*** Edit 14/04/2023 —This was my Bear Case and biggest fear for Catapult circa early 2019. I’m re-releasing it, as is, for context to my recent bullishness. I now think most of my concerns were unfounded or have been proven wrong. ***
Catapult – Can Your Capital Withstand the Siege?
Making room for a new little EskyBruh is a great time for decluttering. Such was the unchecked consumption of my early 20s that I’ve read up a bit on this concept. One of the authorities on this modern phenomenon is Australian Peter Walsh, who has gone so far as to categorize clutterers according to their style [1]. It turns out I am (was) a ‘techie clutterer’ – a person who holds on too long to old gadgets and their boxes.
The subsequent trips down to Cash Converters reminded me of the folly of anchoring. The uninitiated may be shocked to find that Cashies will only offer them $3 for their 12 year old 7.2 Megapixel point-and-shoot Sony cybershot camera. Of course, it retailed at a princely sum for the university student of a bygone era. Then again, who buys these things now in the age of smart phones? These sort of experiences make me wary of a company like Catapult. Gadgets just age quickly these days.
I’ve had some recent success riding the bow wave of the Strawman Index. However, Catapult – from a thematic or story standpoint – is just not a company I can get excited about.
I know the numbers must be making sense to some, and I lack the expertise to comment on that. Suffice to say that when you are standing at the buy desk of Cashies, watching DVDs get scanned at 10 cents a pop, you may notice signs for the most exorbitant of short-term loans – with interest rates of up to 215% annualized. For most of us – lucky enough to never know the desperation of addiction, financial illiteracy or domestic violence – we will only ever understand one side of that transaction. The numbers are always going to make sense to someone if the company spruiking them knows their audience.
I am learning to pay more attention to the financials before getting too carried away with a story. But I think you need both. Qualitative and quantitative. Yin and Yang. Sales can be improving, but a story needs to still make sense on its second read-through before you commit to anything, lest you end up like Kevin Costner.
For Catapult, it’s not just them reaching the high ground, or what I’d consider to be their shallow moat, that worries me. It’s the eventual renos of that castle. The ongoing R&D to keep the technology relevant and competitive is, in my opinion, a massive headwind for Catapult.
If I were a Catapult Bull I would want:
- a tight time-frame for the market’s uptake of their technology and a precise idea of the shelf-life of their wearables and LPS system;
- a risk of disruption in a range acceptable to me; and
- to believe that there was real proprietary value in the data/software they’re pivoting towards.
Right now, it’s just too easy for me to imagine a world where Catapult doesn’t exist and that world not being much poorer for its absence.
My concern is that it could become a ‘bottom drawer stock’…but one in the kitchen, not the mahogany desk. A bottom drawer like that described by Michael McIntyre, full of stuff just waiting to become more useful [2].
From dirty rascal to king of the castle?
Interesting recent AFR report and commentary on Catapult:
I can understand long-term shareholder frustration but I’m personally liking the narrative of Catapult’s longevity and pedigree in a competitive space. It feels like this industry is still in ‘land-grab’ mode and that just holding on to the high-ground is most of the current battle — the spoils of that war come later. The tech devices and cameras themselves are ultimately commoditised long-term I think. I wrote a somewhat harsh bear case on Catapult, several years ago, on that part of the story and have since been proven wrong. It looks like the aim of the game is to be the king of the castle with the commanding views. The fight for positive free-cash-flow might be just the bloody and muddy bit the first kings do before their successors can live off the spoils by taxing the masses. The latter is the golden age. The good bit between the massacring warlord and eventual decline (when the great-great grandkids publish whingey ghost-written autobiographies). The former never looks pretty — even in hindsight.
The prize is dominant market-share of elite sport. My investment thesis is one of eventual pricing power and/or buy-out.
SaaS, can normally make me a bit ‘meh’ when I read or hear that. Everything seems to be SaaS now. But I definitely don’t know enough about it in this case. To me, however, this company is starting to look a bit more analogous to US based AXON which I like. Very different field, but in that case, the original tech (the taser) now pales in future significance to their data storage solutions (their database of body worn camera footage) which generates much larger margins, stickiness, and ARR.
Maybe Catapult will stand the test of time yet.
