Good write-up. As someone that has followed CSU and Mark Leonard for a long time, been in software and even implemented and hold patients with AI, I think two things stand out more salient for me in this SaaSpolypse for CSU and VMS in general:
1) individual business units who are lightly integrated and aren't truly mission-critical will go the way of the Dodo bird
2) those that are truly mission-critical will benefit from the tailwind that is better, faster, stronger ways to build and architect software
I think people need to see the literal forest for the trees. CSU is that forest with dozens of groves (verticals, operating groups) and like in nature, will some die!? Will CSU need to do some controlled fires!? Will they need to be propogated? Will need to plant some new growth over here or there? That's what people miss when it comes to lumping CSU with the other software companies.
But make no mistake. Markets are doing what they do best: price discovery. And the software category is maybe becoming put in the "Too-Hard" pile (as Mr. Munger would say). I don't blame them at all and would agree.
Thanks for the write up. There is a lot to like about CSU and TOI in the software space, especially the way they keep their share counts constant unlike almost every other name in the space. For me, the valuation had been quite rich previously. However, there are some questions I'm still grappling with:
- Why are the private companies they buy at 2x sales are suddenly worth 5x sales under their ownership at current prices?
- How much runway is left for CSU at sales north of $10B for growth by acquisitions? This is less of an issue with Topicus.
- What would be a "no brainer" valuation of these companies? Topicus is still 2.5% fcf yield on ttm reporting. Even at current prices and on a forward basis, fcf yield is barely MSD. That's still pricey for me.
Enjoyed your thoughts on CSU and the software/AI question in general. This one falls into the too hard pile for me (but that is a very very large pile). My interaction with AI (google free stuff, not sure what it is called) re: retirement planning rrsp meltdown strategies, estate planning, seems to kick out in seconds the exact information I see from financial folks offering planning or you tube financial folks who I respect. Obviously not as complex as building software to run businesses, but I did find it kind of scary that the AI tool that's free seemed as useful as the plans I was offered for thousands of dollars and way quicker.
I think it's a no brainer here so we will have to see! If you do any calls with their customers or learn about what their software offers I think you might feel differently but that's what makes a market. I have ownership bias!
you are much more qualified and have done actual work as you mentioned, and you are right a lot more often than not. My usual take is shit always takes way longer to transition than people think, AI just freaks me out.
Good write-up. As someone that has followed CSU and Mark Leonard for a long time, been in software and even implemented and hold patients with AI, I think two things stand out more salient for me in this SaaSpolypse for CSU and VMS in general:
1) individual business units who are lightly integrated and aren't truly mission-critical will go the way of the Dodo bird
2) those that are truly mission-critical will benefit from the tailwind that is better, faster, stronger ways to build and architect software
I think people need to see the literal forest for the trees. CSU is that forest with dozens of groves (verticals, operating groups) and like in nature, will some die!? Will CSU need to do some controlled fires!? Will they need to be propogated? Will need to plant some new growth over here or there? That's what people miss when it comes to lumping CSU with the other software companies.
But make no mistake. Markets are doing what they do best: price discovery. And the software category is maybe becoming put in the "Too-Hard" pile (as Mr. Munger would say). I don't blame them at all and would agree.
I don't think you'll see a large churn in customers in future results for constellation but we will see if I'm wrong!
Thanks for the write up. There is a lot to like about CSU and TOI in the software space, especially the way they keep their share counts constant unlike almost every other name in the space. For me, the valuation had been quite rich previously. However, there are some questions I'm still grappling with:
- Why are the private companies they buy at 2x sales are suddenly worth 5x sales under their ownership at current prices?
- How much runway is left for CSU at sales north of $10B for growth by acquisitions? This is less of an issue with Topicus.
- What would be a "no brainer" valuation of these companies? Topicus is still 2.5% fcf yield on ttm reporting. Even at current prices and on a forward basis, fcf yield is barely MSD. That's still pricey for me.
Enjoyed your thoughts on CSU and the software/AI question in general. This one falls into the too hard pile for me (but that is a very very large pile). My interaction with AI (google free stuff, not sure what it is called) re: retirement planning rrsp meltdown strategies, estate planning, seems to kick out in seconds the exact information I see from financial folks offering planning or you tube financial folks who I respect. Obviously not as complex as building software to run businesses, but I did find it kind of scary that the AI tool that's free seemed as useful as the plans I was offered for thousands of dollars and way quicker.
I think it's a no brainer here so we will have to see! If you do any calls with their customers or learn about what their software offers I think you might feel differently but that's what makes a market. I have ownership bias!
you are much more qualified and have done actual work as you mentioned, and you are right a lot more often than not. My usual take is shit always takes way longer to transition than people think, AI just freaks me out.
I'm a bit of a contra right now Jim so take my comments with a grain of salt!
has tidefall stopped releasing public investor letters?
Si Senor