain where n is the number of years
What?
In this case the square root of 50% (remember $1000 --> $15000 is 50%)
Hang with me for a second...
It's not as hard as it sounds
If you said 22.3606797749979?, you were right
But I would take 22 or 23 as close enough
So let's call this a CAGR of 22.5%
What does that mean?
Take your $1000 and multiple it by 22.5%
You get $225 so now you have $1225
Now do it again for the second year
You get close to $1500 total but not quite because we rounded
Ahhhh, I got it now red
Kind of like when I take out of mortgage and there is that APR thingie they talk about
Yeah, kind of like that but in reverse
Making a compounded 22.5% a year on average whether the stock went up or down on any given day
You call heard Rory talk about CAGR
So why is it important to understand?
"smoothing"
Ever have one of those days you are super happy and another one, not so much?
Ever have one of those days you feel great about VERB and another one, not so much?
Even though a lot are long, it's hard to not look at the sp 10 times a day and ride the roller coaster of emotions
Hard to "smooth" those emotions
Traders count on you not being able to do so
Hard to look at the long term "smoothed" view
So what is a great "smoothed" view?
Apple's revenue cagr (5y) is 7.3%
The median company in the Information Technology sector has revenue cagr (5y) of 7.2%.
Apple's revenue cagr (5y) just slightly higher than the average
A good cagr is in the teens
Let's double the 7.3% and call it 15% even
If VERB has $10M revenue in 2019. Just picking a number.
Using a 15% cagr, they would double their revenue in 5 years
And that is considered good
What is ludicrous cagr?
How about 58%?
At that rate, VERB goes from $10M annual reoccuring revenue to $100M if 5 years
What's better than ARR?
Global ARR?
Well, that's always good when a company has Global revenue!
I was thinking of quarterly compounding though
Remember how SaaS revenue works
It's the gift that just keeps giving
We're so happy we can hardly count
Everybody else is just green,
Have you seen the chart?
It's a hell of a start,
It could be made into a monster,
If we all pull together as a team.
Remember in Q3, the ~$200K of new ARR?
That was quite an increase, but "some" people that can't even balance a check book, take that as an opportunity to talk smack
They'll talk smack when VERB gets sold for $2B, so best to ignore...
There is a cagr board for cranky angry grannies reunited
Even Clint ignores them...
Keep an eye on cagr over this year and next
And did we tell you the name of the game, boy?
We call it "Riding The Gravy Train"
Come in here, dear boy, have a cagr
You're gonna go far...
TTM, ARPU, AAR, CAGR, MRR, ARR...
Does anyone understand it all?
What Is CAGRRRR?
Time for a little rEDU
If you like to invest in tech stocks, you might want to figure this out
Maybe keep rereading, until you do as this one thing is going to mean everything
CAGR stands for ‘compound annual growth rate’
The CAGR is a mathematical formula that provides a "smoothed" rate of return
mathematical?
OK, there goes 1/2 the viewers...
What the hell does "smoothed" mean?
Well it would be great if every stock just goes up and even easier if it goes up at the same percentage rate every quarter & year
But life doesn't work that way
If you tried to figure the average annual return over a period of years, it doesn't work very well. You might have a big gain one year and a drop the next
Let's say you invested $1000 in VERB and it goes up to $3000
That would be 200%, right? Easy Peasy
But what if the next year it dropped 50%?
Now you have $1500
What's your annual average return?
((200) + (-50)) / 2 = 150%
Pretty simple math, right?
But it's wrong.
If it was right, you'd have
(($1000 * 150%) * 150%) = $2,250 plus your original $1000 for a total of $3,250
But you don't, you are sitting on $1500 only, up $500
Enter CARG to the rescue...
CARG makes it simple
Take the nth root of the percentage gain where n is the number of years
What?
In this case the square root of 50% (remember $1000 --> $15000 is 50%)
Hang with me for a second...
It's not as hard as it sounds
If you said 22.3606797749979?, you were right
But I would take 22 or 23 as close enough
So let's call this a CAGR of 22.5%
What does that mean?
Take your $1000 and multiple it by 22.5%
You get $225 so now you have $1225
Now do it again for the second year
You get close to $1500 total but not quite because we rounded
Ahhhh, I got it now red
Kind of like when I take out of mortgage and there is that APR thingie they talk about
Yeah, kind of like that but in reverse
Making a compounded 22.5% a year on average whether the stock went up or down on any given day
You call heard Rory talk about CAGR
So why is it important to understand?
"smoothing"
Ever have one of those days you are super happy and another one, not so much?
Ever have one of those days you feel great about VERB and another one, not so much?
Even though a lot are long, it's hard to not look at the sp 10 times a day and ride the roller coaster of emotions
Hard to "smooth" those emotions
Traders count on you not being able to do so
Hard to look at the long term "smoothed" view
So what is a great "smoothed" view?
Apple's revenue cagr (5y) is 7.3%
The median company in the Information Technology sector has revenue cagr (5y) of 7.2%.
Apple's revenue cagr (5y) just slightly higher than the average
A good cagr is in the teens
Let's double the 7.3% and call it 15% even
If VERB has $10M revenue in 2019. Just picking a number.
Using a 15% cagr, they would double their revenue in 5 years
And that is considered good
What is ludicrous cagr?
How about 58%?
At that rate, VERB goes from $10M annual reoccuring revenue to $100M if 5 years
What's better than ARR?
Global ARR?
Well, that's always good when a company has Global revenue!
I was thinking of quarterly compounding though
Remember how SaaS revenue works
It's the gift that just keeps giving
We're so happy we can hardly count
Everybody else is just green,
Have you seen the chart?
It's a hell of a start,
It could be made into a monster,
If we all pull together as a team.
Remember in Q3, the ~$200K of new ARR?
That was quite an increase, but "some" people that can't even balance a check book, take that as an opportunity to talk smack
They'll talk smack when VERB gets sold for $2B, so best to ignore...
There is a cagr board for cranky angry grannies reunited
Even Clint ignores them...
Keep an eye on cagr over this year and next
And did we tell you the name of the game, boy?
We call it "Riding The Gravy Train"
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