market folly

We're posting up notes from the Ira Sohn Conference.  Coatue Management's Philippe Laffont gave a presentation on going long Equinix (EQIX) and long Virgin Media (VMED).  He was previously a tech/media/telecom analyst at Tiger Management and currently runs $6 billion at Coatue.

"Old Internet Model is Broken"

Network based on safety, slow core, edge too slow. Shift from email, download video to HD streaming, cloud. "Speed is money" AMZN, 1 second of extra load time is $5B revenue loss.  Need to fix the core, and the edge of the internet.

Long Equinix (EQIX): Back in March, we flagged Coatue's purchase of EQIX. Laffont says Data-centers are the new core. "Network effect" because if FB is in the EQIX datacenter, everyone else wants to be there. Big cities, EQIX has huge share of internet backbone: SF 66%, Chicago 69%, DC 88%. Why can't everyone else just do this? Because carriers have set up peer points, and EQIX won the RFP for these spots, when no one knew how important it was. "Beach front property." 50% ROEs with minimal leverage. $1.6B revenue to 4.0B, EBITDA $700M to 2.1B. Stock triples or more.


Long Virgin Media (VMED): We highlighted when Coatue recently disclosed its VMED stake. $22. $6B company, $9B in debt. Edge. Need 50-100MBps now, up from 5-10-20 in past. (HD video) Fastest cable broadband network in UK. EBITDA $2500M less $1000M CAPEX, 20% unlevered ROIC. Broadband ARPU $26, $23 gross profit, better than cable TV, so mix shift helps. Only 4% revenue growth, 10% FCF growth, but they are also buying back shares, so 25% per share FCF. Buying 10% of shares this year alone, 25% in last few years. Has capacity to literally buy back all of it's shares in the next 5 years.


P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.