You’ve probably put in the work.

You’ve read the filings, followed the news, listened to the calls and still watched your returns lag.

You don’t want more information. You want better results.

You don’t want to waste time on noise.

You want research you can trust, written clearly, sent regularly and grounded in fundamentals.

That’s what I do here at DeepValue Capital.

I run a concentrated portfolio, 12 positions or fewer, and invest my own money alongside the research. I typically hold for 1–5 years to let the thesis play out.

This research is for serious investors with $20,000+ invested who want high-quality, independent research.

I write in plain English, explain jargon when it matters, and typically publish once per week.

In this August 2025 review I’ll show you:

• How the portfolio is performing.

• My thoughts on the market and potential opportunities.

• The moves I made in August.

• The news on each holding, my thoughts on how things are moving, and which I like most at today’s prices.

Performance

Link to my live portfolio, trade history, track record, and write ups.

I am very happy with how my portfolio has performed since 2024 but I understand, as YTD and the last twelve months show, I will not outperform all the time.

Skill as an investor is proven through long term outperformance.

These returns are unaudited but almost every step has been documented here on Substack.

Want to skip down to portfolio commentary so you can see what happened during the month?

Click here.

General Market Commentary

You won’t see me attempting to become a macro expert but what I do like to look at is positioning and sentiment to determine where opportunities are and what to avoid.

Here is what I am looking at. Let me know what else you would like to see.

Overlooked Parts of the Market

I’m always looking at the areas of the market that have underperformed. All of these data tables are meant to highlight those areas that are just that overlooked, hated, and beaten down as a starting point for where to begin a search.

By country, I spent some time this month searching for opportunities in Indonesia and didn’t turn up anything that was very interesting to me, especially considering Interactive Brokers doesn’t offer access to Indonesian markets so opportunities were limited.

In China I already have what I consider to be the highest-quality opportunity in the country as a major position in my portfolio with a cost basis at much lower levels so I am not looking for any more exposure there.

India, however, is starting to look interesting. For a long time it had been a hotly discussed topic as the next area of growth in the world.

As with themes that get popular, they tend to underperform the moment everyone is sure it is an incredible opportunity. Now that that underperformance has been playing out for a while it might be time to start looking for opportunity there.

Looking by industry, it’s pretty clear that home builders and the home sector in general are pretty beaten down. I have a very high quality position in that space that I am comfortable with for the long term.

Medical devices continue to be an area that I look for opportunities in. I already have one position there but I’m feeling like I need some more weighting to healthcare so it’s an area that I might be looking at, along with continued search in discretionary.

We’ll see what turns up but right now I’m doing some work in discretionary specifically on all the beaten down apparel brands and retailers. There are several names I have yet to look at and filter but as of now here are my top 3.

• VFC

• JD Sports

• Decker’s Outdoors

For next month we will be hopefully adding a little bit more industry ETFs so that we can drill down even more specifically into the beaten-down areas. When you look at different sectors, you can see consumer discretionary is clearly a very beaten-down area and that’s why I’ve been focusing so much time there. Consumers right now have jobs yet sentiment is at historic lows.

There’s opportunity there and I want to make sure that I take advantage.

August Bank of America Global Fund Manager Survey

Cash levels are near record lows, long semi’s is still the most crowded trade in the world, and investors remain very bullish while at the same time very underweight anything related to the consumer.

That is where I am looking for my opportunities and what leads me to want to avoid the popular semi’s/AI.

FactSet

“Overall, 97% of the companies in the S&P 500 have reported actual results for Q2 2026 to date. Of these companies, 86% have reported actual EPS above estimates, which is above the 5-year average of 78% and above the 10-year average of 76%. If 86% is the actual number for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since Q2 2021 (87%). In aggregate, companies are reporting earnings that are 26.5% above estimates, which is also above the 5-year average of 7.0% and above the 10-year average of 7.4%. If 26.5% is the actual number for the quarter, it will mark the highest earnings surprise reported by the index since FactSet began tracking this metric in 2008. The unusually high earnings surprise percentage for the index is mainly due to the unusually large positive EPS surprises reported by Alphabet ($9.11 vs. $2.88) and Amazon.com ($5.75 vs. $1.82) for Q2. Excluding Alphabet and Amazon.com, the earnings surprise percentage for the S&P 500 for Q2 2026 would fall to 10.8% from 26.5%. However, this surprise percentage is still above the 5-year and 10-year averages.”

Earnings growth being the highest since Q2 2021 and we all know what happened after this. A few months later tech would start a bear market with QQQ falling over 32% in 2022.

Not saying that exact same thing will happen but it is certainly feeling like we could see something that rhymes.

Miscellaneous

During thee month AAII sentiment turned decisively bearish.

The areas that are beaten down today are buying opportunities.

Put/Call ratio sits near levels that would indicate future weakness for the market which is heavily weight tech.

Consumer sentiment is still near extreme lows, historically these lows are great times to buy consumer related stocks.

By this December expectations are 2 rate hikes. This is what rate sensitive names like CPS, QXO and any consumer related stocks are pricing.

I think it is very unlikely we actually get these hikes given 3M annualized inflation is now below 2%. Next year energy is likely to be a deflationary force for CPI as well.

I don’t anticipate any hike will happen or is necessary.

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Feel free to read some of my other content to get familiar with who I am, what I offer, or my investing process.

Below are also a couple free reports on companies I didn’t buy so you can see my process in action.

Last month I announced a big change where I added the DeepValue Capital Premium hub.

It contains the live portfolio, history of trades, and a whole lot more that would in the past have been here all in one package updated daily.

If you want to read about everything that’s included in there and some other smaller updates that I made, go ahead and check out this article linked here, otherwise find that premium hub below.

Portfolio Commentary

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Investors as a group are bandwagon people.

What’s working is what everyone crowds into, and they tend to leave stocks oversold in their wake trying to chase what’s already worked in the rearview mirror.

I am trying to find those opportunities they are mistakenly running away from.

Sentiment & Positioning

1. Sentiment

CNN fear and greed mostly unchanged from a week ago yet AAII investors sentiment ticked notably bearish, contrarian indicator for buyers. Put/Call ratio’s sit at levels favoring buyers as well.

Nothing is at extremes but is certainly leaning towards being buyers.

2. Breadth

Middle of the range, nothing either way.

3. Relative Performance

It’s pretty clear to see when you look at relative performance indicators. It’s tech and energy that have been leading the markets over the last year, with basically everything else behind.

It is in all those areas that are behind I look for opportunity.

4. Top 10 lowest P/E Countries

5. Macro and Consumer

If you are not familiar with Jim Paulson I recommend giving his work a read, or listening to interviews. Here was a recent one I found insightful.

Notably Jim has turned decisively more bearish on the economy in the past months and I do think he’s correct, but that does not mean stocks will struggle.

The stock market is largely a discounting machine. It’s looking through and seeing a weak consumer/jobs market which is why we are seeing so many consumer stocks struggle and lag behind.

As policy turns more supportive, like rate cuts, even before you start to see economic data improve, the stock market will look forward months to what will be happening and rotate towards those consumer names.

That’s when you’ll start to see a sharp turn in those sectors. Today presents the opportunity to buy when no one wants to ahead of a turn. When the turn will exactly be? I don’t know, but I know it will happen.

6. Growing my Circle of Competence

Over the last month, off and on between different projects, I’ve spent a lot of time learning about apparel companies, brands, and retailers and their ability to turn around after they hit issues.

Previously I avoided this sector because I didn’t want to be trying to predict fashion trends but I was seeing a ton of beaten down names in the space and decided it was time to learn what makes these companies tick.

I went out and studies failures and successes to develop the framework you will see in this article.

Portfolio News

Link to the live portfolio.

Read more

You’ve probably put in the work. You’ve read the filings, followed the news, listened to the calls, and still watched your returns lag.

You don’t want more information. You want better results.

That’s what I do here at DeepValue Capital.

From the start of 2024 through July 2026, my portfolio is up 300.29%. The S&P 500 is up 57.05%.

Those results came from concentrating in overlooked corners of the market where prices are beaten down and a lot of bad news is already reflected.

I specialize in turnarounds.

This article covers a framework I developed to understand potential turnarounds within apparel brands and retailers.

Nike, Lululemon, VF Corp, Adidas, Puma, and Under Armour are all sitting in multi-year drawdowns.

This is usually when I start getting interested in a company but I have historically stayed away from apparel companies because it felt like needing to predict fashion trends. Let me tell you, I am not the one to try and predict that.

Despite that concern I decided it was time to actually spend time learning what it takes to turn companies like this around.

This article is the result of all that work.

What you see below is the framework I compiled after reading about many successful and failed turnarounds over the last 20 years.

I end by applying all the lessons to 3 turnaround attempts happening today.

• VF Corp

• Nike

• Lululemon

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Before we start though let me be clear, this framework is designed to help you decide which companies have a more credible chance to turnaround than others. It will not make decisions for you, tell you as what price to buy, or replace actually doing the full research.

If you want to know how I do full deep research, compare opportunities, and actually invest you can go to the article here.

Levi’s

Let’s go all the way back to 1996, a year that turned out to be a peak revenue period for the company. Over the 15 years that followed though revenue would fall ~30%.

It is after that decline where the story picks up. Specifically in September of 2011 when new CEO Chip Bergh was appointed.

He came into the company and took his time. He went on what he called a listening tour, talking to employees and executives asking questions like,

“What are three things we should not change? What are three things we absolutely must change? What’s one thing you’re afraid I may do?”

While on that listening tour, he got a clear picture of what the company’s culture had turned into. That lesson came when he sat down a bunch of employees to ask them a question.

In that meeting he asked them if they thought the company was doing well, 80% of them raised their hands. Keep in mind this was after sales had declined 30% over a 15 year period, clearly not a company doing very well.

He says that was the moment he realized how ingrained complacency had become in the company.

“I was shocked. A lack of urgency, of financial discipline, and of data discipline permeated the culture.”

He took his time on that listening tour. It was only after it was over that he put out a plan to refocus the company around their core. At that time that core was Dockers and jeans, those two products were about 80% of their profits.

Quickly after he took over and put that plan in place, profitability improved. For the full year 2011, cash flow from operating activities was at its lowest level since 2005, essentially break-even, just $1.8M. The next year, he was able to generate over $500M in operating cash flow by rightsizing.

That focus meant cutting out what wasn’t working and doubling down on what was. In 2012 they cut inventory by about 15%. As you saw cash inflected quickly.

“Primarily reflecting our lower purchases and the lower cost of inventory, and our lower operating expenses.”

Before Chip came in operating income had been declining since 2007. From 2012 to 2013 it jumped about 40% and stayed there.

He didn’t try to change who Levi’s was. He focused on who they were and what they were good at.

The “Live in Levi’s” campaign came a little later in 2014 from a consumer visit to Bangalore. What I love about that campaign was its inviting language. It invited everyone in and people self selected for the product and what it stood for instead of telling people if they belonged or not.

It was after this campaign had time to take hold that revenue inflected up. Women’s, which had been a key area of extension, grew from about 20% of the business to north of 40%. DTC went from 20% to almost 50%.

By FY2019, revenue reached ~$5.8B, up 28% from the 2015 trough with women’s posting 16 straight quarters of growth by then. He ran that plan for a long time and really built a brand image.

Levi’s has some clear lessons that helped build my framework.

Brand Identity: They did not try and reinvent who they were and what the brand represents.

Timeline: They measured the turnaround in years taking time to understand what the issues really were before taking action.

Staying the Course: They didn’t derail progress by changing strategies after things started improving.

J.C. Penney

Around the same time as the Levi’s story, a very different company was having a very different turnaround outcome.

In November 2011, J.C. Penney brought in new CEO Ron Johnson fresh off his role at Apple. There he was SVP of Retail and was credited with creating the Apple Store concept.

When he came into J.C. Penney, he found a company heavily reliant on its core customer. Middle-aged women coming in looking for a sale. He came up with a plan he called “Fair and Square”. That meant cutting all the discounting and coupons, with the goal of improving margins, and redesigning the stores to feel more modern to entice younger customers. That meant redoing the logo, partnering with celebrities, and trying to make the store a more fun modern place to shop.

In that release Johnson said he felt like all the discounts made the company look “desperate.” He went further saying,

“Coupons were a drug…”

He went about changing that, and quickly. Just 3 months after being appointed, in February 1, 2012, the new pricing took effect.

It blew up in his face.

The core customer was middle-aged women looking for deals, and he actively destroyed exactly what they were looking for. At the same time he was spending trying to chase someone who had already decided J.C. Penney was old and out-of-date.

Even as the numbers collapsed, Johnson kept saying the plan was working.

“Customers love the new jcp they discover in our stores… we are confident in our vision to become America’s favorite store.”

The numbers told a very clear and very different story.

Q1 FY2012 comps fell 18.9%. Q2 fell 21.7%. Q4 fell 31.7%, a quarter that alone carried a $552M net loss. Full year comps were down 25.2%, with a net loss of $985M for the year.

CFO Ken Hannah later admitted that cutting core apparel brands from the assortment was as he said a,

“huge, huge miss.”

The balance sheet hadn’t been the problem coming in. In 2011, the company had $1.5B in cash and a manageable debt load, real time to work with. It just didn’t get the chance to use it. By February 2014, about two years after the pricing rollout, total debt had ballooned to $4.9B.

He was fired April 8, 2013, about 17 months after he started.

J.C. Penney has some clear lessons of what not to do that helped solidify my framework.

Brand Identity: This was one of the clearest cases I studied where management alienated the customer coming in by changing who they fundamentally served redesigning stores and their logo.

Price Relative to Baseline: A core part of the alienation was the elimination of the coupons customers had come to rely on. They did not come to pay full price but find deals.

Timeline: Within just month management made drastic massive changes.

Operator Fit: When you look back to when he was hired it is obvious experience at Apple wouldn’t transfer. The specific thing Apple was good at premium branding is on the opposite side of the value/price spectrum J.C. Penny is on.

Words Against Data: Finally he kept telling investors the plan was working while comps and revenue said the opposite. This one was particularly obvious but an important callout still.

Burberry

Burberry is a very old company, founded by a 21 year old, Thomas Burberry, in 1856. They’re the inventors of the breathable waterproof fabric, gabardine, that was later used in the iconic trench coat for soldiers during World War I.

Fast forward from their founding all the way to the early 2000s, and the luxury brand was expanding into all kinds of different lines, dog raincoats, baseball caps, and their trench coats, with creative control spread across 23 licensees worldwide operating independently.

All that decentralization was leading the brand to become less cohesive. They were expanding into lower value products, and were becoming one of the most duped brands in the world.

By 2005, it was estimated that 99% of their iconic check-patterned products out there were counterfeit. Those issues were starting to show up in the numbers coming into 2006.

Revenue growth had been decelerating for three years, and operating cash flow had been declining for two. It wasn’t a crisis by any means yet but there were clear signs of issues coming.

That’s where Angela Ahrendts comes in, joining in January 2006 and taking the CEO title that July.

At her first strategic planning meeting, she noticed something telling about her executives.

“They’d flown in to classic British weather, gray and damp, but not one was wearing a Burberry trench coat. If our top people weren’t buying our products, how could we expect customers to pay full price for them?”

She called that a clear sign of the challenges they faced.

“We had 23 licensees around the world. We were selling dog cover-ups and leashes… something for everybody, but not much of it exclusive or compelling.”

“In luxury, ubiquity will kill you.”

For her first 6 months she traveled around the world getting a sense of what Burberry was like globally. She had this to say.

In Hong Kong, I was introduced to a design director and her team, who proudly showed me the line they were creating for that market: polo shirts and woven shirts and everything with the famous Burberry check, but not a single coat.

Then we went to America, where I was introduced to another design director and design team. This team was creating outerwear, but at half the price point of that in the UK. Furthermore, the coats were being manufactured in New Jersey. So we were making classic Burberry raincoats that said “Made in the U.S.A.” I later learned that we had outerwear licensees in Italy and Germany making trench coats that were even cheaper than those in the United States.

After all that touring it was clear to her they needed to centralize final creative control under their creative director, Christopher Bailey. Under one voice with final say instead of two dozen plus they could create a much better brand image that makes the product experience cohesive no matter where you are shopping globally.

Part of the issue too was brand dilution coming from noncore cheaper products that were often the target of dups. She cut 35 product categories and as important re-anchored the whole company around what had been their most iconic product since it became famous in World War I, the trench coat.

“The trench coat must remain our most exciting, most iconic product. It guides all our decisions.”

Once that was stabilized, she went all in on digital advertising and live-streaming runways, one of the first companies to do that.

In 2009, that took the form of “Art of the Trench,” a platform built entirely around the one product she’d re-anchored the company on, letting real customers post their own photos wearing it.

It invited people to think of the brand in a way that fit them, to self-select and aspire to it. Facebook followers passed a million within a year, and e-commerce grew 50%. That allowed them to extend to a new audience without trying to recreate a whole new brand image.

Under her leadership from 2006 to 2014 revenue grew from £850M to £2.5B, and the company’s stock market value more than tripled. She turned what was heading toward stagnation coming into 2006 into continued strong growth, delivering well above market returns for as long as she was there.

While a slight difference from a pure turnaround there was still obvious lessons to be learned here.

Brand Identity: They refocused on their most iconic product and identity as a luxury brand.

Product Level Speed: The brand was being cheapened both by dupes and products outside of their core. Because of the data they were able to cut out the non-core weight.

Staying the Course: Management stuck with it leaning on that expanded reach to solidify the companies position without deviating.

Crocs

I am sure you know of the ugly clog company everyone can’t seem to get enough of that was dubbed “aesthetically atrocious” around the same period they were growing over 100% YoY.

They went through a boom in the early 2000s, with revenue growing from nothing to $1.2B by 2014. By that peak though, they were facing some real issues. Operating income peaked in 2012, fell over 50% in 2013, and then turned negative into 2014.

A story reported that “by 2013, then-Chief Executive John McCarvel's strategy used the clog only as bait: The shoes were relegated to the back of stores, so that shoppers would see Crocs' other products first.”

They had overexpanded into products that were not their core with costs ballooning along with it. This is where I pick up the story.

John McCarvel retired as CEO in April 2014, and Andrew Rees, the company’s President, stepped in as interim CEO. That July, under Rees, the company announced a plan to refocus by removing non-core products, cutting costs, and reducing store count.

“Ribatt wants to remind people that Crocs was founded on bright colors, whimsy, and comfort.”

Gregg Ribatt then took over as CEO in January 2015, with Rees continuing on as President. Greg continued with that plan Rees laid out. Operating income bottomed out that year at -$72M, but started recovering from there. By 2017, Ribatt could point to the results.

“We’ve reduced SKUs brought to market from over 2,000 to approximately 1,000.”

“Our innovation and newness will be most heavily concentrated on core clogs, and sandals, flips and slides.”

Because they had expanded so aggressively into products that didn’t fit the brand, they were able to cut SG&A, store counts, and right-size the business pretty aggressively. Store count went from 558 down to 447, a 20% reduction in 2017 alone.

In February 2017, the board moved Ribatt out of the CEO role effective that June, and Rees took over again. That April, they refocused their marketing around that clog and their identity of fun and whimsy that appealed to younger consumers. They leaned into individuality and customization of their core product instead of trying to reinvent something new.

They had some whacky partnerships that created really unforgettable looks for good or bad.

It worked.

Operating income turned positive that year, at $17M.

“A big shift in our marketing strategy last year was to shift 100% of our marketing spend to digital.”

By Q4 of 2018 Americas DTC comps were up 21.2% on the seventh straight quarter of growth.

Crocs is a very different story than Burberry but has some great takeaways.

Brand Identity: Crocs refocused on who they were at their core and leaned into it instead of trying to reinvent themselves.

Product Level Speed: They had the data on what was selling and what wasn’t and acted quickly on it.

Balance Sheet: They had a net cash position when the turnaround efforts started. That gave them years of runway to be patient vs rushing to a quick fix.

Under Armour

Under Armour was founded in 1996 by Kevin Plank. Their story was an incredible one starting from nothing and eventually reaching the 2nd largest fitness brand in the US.

The have been struggling for a long time though, with my story picking up back in 2013. Until then Under Armour had been a very focused apparel company. That December they acquired a fitness app, MapMyFitness, for $150M.

They were riding on growth still though so no real issues out of the gate but it set the foundation.

Later in 2015 they announced they would be buying Endomondo and MyFitnessPal for a combined cost of $560M.

At this point they had invested over $700M into what was not a core focus of the company. That same year Plank announced their “get big fast” plan to hit $7.5B in revenue by 2018 which would mean a 25% topline CAGR.

Into that September investor day they had a ton of momentum including Stephen Curry extending his contract through 2024, revenue growth of almost 29%, and a stock up over 400% in the last 2 years.

So what did they do? They decided to change the focus of the company.

“By leveraging its Connected Fitness network, Under Armour is positioning itself to evolve from a company focused on changing the way athletes dress to one focused on changing the way athletes live.”

As we all know apparel companies are best known for great electronic device and tech innovation.

They tried to become something new and all that investment and change in focus would quickly show up in their numbers.

2016 revenue grew 21.75%. That year they announced expanded into Khols, a store known for heavy promotions and by the end of the year they were seeing “significant promotional activities” even before the Khol’s partnership went live early the next year. Operating income only grew 2% that year.

During Q4 of that year Plank was still out in the report saying,

“The strength of our Brand, an unparalleled connection with our consumers and the continuation of investments in our fastest growing businesses -- footwear, international and direct-to-consumer -- give us great confidence in our ability to navigate the current retail environment, execute against our long-term growth strategy and create value to our shareholders.”

Revenue growth had fallen to ~12% YoY vs the target 25% per year needed to hit their 2018 target. Things would get worse.

2017 revenue grew just 3.13% and apart from post Covid bump they have never exceeded 5% annual growth since this year. To make it worse operating income crashed 93% that year as they started what would become a pattern of “restructuring”.

Under Armour was chasing new constantly, new products, new sources of growth, new partnerships, new business lines. And it destroyed their culture, brand and profits.

They tried to become an lifestyle performance fitness device company all at once. Their history was just creating performance apparel for athletes. This unfocused expansion diluted the brand clearly seen in large scale discounting we still get today.

The killer that never allow them to turnaround from my perspective is that Plank has never been able to let go. He “stepped down” in 2020 but retained control of the board and essentially the company in a way that never allowed someone to come inject newness into the brand and culture.

Under Armour has some critical lessons for the framework.

Brand Identity: Under Armour clearly tried to become something they were not and it’s clear that it never resonated with their customers.

Timeline: They frequently tried to make big, bold, aggressive bets layered on top of each other, never giving the company time to digest and stabilize.

Product Level Speed: I didn’t discuss this one much but in my research I saw very little discussion of SKUs or specific products or lines that were working.

Price Relative to Baseline: Under Armour had previously been a mid-tier full-price brand in the sports category. As they lost their focus and stopped resonating with customers, they expanded into stores that more heavily discount. They clearly started to lose value in the eyes of customers and discounting became heavier over time.

Operator Fit: Plank clearly had the background to run UAA, he founded the company. But when things started to go wrong, you can’t expect the same person that caused the issues to suddenly change. Most of the time that does not work.

Words Against Data: Management was still out confident they could meet targets even when revenue growth had fallen to less than 50% of needed.

Coach

Coach was founded in 1941 by six leather artisans. My story picks up much later than that in 2014. By this point the brand was already struggling.

Aggressive expansion and heavy discounting had diluted what had been “accessible luxury”. Customers stopped seeing them as luxury and went to competitors like Michael Kors and Kate Spade.

2014 revenue fell 5.3%, North America sales fell 10.9%, and comparable store sales in the region down 15%. With a lot of fixed lease expenses operating income fell even further down ~21%.

Victor Luis, who had been with Coach for 7 years in senior positions, became CEO in January 2014 and laid out his plan about 6 months later calling it Coach’s “third chapter.”

“Our strategic agenda from my start as ceo was about transforming the brand and its image in the mind of the consumer,”

He wanted to reestablish premium pricing and did so by cutting back on wholesale and introducing new higher priced lines. To cement a new refreshed image they started new marketing campaigns, created new leathers and materials, and modernized store designs.

This wasn’t all though. He also laid out a plan to close 20% of full service North American stores. And bring in house Coach trained staff to stores instead of general department store employee’s.

When asked about the timing of the turnaround Victor said, he wouldn't know when until he sees it, but traffic will be the harbinger of change.

Then when asked about the next quarter expectations he said,

“It's not about September. It's not about the next "It" bag that we're launching, or the next "It" collection. It's about, at the end of the day, how we evolve the brand over this journey that we are on. Coach is an iconic brand, grounded in authenticity and heritage, with a proven history of successful reinvention. We are confident we're taking the appropriate strategic actions, knowing that this is a multi-year journey that ensures both brand vibrancy and healthy, long-term growth. “

His strategy would start paying off as sales and profits stopped plunging in 2016, then operating profits started turning in 2017 up 41% YoY with sales showing improvement up ~2.2%.

The turnaround was showing great signs of working

Unfortunately for Coach though, we skipped over the part where they were no longer the only focus. In 2015 Coach bought Stuart Weitzman for $574M then in 2017 Kate Spade for $2.4B.

In 2017 as they became a conglomerate of brands they changed the name of the company from Coach to Tapestry (TPR) which is what they still trade under today.

Both of those acquisitions would dilute focus and hurt profitability. Kate Spade still struggles to generate operating profits today while Coach continues to get better. Stuart Weitzman was sold off in 2025 for $120M… just 21% of what they bought it for a decade earlier.

It took Coach’s stock 13 years to get above their 2012 peak. Even looking 12 years after that peak they were still down 50% yet Coach was actually more profitable by that point than anytime in history.

Coach follows a different path than most examples laid out here but there are some crucial lessons.

Staying the Course: Had Coach not made any of these acquisitions, I have no doubt that the turnaround of that brand would have happened more quickly. They would have had more creative resources allocated there and more focus on creating an efficient company. Management was unable to stick to that and went out and bought two very difficult companies that even today still drag Coach down overall.

Applying Lessons in Practice

These turnarounds, successful or failed, throughout history have some fantastic lessons but I wanted to take some time to discuss how I think about apply them in practice.

First not every rule lives on the same level of importance. The two that stand out as absolutely necessary are balance sheet and product quality. If either of these two is broken, then a company will need to pull off a miracle to turn things around.

The logic is pretty straightforward.

If people are purchasing a product and it’s immediately falling apart or just doesn’t serve the function they need it to, they’re not going to be coming back. I look for a major product launch with documented issues, a disclosed increase in defect or return rates, or the company directly addressing quality issues. Specifically this is not scattered reviews, which run negative across virtually every brand regardless of actual quality.

Next if the company doesn’t have a balance sheet to survive years of stabilization then they’re going to be forced to move products quickly through discounting and cheapening the brand. They also won’t have capital to invest in improvements or refreshing their image.

If a company is missing either of these I don’t have high hopes for a turnaround and will be avoiding the name.

Below those come everything else which I look at over the last 24 months.

In all the examples I talk most about brand identity. Brands are built over many years and if a company tries to reinvent who they’re serving and the image of what their brand fundamentally represents, it’s not that different from trying to start a new company.

Trying that when you’ve got all the costs of an old company is going to make things incredibly difficult.

Timeline was another common thread. I usually saw that when an operator comes in quickly and tries to change a major part of the company without taking the time to test, understand the business, and find out what a customer wants and needs. Those are the situations where they can get ousted so fast they never have a chance to see their project work and/or they hurt the company more than help it. Brands take time to change, apparel takes time to make, global logistics are complicated. A CEO needs to take their time and shift things in increments.

Everything else:

• Product-Level Speed

• Price Relative to Baseline

• Operator Fit

• Staying the Course

• Words Against Data

These are important points and should be tracked on an individual company level. No individual yellow flags flat out kill an idea but multiple or any clear issues here are not good signs.

On product-level speed, is management talking specifics? Are they discussing specific SKUs over recent weeks that are working or are they talking about the brand in general terms only? You want to see granularly specific discussion AND actions being taken on that data.

Their price relative to baseline was more common than I expected. Premium companies trying to expand too fast and being forced into discounting can destroy the image of the brand. Heavy discounting brands like JCPenney are going to have an incredibly difficult time moving to only full-price product.

Their customers are there searching for a deal and they’re not going to like it when they don’t find what they’re looking for. They’re going to stop coming after some time.

On operator fit, obviously you want someone with relevant experience to be able to turn that company around but I think this one applies a little bit more loosely than you would guess. You want someone who has relevant operation experience and has lived on the same side of the cost curve.

If you’ve got someone who’s been working at Louis Vuitton, they’re probably going to come in and struggle a little bit to run a company like Old Navy, and vice versa.

The second side of this coin is understanding that if a CEO was running the company as it deteriorated, they are going to struggle to reinvent themselves and a company.

Stay the course, we saw that with Coach. They were able to implement a lot of good that we talked about, sticking close to their brand identity, thinking over a long period of time, cutting what wasn’t working, and innovating while staying true to who they were delivering high-quality products.

But, when you’ve got someone who tries to add something new on top that is fundamentally different than their core it can throw a wrench in that whole plan.

Words against data speaks mainly to catching operators with either a history of overpromising and under delivering or those saying all the words you want to hear but never actually seeing the results.

When they talk about multi-year timelines are they actions actually matching up or are they trying to shift the business to something new very quickly. If they discuss cutting promotions is it actually happening. ETC

If you can use all of these benchmarks to analyze a potential apparel turnaround over 3-5 years I think they give a great picture of if it is likely to happen.

This framework does NOT tell you if a company is a buy at current prices, but simply lets you gauge the quality of their turnaround story.

Now that you have an idea of how to apply these tests I wanted to walk through three companies attempting turnarounds right now.

• VF Corp (VFC)

• Nike (NKE)

• Lululemon (LULU)

Here are the results of that initial research.

On a first pass I send AI with a standard prompt to do deep research to determine if a name is worth looking into, and what to focus on if they are. This is only a first pass to determine if I want to spend time on the name. It is not a substitute for doing full deep research yourself.

P.S. if you want the prompt I used that took me 4 hours of tweaking just comment below a retail/apparel turnaround you think is interesting and why.

VF Corp

Below I run Nike and Lululemon through that same nine-criteria framework. One of them outright fails one of the two gating criteria.

Which one, and what name will I be focusing on next is below.

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Yesterday they announced they would be issuing ~$10.2B worth of equity and plans to use the money to “invest in its full-stack AI capabilities, including expanding and enhancing its AI infrastructure.” This raises share count by ~3.6%.

Burry has pointed to this as confirmation to why he moved his China positioning to JD and would no longer consider BABA unless it fell 50% from here.

I wanted to send you my take on the situation and what it means for shareholders.

This issuance is minimal as a % of float. A 3.6% increase in share count certainly does not derail the thesis for the company.

Alibaba making any issuance of shares at current levels was very unexpected though.

They have ~$70B of cash on hand. Myself along with most everyone else would have assumed they would just be funding any capex with that and cashflow.

This move by management is a perplexing one. Equity at current levels is set to deliver really high rates of return over coming years.

Issuing equity now means they will need to get a higher rate of return than that bar to make it worth it.

That is the core questions investors are asking themselves today.

What is all this spend on building AI models and data centers going to return?

Based on history cloud spending has generated fantastic returns on invested capital, high teens. AI compute capacity though may not have such a long shelf life though given frontier models are looking for the most cutting edge tech out there. Chips and memory capabilities are advancing so quickly that tech from just a couple years ago may fall off a cliff in usefulness and need replaced. That ongoing capex need could destroy profits generated from these investments.

The question on AI models is more uncertain.

So what will happen to all this spending? I don't have a perfect answer for you. What I do know though is Alibaba is incredibly efficient at building data centers.

And they have been building AI models such that they upsell users, consumers or businesses, into the areas where they are or will be profitable over time. Cloud, ecommerce, quick commerce, etc. Those sit on top of any direct AI monetization tools.

In addition in China the competition in AI/AI models is much more diverse than the US which relies heavily on OpenAI and Anthropic. OpenAI alone makes up ~45% of Microsoft's backlog, and OpenAI + Anthropic combined account for the majority of AWS's AI revenue and a rising share of Google Cloud's.

If those two companies cannot deliver the US could be in trouble.

In China demand is much more diversified and often more niche in the goal of the design of the model. Meaning they may not always need the leading tech and the infrastructure could last longer.

Finally Alibaba is building chips in house and ramping quickly. This gives them another cost advantage.

So I don’t have THE answer for you on what returns that they will get but Alibaba is uniquely positioned to be able to monetize this spend.

That brings me back to the main question of the article though, if they are positioned to deploy capital attractively why not issue debt? They could have done at mid single digit rates. A MUCH lower bar to clear than the 30%+ bar I see with equity.

So why would management have issued equity at all?

After the latest earnings, as expected, Alibaba continues to invest heavily and cash flow is negative. Investors are getting fatigued from all the capital raises for AI/datacenters especially when these companies are still burning a lot of cash. This move allows them to, as quickly as possible, with no future obligations, preserve their balance sheet, and get access to a lot of capital that may have been difficult to achieve at this scale and timeline in debt markets.

Do I think it was the “best” or a “good” option? No. What I will so though is as long as management is able to take that money and get good rates of return on it, this is at least not large value destruction.

I have no doubt they will get good rates of return on that money but that is very different from certain that it will be enough to fully offset the cost. Or that management will not do this again.

So here is how this move ultimately affects my thesis and targets.

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Investors as a group are bandwagon people. What’s working is what everyone crowds into, and they tend to leave stocks oversold in their wake trying to chase what’s already worked in the rearview mirror.

This article is the result of all that work over the last week.

If you are looking for all the live details on my portfolio, click here.

Sentiment & Positioning

1. Breadth of the market declined over the past few days. Neutral

2. Bearishness and bullishness both increased week over week. Bifurcated market with what has worked, semi’s/AI, being very bullish and what hasn’t being bearish.

3. Consumer sentiment deteriorated and remains at some of the lowest levels in history.

5. BofA Fund Manager Survey

Lots of great information every month from this survey and the market is still highly crowded into AI/Semi’s though it has cooled from last month. Cash levels are extremely low, expectations are very high, sentiment is very bullish, risk taking is up.

With markets heavily overweight tech I am looking for the corners no one wants. Those are clearly staples and discretionary which are the most underweight recently since 2006.

Other areas worth mentioning are bonds (interest rate sensitive names), the UK, healthcare.

6. Miscellaneous Macro

Supply of compute remains tight yet the price per token the AI models are charging is headed down. To me this signals the return on investment picture for the developers of AI models may be in question.

CPI continues to head down and the last 3M annualized is now below 2%.

Expectations for rate hikes by December of this year has increased 6.5% week over week.

Portfolio News

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This article is a review of those earnings and my thesis for the company.

As a reminder for those of you that are new, here is my thesis.

Earnings Report

• Revenue $2B vs $2.04B Est

• Comparable Store Sales (0.5%) YoY

• EBITDA $168M vs $158M Est

• EBIT $112M vs $93.9M Est

• EPS $1.03 vs $0.80 Est

Profitability was boosted by $26M of tariff refunds during the quarter so if you back that out bottom line missed as well.

Pro grew low single digits YoY, weakness was from DIY shrinking low double digits.

“Within DIY, sales were stronger in maintenance and failure categories such as filters, motor oil, and batteries, while hard parts categories lagged, likely indicating selective spending behavior and deferral of larger projects. On the other hand, in the Pro channel, our hard parts business, including brakes and undercar, continued to outperform, supported by an improvement in parts availability and consistency in delivery times.”

Management named deferral of large ticket items, discretionary spending, and weather as a 1-1.5% comparable store headwind during the quarter affecting both top and bottom lines.

While results did not meet expectations I think markets may be missing the bigger point.

Even adjusted for tariff refund, the metrics most under their control are improving and have been for a while.

Not what we wanted to see for growth but certainly not derailing the thesis by any means. AAP was never going to be a massive grower. The more difficult uncertain part is expanding margins and they are doing that.

In fact it seems their outlook for next year is improving. When they were asked about the previoulsy mentioned 1% operating income margin improvements in 2027 management said, “we’re getting more confidence in the actions that we’re going to be able to take there. So we’re more confident. I think at least 100 basis points is still a target that we have for next year.”

Growth will come, they have expanded parts availability, improved pricing to be in line with the market, and improved time to serve. Customers are coming in finding what they need in stock with faster service.

“We maintained focus on executing actions within our control, which has translated to sequential improvement in core operational KPIs, including NPS, time to serve, and attachment rates.”

That is a recipe for success and the results are coming in Pro, they will come in DIY as well. Watch consumer sentiment survey’s for improvements and that should be a sign pointing to better DIY.

Management was clear there were already seeing “trends during the first four weeks of the quarter are tracking slightly ahead of trends in the final weeks of Q2.”

Despite the quarter weakness management reaffirmed full year guidance.

“This includes comparable sales growth in the 1%-2% range, which considers continued spending pressure in the DIY channel, offset by ongoing strength in the Pro channel, along with higher same-SKU inflation due to increased commodity costs.”

Operating income margins will expand 1.1% to 1.5% YoY helped by merchandising and lower SG&A partly offset by supply chain investments.

They do see the Q2 weakness as something that needs addressed though as they mentioned, “implementing a focused action plan aimed at strengthening execution across our operational KPIs and driving higher customer engagement to deliver better transaction performance in the second half compared to trends during Q2.”

In addition to reaffirming the full year guidance they made it clear there are no changes to their strategy or medium term 7% adjusted operating margin guidance.

Merchandising

A key part of their plan was increasing the number of parts available and the pricing they can source them at.

“Halfway through this year, we have added approximately 80,000 new SKUs to our assortment catalog, building upon the 100,000 new SKUs we introduced last year. Through comprehensive category reviews, we are strengthening relationships with existing vendors and identifying opportunities to improve margins, while also partnering with new vendors to further expand our selection of parts.”

Specifically targeting the DIY customer they are trying to lean more into their rewards program, targeted incentives, refining SEO, and improving advertising campaigns.

“We are on schedule to complete the full deployment of a new pricing framework for both DIY and Pro segments by year end.”

Essentially they are improving internal and industry price tracking so they can both stay competitive and have better targeted incentives. This improved data will also allow them to cut back on other promotions that are not driving results and vary from store to store.

YTD merchandising has contributed 1% of margin expansion. They expect more to come through the year.

Supply Chain

As of Q2 their DC consolidation is complete. 2 years ago they had 40 distribution centers, today they are down to 15 all operating under a single system.

YTD they have also opened 5 market hubs bringing the total to 38 and raised expectations to open 15-20 total this year with 70% of stores being in reach of one by the end of the year. The goal is still to have 60 open by mid 2027 servicing 100% of stores..

“Regarding DC productivity, our team is concentrating on…. streamlining and standardizing operations… these actions will yield greater operational efficiency and facilitate improved product flow into and out of the DCs. During the second quarter, we completed 25% of the identified process improvements and remain on track to systematically implement the remaining process changes by mid-2027.”

They are working through the same process with these hubs as they did with the DC’s. They are standardizing the operations so no matter where employees go they know the process and have systems to make them smooth.

“Another critical component of supply chain productivity is transportation optimization. We are currently rebidding all of our carrier contracts, and we expect to consolidate our volume with 70% fewer carriers. This initiative is expected to generate tens of millions of dollars in cost savings, which will support margin expansion in 2027.”

Store Operations

In Q2 they continued to see improvements from all the work done so far.

“Net Promoter Scores, have improved to nearly 80 points from the high 60-point range in the same period last year, which suggests that our service enhancements are resonating with customers. In-store attachment rates have improved to nearly 30% from the mid-high 20% range in the same period last year, which contributes to unit share gains. Average time to deliver Pro orders consistently track below 40 minutes during each week in Q2.”

The improvements are good and management continues to look for more ways to get better and implement tech. They completed a large study of the time workers spend doing different tasks, how valuable they are for a customer, and expect that data to inform better decisions.

A key downside protection lever we haven’t talked about yet is leverage and balance sheet. In Q2 they got leverage down to 2.1x net debt to EBITDAR. Down from 2.4x last quarter and paid down debt for the first time in a while.

In any turnaround they need the liquidity to ride out the turn, Shane O’Kelly has done a fantastic job at AAP and plans on working towards an investment grade rating.

“to get to investment grade with Moody’s, about three jumps, and S&P, it’s two jumps. This is a journey that we’re on. It’s been positive conversations.”

Final Thoughts

Despite headline misses and a softer DIY consumer, inflation, and progress still to be made, management is executing on what they have under their control.

Shane has the experience to run a business that’s reliant on supply chain. It’s only a matter of time before they’re able to get margins up to 7%, generate hundreds of millions in free cash flow, and re-rate up to a level that I know this business is worth.

Short term the market moves based on emotions. Long term it will move based on fundamentals. Today the market told us that they don’t have the confidence that management’s going to be able to actually make this turn.

When I look at the numbers and the early results of all the changes management has made, Advance Auto Parts is well on its way to doing what it needs to get back to continue growth.

DIY customers want parts available at good prices and experts to talk to.

Pro customers need parts available and quickly.

AAP has been working hard on both of those. NPS scores are up, pricing is better aligned with the market, promotions are targeting what people want, time to serve is down, and part availability is up.

They will get back to growth soon and margins will continue heading up.

No changes to my thesis.

To read my full disclaimer click here.

PS. this takes me very little extra time to do this format.

PPS. I will be improving the Sentiment & Positioning section over time, it is an area I am still learning. For now it serves as a gauge for what could happen going forward and where crowded or overlooked areas are.

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Accendra Health, formerly Owens and Minor, is a home health company that supplies medical equipment and disposable supplies. Think respiratory therapy, sleep apnea devices, diabetes care, and wound/ostomy/urology products.

The last time I did a full deep dive on them was in January, right after they sold off their old hospital distribution business and became a pure play home health equipment company carrying a lot of debt.

My thesis was fairly straightforward. They would use the proceeds from that sale to buy time, stabilize, and start generating cash. The stock and bonds were priced like the company might not survive when I thought it would.

They reported Q2 earnings on August 10th and the stock dropped over 50% but the picture didn’t fall apart all at once.

It came apart in pieces then it all crumbled when I got the full picture.

Any way I put it though, I am selling at a ~75% loss.

I’m Kyler Johnson, a husband, dad, and self taught investor of 7 years.

27K+ subscribers and 303% returns from Jan 2024 to July 2026 buying turnarounds.

I will be open and honest about my mistakes, if this isn’t proof I don’t know what is.

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I’m Kyler Johnson, a husband, dad, and self taught investor of 7 years.

26K+ subscribers and 303% returns from Jan 2024 to July 2026 buying turnarounds.

In this article I cover Cooper Standard ($CPS) Q2 2026 earnings.

On March 20th 2026 I wrote a Cooper Standard deep dive laying out my thesis on the company out to year end 2028 and their path to $150+.

That deep dive laid out three things that need to happen the thesis to work:

• Organic growth driven by innovation and hybrid/EV mix shift.

• Continued cost cuts and efficiency gains.

• Rising US OEM vehicle production.

Here's how things are moving after Q2 earnings, what management is saying about the road ahead, and what it means for the thesis.

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I’m Kyler Johnson, a husband, dad, and self taught investor of 7 years.

This isn’t a model portfolio. It’s me writing about the actual decisions I’m making with my own money.

Another month down so time for a monthly update.

Lets start with performance.

• 2024 Returns: 85.23%

• 2025 Returns: 118.83%

• 2026 YTD Returns: -1.24% vs S&P 500 9.42%

• LTM Returns: 24.82% vs S&P 500 18.16%

• Since Inception (01/01/2024): 300.29% vs S&P 500 57.05%

• Compounded Annual Rate of Return Since Inception: 71.06% vs S&P 500 19.09%

I am very happy with how my portfolio has performed since 2024 but I understand, as YTD shows, I will not outperform all the time. Skill as an investor is proven through long term outperformance.

These returns are unaudited but almost every step has been documented here on Substack.

Want to skip down to portfolio commentary? Click here.

General Market Commentary

If you’ve been following me for a while, you know that my commentary is not my typical thing so you won’t see me attempting to become a macro expert.

What I do like to look at positioning and sentiment to determine where opportunities are and what to avoid.

Here is what I am looking at. Let me know what else you would like to see.

July Bank of America Global Fund Manager Survey

We all saw how this played out in July. Semiconductors ($SOXX) -21.2%, South Korea’s entire market -22.19%. Peak to trough -29.25% and -35.42% at one point during the month respectively.

Chasing parabolic moves like this means paying for a promised future as if it has already come.

No one wants to own Staples or Discretionary stocks right now which is why so many have fallen into deep drawdowns.

Lagging Countries

Over the last 12 months here were the top 10 worst performing country ETF’s.

1. Indonesia ($EIDO) -28.37%

2. Qatar ($QAT) -11.60%

3. United Arab Emirates ($UAE) -5.54%

4. India ($INDA) -5.40%

5. Kuwait ($KWT) -4.85%

6. Saudi Arabia ($KSA) -1.60%

7. China ($GXC) -0.08%

8. Philippines ($EPHE) +0.55%

9. New Zealand ($ENZL) +3.93%

10. Germany ($EWG) +4.13%

Poor performance does not automatically mean investors should flock to these countries but it does mean there could be good companies sold off irrationally low. A good place to start looking.

FactSet

2027 estimates continue to tick up. The jump in 2026 earnings is largely inflated by mark to market gains from names like Google and Amazon, not actual operating profits. Though earnings have still been very good even excluding those.

Miscellaneous

Looking at the sentiment survey I found it interesting the last 12 months or so we are seeing high bearishness and bullishness at the same time. Typically the market swings either mostly bullish or mostly bearishness.

I think it reflects the reality of a market where tech has largely been running the show with almost everything else lagging behind. Tech was reaching extreme levels of bullishness but in many other areas it was clearly not the same.

I am actively working on building out a tool to search out more positioning and sentiment data so expect more in coming months!

Subscribe now

Not sure you are ready to get access to my live portfolio, paid resources, and other commentary? Feel free to read some of my other content to get familiar with who I am, what I offer, or my investing process.

Below are also a couple free reports on companies I didn’t buy so you can see my process in action.

About a week ago I announced a big change where I added the DeepValue Capital Premium hub. It contains the live portfolio, history of trades, and a whole lot more that would in the past have been here all in one package updated daily.

If you want to read about everything that’s included in there and some other smaller updates that I made, go ahead and check out this article linked here, otherwise find that premium hub below.

Portfolio Commentary (Big Changes)

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I’m Kyler Johnson, a husband, dad, and self taught investor of 7 years.

26K+ subscribers and 259% returns from Jan 2024 to June 2026. I buy turnarounds and good companies at great prices.

This isn’t a model portfolio. It’s me writing about the actual decisions I’m making with my own money.

Subscribe now

On February 10th I wrote about PayPal in a deep dive laying out why I believe price had gotten significantly dislocated from value.

In that deep dive I said the following are needed for PayPal to succeed:

• Branded checkout to avoid collapsing.

• Other segments to grow profitably.

• Buybacks to continue.

In this article I break down how things are moving after Q2 earnings, what management is saying about their future, their willingness to accept a buyout, and what it means for shareholders.

Short version, there is still room for improvement but the quarter checked all of my boxes.

Financials & Data

Earnings came in really solid for PayPal with a beat on top and bottom line and a guidance raise. Here are some charts on how the numbers are moving.

Additional Venmo Metrics:

• Debit card monthly active accounts grew more than 50% YoY.

• PayPal and Venmo debit and tap to pay spend grew more than 60% YoY.

• Pay with Venmo TPV grew 44% YoY.

• Customers using both Venmo debit and Pay with Venmo generate more than 9x higher average revenue per account than P2P only users, and that group roughly doubled in the past year.

Venmo, Braintree, BNPL, and Branded Experiences all drove strong TPV growth but that growth was concentrated in the US. International TPV did decelerate sharply in the quarter, though management does see improvement coming in future quarters and revenue growth actually accelerated QoQ with branded growing strong but offset by PSP.

VAS was the big laggard for their topline and a little disappointing. I want to see them accelerating growth there in coming quarters.

FCF generation, buybacks, and transactions per user are bright spots as well. The company is executing here and clearly their engaged users are seeing the value. They are coming back more and more to use PayPal.

Now if we can see total users and value added services start growing, PayPal will really be firing on all cylinders. Really though we are looking at a company setting records.

Record TPV, record revenue, record TTM adj FCF, several spots growing double digits, and buybacks eating up shares at a rapid pace.

There is a lot to like right now and when you actually look at the numbers you get a very different picture than the melting ice cube story the market is selling.

Is a buyout on the table?

I am sure most of you were curious what PayPal would say about the Stripe buyout offer. CEO Enrique Lores said this,

“As a matter of policy, we don’t comment on market speculation or potential M&A discussion. As a board and management team, our responsibility is to maximize long-term shareholder value. We believe that executing the transformation strategy I have outlined will create significant value for our shareholders. That remains our focus.”

“At the same time, we remain open and objective in evaluating opportunities. If we see a path that we believe would create superior value for our shareholders than executing our current strategy, we would, of course, carefully consider them.”

This is what I expected from Enrique and the board.

Reports put Stripe’s offer at $60.50 per share, about $53B in total. For scale, management guides to at least $6B in adjusted free cash flow this year and they already generated $3.5B in the first half. So call the offer roughly 9x this year’s free cash flow guide, and that guide looks conservative. You don’t sell a cash machine at a double digit yield like that.

Enrique’s own contract tells you where they might consider an offer. Per his offer letter, his one-time stock bonus package carries a $25M target value, and his Form 4 shows it converted into 587,168 units. Divide the two and the baseline price for the awards comes out to $42.58 per share. The bonus pay nothing unless the stock gains 60% from that baseline, which is about $68, measured on a 60 day average between March 2029 and March 2031. At $100 he earns 175% of the award. At $125 he earns 250%.

In a sale, the deal price gets measured against those same hurdles, so a $60.50 offer does not even reach the bottom rung of his ladder. I don’t think the board takes anything serious below $70.

I am not sure Stripe is willing to go that high but who knows, if they don't think a company roughly their size is worth at least half their value people might have to reevaluate how much Stripe is worth. And I am not sure they will like that outcome.

Looking Forward

Like I mentioned before PayPal raised full year guidance. Below you can compare Q1 vs the updated Q2 full year 2026 guidance.

Longer term PayPal's general plan is the following. Use the image to think about when to expect more growth and margin expansion, IE 2027-2028, which matches the timing of cost saving initiatives as well.

Going into a little bit more detail on other initiatives. If you remember last quarter, Enrique Lores discussed reorganizing the business around three clear divisions versus what had been a very disorganized business with unclear roles for managers.

This structure is going to let them actually execute on the areas that they want to, with managers that have more defined roles and clear metrics that they’re working towards.

One clear area in the near term where they’re focusing is consumer financial services in Venmo. Venmo historically has been under-monetized and their goal is to expand the offerings into their higher-margin products. This mainly includes BNPL and credit today but will expand over time.

One specific initiative in BNPL Enrique highlighted was partnering with Amazon to launch this service on their platform in Germany and Austria soon.

The result of that focus will be growing transaction margin $’s (think of it as gross profit) and accelerating Venmo growth.

Another area of focus I was happy to hear is their ads business, which is backed by unmatched data to help merchants target customers and track the real results from those ads.

That business alone will be worth billions.

A specific initiative also in other value added services is driving adoption of current available products from Braintree customers. Much of the work creating products has been done. They just need to get their legacy customers using them.

Agentic payments they clearly labeled a long term opportunity.

Listening to the call and last quarter as well, Enrique’s philosophy is clear. Simplify the business and cut out fat so you can move more quickly and then invest in the areas with tailwinds. They’ve largely been talking about stabilization of branded and all the investments are around:

• Venmo

• Financial Services

• Value Added Services (VAS)

• Payment Service Provider (PSP)

They’re seeing a lot of growth potential in those areas and are looking to find ways to accelerate it. That is a big shift vs the old core focus on what has been a very difficult branded business.

And this isn't aspirational. Financial services already makes up close to 20% of PayPal's total transaction margin dollars and is growing double digits. Management even said financial services revenue is on pace to grow at least twice as fast as the total company this year.

Honestly I think it’s a strategy that will work well for the company. They’ve tried really hard to get branded growing but it’s a more saturated competitive market. They’ve got a giant user base that’s under-monetized right now in other areas. Buy now pay later markets are growing quickly and value-added services are as well so they’re going where the growth is instead of trying to generate their own. It is easier to row with the current.

In the near term as well they are focusing on actually rolling out the other products that have been completed but never fully adopted. That will be the biggest driver for near term improvement.

Growth, though, isn’t the only initiative that management has been tackling. They reiterated some details on how they expect savings to come in, with $400M in run rate savings expected already by year-end 2026 largely by simplifying the company.

A specific action that I find is common with many of the turnarounds that I look at is simplifying the organization. Enrique is doing just that stating, “we are on track to remove three organizational layers across the company ….this year.”

Operating income was down 8% this quarter and EPS declined slightly, and I want to touch on it quickly since other investors are certainly seeing it. The reason is simple. They're investing ahead of the cost savings. We'll likely see more pressure in coming quarters, but it should start to flip as we head into 2027.

PayPal is really big so this full turn will take time. I expect we will start to see material change as we get into 2027, based on all the discussion from savings initiatives and investment in growth.

One of the highlights that I think might get lost in everything was an answer to a question in the middle of the Q&A. Management said that they expect all of these initiatives to drive a “double-digit earnings growth profile over time.”

Just ignore that, all the records, squint hard and I might be able to see how they look like a dying company. Maybe.

Final Thoughts

Back in February I said PayPal needed branded checkout to avoid collapsing, other segments to grow profitably, and buybacks to continue.

Branded is stabilizing, though they need to keep proving it in coming quarters and they can continue that by rolling out products that were developed under Alex Chriss but never fully adopted by customers.

Other segments are delivering.

Venmo and buy now pay later are growing really well. I just want to see value added services pick back up.

Either way though the cash keeps coming, they are buying back shares while they're cheap, and cutting costs so they can afford the investments needed to continue to stabilize branded and lean into the areas that are already working.

The business is not the melting ice cube the market presents it as and that is even before their ads business picks up.

So for now I will happily be holding my position, and if we get a good pullback, adding even more.

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I wasn’t disappointed by the company I found. But a good story and a good investment are two different things, and TMDX doesn’t clear the gap between them for me.

Recent quarters make TMDX look like a 20%+ free cash flow business. Strip out abnormal fluctuations and the real current figure is closer to 11%.

That gap makes all the difference to me, and it's why I dug into everything below. Starting with what TMDX actually does.

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Ticker: TMDX

Market Cap: ~$2.59B

TTM Revenue: $636M

Reported P/FCF: 17x

What Transmedics Does

Transmedics is an innovative organ transplant company that gets donor organs to patients quickly and in a healthy state. In 2025 they completed 5,139 donor organ cases.

They developed their Organ Care System (OCS) to replace cold storage systems that only give organ’s minimal viability window.

Cold storage is a rudimentary approach to organ preservation in which a donor organ is flushed with cold pharmaceutical solutions, placed in a plastic bag on top of ice and transported in a cooler. Cold storage subjects organs to significant injury due to a lack of oxygenated blood supply, or ischemia*. Further, cold storage does not allow physicians to assess organ viability and lacks the ability to optimize an organ’s condition once it has been retrieved from the donor. Time-dependent ischemic injury has been shown to result in short- and long-term post-transplant clinical complications and, together with the inability to assess or optimize organs, contributes to the severe underutilization of donor organs.

With the use of cold storage, the majority of lungs and hearts donated after brain death go unutilized, and almost no available lungs and hearts donated after circulatory death are utilized.

Source: TMDX 10K

*^{Ischemia is a restriction in blood supply to tissues, whereas lack of oxygenated blood (hypoxia/anoxia) is the result of that restricted flow.}

With their technology hearts went from lasting 4-6 hours to 12, lungs from 4-6 to 12-24, livers from 12 hours max to 12-14+ hours.

And just as important when the organs arrive a higher percentage are still viable and in a much healthier conditions vs cold storage leading to higher success rates and less complications.

They are able to achieve such results because their OCS is designed to keep organs functioning as if they were in a body still. In their 10K they describe their OCS as, “maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile.”

This is a unique system on Transmedics has. According to their 10K OCS is the the only “FDA approved, portable, multi-organ, warm perfusion technology platform. All three of our products, OCS Heart, OCS Lung and OCS Liver, have received Pre-Market Approval, or PMA, from the FDA, for both organs donated after brain death, or DBD organs, and organs donated after circulatory death, or DCD organs.”

So now you see how they keep organs viable but they still need to get to the patient. To make that happen TMDX has a National Organ Care System Program (NOP). Essentially a specialized logistics network complete with medical professionals they hired and jets they own to get organs anywhere they are needed in the US.

Without Transmedics transplant centers are responsible for the work of getting the organ onsite which requires additional specialized staff and large expenses. TMDX brings a lot to the table allowing better organs to arrive from further away without the need for that extra staff and cost in better condition than traditional methods.

On Transmedics side they can share the cost of owning the jets and hiring the staff between thousands of transplants performed each year resulting in lower costs for them than a transplant center would incur.

The NOP today has coverage all over the US, with TMDX's own fleet now covering ~82% of NOP missions requiring air transport. It really started to take shape in August 2023 when they acquired a charter flight operator, Summit Aviation. The fleet has been built up since then, growing from 14 aircraft in 2024 to 22 today. Prior to the Summit acquisition, their NOP service was only health care specialists that could coordinate with transplant centers.

Today with their logistics network reaching country wide and vertically integrated so they can be exactly where they are needed. This means more donated organs get used which is more lives saved and more business for hospitals.

Over 95% of revenue comes from the US but as of 2025 NOP expansion has started in Europe, particularly Italy.

How Transmedics Makes Money

TMDX operates through two models:

• Transplant centers completely outsource procurement and logistics to TMDX. (NOP)

• Transplant centers are trained on OCS systems and keep an inventory of all disposable products needed on hand. (Direct Acquisition)

Most of revenue today comes through NOP

TMDX bills based on a standardized national price for NOP/OCS services, with distance-based variable layered on top and a discount for failed retrievals.

The ceiling of what they can bill though comes from insurance.

• Medicare reimburses hospitals for organ acquisition costs, which include organ preservation and transportation costs, on a reasonable cost basis.

• Medicaid reimbursement changes state by state and can be either lump reimbursement (global) or a separate check for organ acquisitions costs.

• Private insurance can be either lump reimbursement (global) or a separate check for organ acquisitions costs. Either way typical reimbursements are negotiated agreements.

Nearly half of U.S. lung, heart and liver transplants are covered under the Medicare and Medicaid programs, with the rest being reimbursed through private insurance.

Why is the Stock Down?

As of July 20th TMDX was down almost 60% from their mid 2024 high but today’s story really only starts in March of 2026. By then they had clawed back most of the losses down ~15% from all time highs. Only to tumble for the second time.

I will be covering what those recent issues have been.

• Sentiment: In March of 2026 markets tumbled on higher oil prices and the geopolitical uncertainty the Iran war brought. TMDX was not immune and as a high flying growth stock it fell over 30% that month.

Then came the concern that make me question Transmedic’s future from their Q1 2026 earnings on May 5th.

• Margin Compression: Net margins came in at 4.2% down from 17.9% in 2025 driven by higher COGS, R&D, and SG&A all of which have grown much faster than revenue in the last year.

So that begs the question…

What are Transmedics Normal Margins?

Read more

This one though is a pass. Even after the fall, and even granting management some very generous assumptions, the return at today’s price sits below my hurdle. The reason is not the business, which is genuinely good. It is a structure that decides how much of this company’s success actually belongs to you, and it is the part that is easy to get wrong.

I know, because I got it wrong too. I first wrote about KPG back in October 2024, and I have to laugh at that article today. I had clearly not done enough work to understand the ownership structure and how the profits get divided. This time we are going to walk through it properly.

* All figures are in Australian Dollars

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Ticker: KPG.AX

Market Cap: ~$180M

TTM Revenue: $147M

Reported P/FCF: ~6.3x

What Kelly Partners Group Does

The business itself is very simple. They charge fees for accounting, tax, and wealth services. Small businesses that need their books put together. Owners that need tax planned. Individuals that need wealth advisory and estate work. About 95% of revenue is tax and accounting. Roughly 85% is earned in Australia, with the US at 14% and growing.

Brett Kelly founded the firm in 2006 and has run it since. The model is straightforward. Acquire small accounting practices doing $1M to $5M in revenue, occasionally a larger one at $5M plus, and pull them into Kelly Partners. Layer their operating model on top, move the back office into the group. Then do it again.

63 partnerships since inception. About one a year before the 2017 IPO, about five a year since, and six in the first half of FY26 alone. That approach took revenue from $30M in FY17 to $135M in FY25. About 20% a year, up roughly 350% since the IPO, running at $147M today. The underlying firms grow organically around 4 to 5% a year, about what the industry gives you. The rest has been bought.

And the tailwinds behind the deal flow are real.

• Tax codes keep getting more complex, and globalization keeps adding filings.

• The accountants who own these small practices are aging into retirement, and AI has added one more reason to sell to a bigger platform. Management says inbound demand for partnerships has been overwhelming, which lets them pick the best fits rather than chase deals.

The deals are structured with some cash up front, some debt, and contingent payments tied to revenue. That last line is important.

Accounting is a relationship business, and tying that payment to revenue makes the selling partner responsible for walking every client relationship through the transition. If clients leave, the seller pays for it. A great structure to keep the books of business they buy intact.

Management’s stated goal is $500M in revenue by 2031, from $147M today. Whether that goal is already in the price, or the market is giving them no credit for it, is what the rest of this article works out.

The Complex Operating Structure

Here is where my 2024 article fell short, and where most coverage of this company still does.

Most of the time KPG does not buy 100% of these firms. It buys the slimmest possible majority, 50.1%, and leaves 49.9% with the operators running the practice. That is the Partner-Owner-Driver model, and it is a genuinely smart retention structure. The people doing the work stay owners.

But follow what it means for you as a shareholder. KPG reports 100% of revenue and profit at the top line, then splits it later. Right off the bat, the profits of every operating business divide roughly 50/50 between you and the partners.

Then the group layer sits on top of your half, and the group bears three large costs the partners do not.

• Interest on the debt, because debt is largely what funds the acquisitions

• The back office of running a public company and integrating all these firms

• Capex

Stack it up and the numbers change character completely. The group converts about 22 cents of every revenue dollar into operating cash flow. My software looks at that and shows free cash flow margins in the high teens to low 20s. That number is real. It is also not shareholders’.

Where They Fall Short

What Reaches Shareholders

Walk the actual FY25 cash, straight off the statutory cash flow statement.

• Net cash from operating activities came in at $31.3M, already net of interest paid

• Subtract lease repayments of $6.4M and you are at $24.9M

• Subtract capex of $2.4M, leaving $20.4M

• Subtract distributions to the partners of $19.1M, and what remains for shareholders is $3.4M

$135M of revenue in. $3.4M out to you. That is the bridge, and you can run it for every year since the IPO.

Two lines swing that bridge around from year to year. Partner distributions are a budgeted draw rather than a profit share, so they lump, and FY25 paid partners 115% of what they actually earned. Capex has bounced between 1% and 11% of revenue, averaging a touch under 3%. Normalize both and here is the trailing twelve months.

Run that for every year and the picture stabilizes into something you can actually read. From FY19 through FY21, the unlevered margin ran about 11% of revenue. From FY22 onward it has printed 6.5% to 7.7% every single year. Averaged over FY22 to FY25, the normalized margins are 4% levered, meaning after interest, and 6.9% unlevered, before interest.

The natural read is that something broke in FY22. The honest read is the opposite. FY20 and FY21 were the anomaly, flattered by COVID era cuts to central costs, and when that spending came back, margins went back to what the model produces while acquiring at this pace.

To be fair, the playbook does work at the unit level. The margins of individual firms demonstrably improve after they join. But the group’s own earning power slides sketch operating margins of 30% to 35%, the actual figure has run several points below that for years, and management has called margins strong the whole way. The gap only closes if the deal pace slows relative to the base. Brett Kelly has shown zero intention of slowing down.

So what are you paying today? At the normalized 4% levered margin, $146M of trailing revenue produces $5.8M of levered free cash flow, against a market cap of $177M. Over 30x.

Now, in fairness, expensive is allowed when the returns are exceptional. This company has grown 20% a year for seven years, and management’s own return on invested capital calculation has run between 20% and 31% for nine years, call it mid 20s.

For a normal company at that price, the question is simple. Can they keep it going? For KPG the question is twofold. Can they keep it going, and how much of it actually belongs to you? For now I am going to set the first question aside and give them the benefit of the doubt. The second question is where this company has been misunderstood, including by me.

The Company’s Return and Yours

Management publishes two return numbers, and the gap between them is the most important thing in this article.

The first is Group ROIC, 24.8% in FY24 and 23.0% in FY25. The group number is calculated on everything at once. It includes the profits that belong to the partners, and it is earned on capital that is substantially borrowed.

The second number is new in the FY25 presentation. Parent ROIC, the return on the capital that belongs to ASX shareholders specifically. 21.5% in FY24. 16.6% in FY25.

Why is the shareholder’s return lower than the group’s? Their own disclosures answer it. In FY25, operating profit before group costs split almost exactly down the middle. $13.1M to the partners, $13.9M to the parent. Proportionate, just as the 50/50 ownership suggests.

Then the parent’s half, alone, paid the interest, the additional investment in the back office, the deal and review costs, the tax, and the depreciation. $10.5M of costs the partners never touch. What reached shareholders was $3.4M.

Both halves earn the same return inside the operating businesses. Only one half pays the group’s bills. That is the entire gap between the company’s return and yours.

Two fair caveats push that 16.6% in opposite directions, part year timing on new deals flatters it downward, generous add backs flatter it upward, so call the honest return on shareholder capital mid teens.

Mid teens on shareholder capital, plus 4 to 5% organic growth that costs almost nothing to achieve, is a genuinely good business. It is not the 27.5% a year you get by adding the group's 23% return to organic growth, which is how their own deck frames it. Keep that number in hand, because it decides what the growth is worth paying for.

Give them Everything

So let me hand management every assumption and see what today’s buyer earns.

Grant all of the following.

• They hit $500M of revenue by 2031. That means maintaining the pace they have run since 2020 for another five years. Brett Kelly owns roughly 39% of this company, has hit the targets he set before, and has real prowess. It is possible. It is certainly not easy.

• Margins normalize on schedule. At a 7% unlevered free cash flow margin to shareholders, the 2031 business produces about $35M.

• The buildout stays debt funded, as it has been. Net debt grows to roughly $280M.

• A buyer in 2031 pays 20x unlevered free cash flow for the whole company.

Why 20x? Think about what a buyer of the whole company is doing. They pay off the $280M of debt and own the business outright. With the debt gone, the debt funded acquisition engine goes with it, and what they are left holding is the organic business, sticky compliance work growing 4 to 5% a year. 20x unlevered free cash flow is a full price for that, and it is not a stingy grant. Measured against the levered cash flow with the debt still in place, the same equity price works out to about 32x. Plenty of credit for growth is already inside it.

Run the math. 20 x $35M is $700M for the whole company. Subtract the $280M of debt and the equity is worth about $420M in 2031. Today’s market cap is $177M. That is 2.4x your money over five and a half years, or about 17% a year.

Seventeen percent a year is a solid return. Nothing to scoff at. But look at what it took to get there. The full $500M, the normalized margins, a full multiple at the end, and a path that runs through a single founder, a growing debt load, and five more years at a pace that is hard to sustain. A solid return for everything going right is below my hurdle, with no cushion for anything going wrong.

Where I Land

Pass at today’s price. The business is good, but the return is clearly below my hurdle rate, even after giving them the benefit of the doubt on some lofty assumptions.

Around $2.50 a share is where I would start to get interested. At that price the same give-them-everything math pays about 27% a year, and the harder questions become worth digging into. Whether they can actually hit those targets. What AI does to a business built on compliance work. I am not sure we get there.

Until then, this one is a pass, worth keeping an eye on margins and growth. A great collection of businesses, a founder with conviction, and a structure that hands the public shareholder a few cents of every revenue dollar. The market fell more than 70% and still prices this company for a lot of things going right.

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The market’s story is AI is coming for engineering software, and Bezos has raised $18B to do it.

Here’s the business the market is burying.

Their software builds working replicas of jets and cars inside a computer so companies can test them against real world physics before building a real world prototype.

Will the wing hold?

Will the passenger survive the crash?

Boeing and BMW bet billions on the answers before a single part gets made.

Through the entire decline, revenue, earnings, and free cash flow all grew.

And after all that, down 65%+ with a business still growing, it’s a pass. Because the price still isn’t low enough.

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How Dassault Makes Money

Dassault did €6.2B in revenue in 2025, serving 390,000+ customers across manufacturing, pharma, and retail. It started inside a French fighter jet maker in 1981 and has been selling virtual engineering for decades.

Three companies dominate engineering software globally, Dassault, Siemens, and Autodesk, and Dassault built the category.

What Customers Are Buying

Dassault sells four things.

The brand names get confusing fast, so here’s the map. Everything they sell does one of four jobs, for one of three customer types.

Industrial Customers (~50% of revenue): The Boeings and BMWs and their suppliers, paying for the platform their entire engineering department runs on. When Airbus designs a jet, the engineers on that program work inside Dassault’s software, and so do the suppliers building its parts.

Mainstream Customers (~23% of revenue): They pay for lighter ready out-of-the-box versions, mostly SOLIDWORKS. The machine shop designing a bracket runs it the same way the giants run CATIA, at a tenth of the price.

Pharma Companies (~17% of revenue): They pay MEDIDATA to run the data behind clinical drug trials, the patient records and study results that decide whether a drug gets approved.

Services (~10% of revenue): The consultants who install the software and train the engineers.

Underneath all four, what customers are really buying is avoided cost. Every design flaw caught in software is a physical prototype that never gets built and a recall that never happens.

That’s why a company will pay thousands of dollars per engineer per year, decade after decade. The bill from Dassault is a rounding error next to what it prevents.

How They Charge Customers

Seats, ~74% of revenue. One engineer, one subscription, one year. A SOLIDWORKS seat runs a few thousand dollars annually, a high-end aerospace seat many times that, and large customers sign multi-year contracts covering hundreds of seats. Everyone pays upfront, so Dassault runs on its customers’ cash.

Old licenses, ~16% of revenue. A one-time license plus annual maintenance, and the most deferrable purchase a customer makes, which is why this line took the hardest hit in 2025 when auto budgets froze. Underneath the cycle it fades slowly anyway, since everything new Dassault sells, the cloud platform, Medidata, the AI layer, is subscription, so new money flows to the subscription line while this one lives off its installed base. This is the one true transition in the numbers, gradual and mostly by mix rather than by decree.

The new AI layer, <1% of revenue. Announced this February, read by the market as Dassault tearing up its pricing model, and a part of why the stock got repriced. What it actually is, and how the market got it wrong, matters enough that it gets its own section.

The Economics

The economics of all this are hard to beat.

Gross margins run 84%, because once the software exists, the next seat costs Dassault almost nothing to deliver. The one big real cost is building the software itself, with roughly 20% of revenue going into R&D every year.

And since customers pay upfront, the cash arrives before the work.

That combination, sticky software at 84% margins with a fifth of every sale funding next decade’s product, is the reason the stock has commanded a median 30x EV/FCF over the last 20 years.

Where New Customers Come From

Large manufacturers arrive through multi-year enterprise deals, and often they aren’t so much won as inherited. When Boeing runs CATIA, Boeing’s suppliers run CATIA.

Small manufacturers don't buy from Dassault directly. They buy from local resellers around the world, which handle the sale, the training, and the support in their own markets.

This funnel matters more than its size would suggest because customers grow through it. The startup that begins on a SOLIDWORKS seat becomes the mid-size manufacturer that buys the platform, so today’s small accounts are part of where tomorrow’s large ones form. That gets important later in this article.

Pharma companies arrive study by study. Every new drug trial needs a data platform, and MEDIDATA gets picked for more of them than anyone else.

Why Businesses Choose Dassault and Why They Stay

Companies choose Dassault because it has become the standard.

Its software has handled the largest, most complex machines in the world for four decades, regulators accept its test results because of the validation history behind them, and engineers still come out of school already trained on it.

When a company picks Dassault, it’s picking the proven certified path engineers were trained on.

Why they stay is even easier to explain. The software keeps getting more useful the longer a company runs it.

Every part ever designed, every test ever run, every certified version lives inside these systems, so each year of use makes the next year more valuable. Twenty years in, that history is one of the company’s most important assets, and it lives in Dassault’s software. Switching would mean walking away from it, retraining every engineer, and re-validating years of work, just to move to a tool that generally does the same job.

All that means renewal is the default, and it shows in the numbers. 82% of software revenue is recurring, €4.6B that arrives before a single new deal gets signed.

The best part is that staying put still generates growth, because a big piece of the growth comes from existing customers upgrading or growing. Thousands of companies still run Dassault’s older standalone tools, and Dassault is moving them onto the connected 3DEXPERIENCE platform, where design, testing, and records work together and the subscription costs more.

That platform revenue grew 10% in 2025, against 4% for the company overall, excluding currency. And the upgrade is still early. By Dassault’s own measure, only 41% of the revenue that could be on the platform is there today. The other 59% is the runway.

What Went Wrong

First, the shape of the fall.

The stock peaked in late 2021 at ~55x EV/FCF. 2022 cut that hard as rates rose, and then it traded flat from late 2022 until mid-2025. That's when growth estimates started taking real hits, and it has been sliding on weaker outlooks ever since.

Growth Slowed

Dassault's growth broke in 2024. The company grew 9% in 2022 and again in 2023, then 5% in 2024 and 4% in 2025, all excluding currency. February's guidance came in at 3 to 5% for 2026, the third step down in a row.

Three drivers sit under that slide.

Their biggest customers cut spending. Transportation & Mobility is Dassault’s largest industry vertical, and European automakers spent 2025 slashing engineering budgets.

Medidata broke. Pharma companies started fewer clinical trials for the second year running, and Medidata bills study by study, so fewer studies means less revenue, immediately. Life Sciences, a fifth of the company, fell 2% in 2025, its second consecutive decline.

The low end keeps leaking. Autodesk’s Fusion sells for roughly $700 a year against a few thousand for SOLIDWORKS, and it’s winning the newest, smallest shops. Dassault’s Mainstream segment grew 2% in 2025 while Autodesk’s manufacturing products grew 17%, and even after adjusting for an accounting change that flattered Autodesk’s number, the gap is wide.

Price is only half the attack, though. The other half comes from Onshape, which was built by the same people who created SOLIDWORKS in the first place. SOLIDWORKS is desktop software from the Windows era, where one engineer works on a file at a time and sharing means file servers and emailing versions around. Onshape runs in a browser like a Google Doc, with the whole team working in the same model at once. A five-person startup with no IT department doesn’t agonize over that choice.

Listen to how users complain about SOLIDWORKS and you’ll notice they almost never say it can’t do the work. They say it crashes before saves, that rebuilding broken models eats real hours, and that setting it up feels like software from a different era. Even the loyal base is uneasy. Each year’s list of new features keeps getting shorter, and longtime users openly ask whether Dassault’s development dollars have quietly moved to the platform.

The part that compounds is the pipeline. For twenty-five years, engineering students graduated fluent in SOLIDWORKS and asked for it at their first job, which is a big part of how it became the default. Now high school robotics teams and university programs are teaching Onshape and Fusion instead, because they’re free and run in a browser. That flywheel took decades to build, and it’s starting to spin for the other side.

None of this shows up as decline yet, and it may not for years. Decades of legacy files and engineers with ten thousand hours in the tool protect the installed base, which is why the leak reads as 2% growth instead of shrinkage. But the sentiment is running well ahead of the revenue, and the gap between those two is the thing to watch.

AI Became an Existential Question

Dassault charges per seat. One engineer, one subscription. The AI fear is aimed at the heart of that model, because an AI assistant doing engineering work doesn’t occupy a seat, and if AI makes each engineer twice as productive, customers need half the seats.

In early February, that fear went from concern to panic. Anthropic launched enterprise AI agents, and the selloff that followed erased $285B across software and adjacent sectors in a single session. One week later, Dassault’s soft guidance landed and the stock had its worst day since 2002, falling as much as 22%. In June it fell again when Jeff Bezos’s Prometheus, an AI startup targeting Dassault’s market raised another $12B.

Management’s response added its own uncertainty. Alongside the February results, Dassault announced new AI pricing tied to the value delivered, the layer teased earlier.

What the company meant was an addition on top of seats. The structure has three layers over the existing subscriptions. AI assistants and automation are priced in tokens, with management describing units of knowledge and units of work as “basically a token having a certain value” that customers can cap. And for the largest engagements there are outcome-based deals, where Dassault does the engineering work itself and prices the result, like a headlamp design automation priced at a share of the engineering cost savings. The layer exists so the work gets billed no matter who does it, human or AI.

And the outcome deals are less radical than they sound. A company running hundreds of seats was never paying list price, it negotiates a custom multi-year contract every renewal cycle. Outcome pricing changes what the number in that contract is indexed to, but not how the deal gets done or who’s sitting at the table.

But that’s not the framing management led with. On the February call, their own words were that Dassault was “evolving beyond seat-based pricing toward value-based models.” The CEO was out telling press “my dream is to price the object, which has been generated automatically, based on the value.” When that’s the language, you can see what investors heard. The CFO spent the Q&A walking it back, explaining that the AI companion still needs CATIA, that it’s the one using CATIA, not substituting it. It didn’t stick.

The plainest version, that the new products “are not replacing the existing one” and the portfolio “will stay,” didn’t come until the April call, two months after the damage was done. What the market heard in between was the seat model ending. Announcing a pricing change mid-crisis, vaguely enough that investors heard replacement, turned a product launch into a forecasting problem, and markets pay less for what they can’t forecast. They also began publishing a new metric, annual recurring revenue, so investors could track the business through the shift. Companies don’t hand you new metrics when the old ones look good.

Is the Slowdown Cyclical or Permanent?

Truthfully, it is both.

Auto is cyclical, with one structural catch. Volkswagen is cutting more than 35,000 German jobs by 2030. BMW just cut its 2026 margin guidance from 4-6% to 1-3%. When your biggest customers are doing that, they postpone or downsize software deals.

Here’s the tell that this is customer health and not lost accounts. In the fourth quarter of 2025, Europe fell 5%, dragged down by French and German auto weakness. One quarter later, Transportation & Mobility was one of the main contributors to Dassault’s growth, led by the Americas. The demand came back through different customers on a different continent. Engineering seats follow whoever is doing the engineering.

What protects Dassault is that nearly everyone doing that engineering is already a customer. Volkswagen runs vehicle development on the 3DEXPERIENCE platform. BMW is building its next engineering platform on it. Volvo Cars, owned by China’s Geely, develops its EVs on it. JLR just extended it across every vehicle program worldwide. NIO designs on it, and Tesla has run on CATIA for years.

That’s the shape of the whole industry, and it means a European automaker losing a sale doesn’t destroy a seat. The engineering behind the winning car is usually running on the same two companies’ software, and often on Dassault’s. Share shifts between automakers mostly reshuffle seats inside the same duopoly.

I won’t pretend Europe itself bounces back soon. Bain finds German OEMs planning to cut R&D intensity by an average of 35% by 2027, because Chinese competitors develop vehicles at roughly a quarter of their cost. What I will say is that the engineering happens somewhere, and wherever it happens, Dassault is usually underneath it.

Medidata is already turning. Clinical trial software lags the biotech funding cycle by several quarters, and the funding cycle has turned. Biotech venture funding jumped 71% quarter over quarter in late 2025, and the big trial-running companies are reporting record backlogs. Medidata was still down 3% in Q1 because it's living off weak 2025 bookings, and management said as much, calling it a carryover while noting that new bookings in the quarter were already trending positive. The same lag means the reported numbers can stay ugly into early 2027 even if the recovery is real.

The thing that would change my mind is Veeva. If Medidata is still shrinking in late 2026 while trial activity recovers, that tells me Veeva is taking share, and I'd have to reassess Dassault’s future.

The low end has issues. Autodesk’s Fusion at $700 a year keeps winning the newest, smallest shops. Dassault keeps the professional core, since Fusion still struggles with large complex assemblies, but the bottom of the funnel is leaking, and that’s where future customers form. Mainstream did bounce 14% in the first quarter, mostly Centric recovering, but the leak was never a one-quarter story. New shops keep choosing Fusion first, and that caps how fast this segment can ever grow, and potentially the company's long-term runway with it.

And one piece is quietly working in their favor. Europe is rearming, Airbus is sitting on years of backlog, and aerospace and defense is Dassault’s deepest home turf. In April 2025, Airbus extended its partnership across all civil and military aircraft programs, which also answers the boring competitive question. The real enterprise fight is a two-horse race with Siemens, and the biggest account on the board just re-upped.

Add it up and the recurring floor grows mid single digits on its own. Auto and Medidata improving add a point or two through 2028, defense adds on top, the leak takes a point off, and the old license line, flat this year and fading slowly as new offers go subscription, gives back maybe half a point over the horizon.

Then there’s the new AI layer. €50M of backlog in six months is a €100M annual pace from a product line that didn’t exist a year ago, sold into 390,000 accounts Dassault already bills. I give it one point of growth, and whether it deserves more gets answered at November’s Capital Markets Day.

So for my numbers, 4% growth this year while the cycle bottoms, then 7% a year through 2029 as it recovers. That lands 2029 revenue around €7.9B.

One note on those numbers. Management’s target is still higher than mine. They’ve promised to double EPS to €2.20-2.40 by 2029, a target already delayed once, with the old revenue promise quietly dropped from under it.

On margins, they deserve real credit. Headcount is falling, they’re using AI to cut their own costs, executive pay is tied to cash conversion, and they’ve expanded margins through this whole slowdown, guiding another 0.2 to 0.6 points higher for 2026 in a year they only expect 3 to 5% growth. Run that pace forward and it carries a point by 2029.

The AI layer carries a second point, and the math here is worth a moment. AI credits are worse business than seats, because every AI task burns computing power that Dassault pays for, while a seat costs nothing to serve. But credits don’t add salespeople or R&D, the costs that eat most of every seat euro. So a credit euro converts to more free cash flow than the company’s average euro does today, and the mix pulls the whole margin up even while gross margins drift down. The offset is timing, since customers pay for seats up front, and outcome deals could push that cash later.

Weighing all of it, I’m using a 24% free cash flow margin by 2029, two points above the seven-year record.

Can the Moat Survive AI?

The moat has three layers, and AI is only really fighting one of them.

The drawing layer is contested. Text-to-CAD tools exist and they work, for simple parts. Independent testing found they handle brackets and gears, then fall apart on anything complex.

Bezos’s Prometheus has raised $18B with about 150 employees and no product. And the AI connectors Anthropic built work inside Autodesk Fusion, which tells you where this fight is actually happening. It's at the low end, inside the competitor's cheaper tool, aimed at SOLIDWORKS. It’s real, and it’s contained to the SOLIDWORKS line, roughly €1B by my estimate, about a sixth of software revenue.

The testing layer holds. When SIMULIA says a wing survives its load, regulators accept the answer because of decades of validation behind it. An AI’s best guess about physics isn’t certifiable. In engineering, a hallucination is a structural failure. Even Dassault’s own AI push with NVIDIA builds on top of validated physics, because there’s no substitute underneath.

The memory layer is the strongest, and it’s the one the market has read backwards. This is the master record of every part, test, and certified version across an aircraft program that runs 20 years. AI can sketch you a bracket. It can’t be the legally authoritative answer to which of 40,000 parts is the certified one.

But holding customers in is only half of what the record does. It’s also what makes Dassault’s own AI worth paying for. An assistant automating design work is only as useful as what it knows about the products it’s working on, and the design history it needs sits in Dassault’s systems and nowhere else. Dassault’s AI can read 20 years of a customer’s decisions. Siemens’ can’t, and neither can anything Bezos builds, because the data they would need to train on doesn’t exist outside Dassault’s walls. Prometheus itself acknowledges there is no internet of manufacturing data to ingest. It has to be built from scratch, and the closest thing to it already sits in Dassault’s record.

The moat and the new pricing model are really one bet. Dassault can price AI work against the value it creates only because no competitor can create the same value on that account, and the record is the reason they can’t.

And the moat shows up in the numbers, which is the only place a moat counts. Gross margins have sat between 83% and 84% for seven straight years, through a pandemic, an acquisition, and this slowdown.

Recurring revenue grew 6% in the company’s worst year. Returns on capital have climbed every year since 2020, from 11% to 15%, which is not what full disruption looks like.

The question that decides this is whether Dassault gets paid for what AI creates, and the new pricing layer is where that gets settled. Adobe and Autodesk are the reference points here, both survived tearing up their pricing, and both spent two to three ugly years doing it. Dassault’s road should be smoother than that. The genuinely painful change, licenses becoming subscriptions, is mostly behind it at 74% of revenue, and the AI layer gets added on top of contracts the biggest customers already renegotiate every renewal cycle, so nothing is actually being torn up.

So I think they defend their pricing power, and the early backlog has earned the layer a modest place in my numbers. One point of growth, nothing more, and I pay for what's proven and let the rest be upside. That thinking sets the multiple. This stock traded at 30x+ EV/FCF from 2016 through 2024, and in the 20s for years before that. A proven, moaty business growing 7% deserves something in the low-to-mid 20s, so I'm using 24x.

Can We Trust Management?

Split the question in two, because the record splits in two.

On profits, yes. EPS has landed on target every year. Margins ticked up in 2025 even while revenue missed. They generate €1.6B of operating cash flow, bought back €340M of stock, paid €343M in dividends, sit on €1.5B of net cash, and the share count has drifted down five years running. No dilution, no empire building.

On growth, no. 2024 guidance started at 8 to 10% and got cut. 2025 started at 6 to 8% and got cut. Two years, two cuts, and the 3 to 5% bar for 2026 is the first one set low enough to beat. Daloz has admitted as much, saying he’s done chasing top-line guidance quarter after quarter.

The pay structure explains the whole pattern, and there’s no guessing needed, the criteria are published. The CEO’s stock awards vest on three things. The financial piece is 80% of the award, split two thirds on EPS growth and one third on cash conversion, which just measures how much of reported profit turns into cash. The last 20% is an ESG scorecard. Revenue appears nowhere in that list. So when revenue disappoints, nothing in his paycheck breaks. They flex costs, deliver the EPS number he’s paid on, and the growth guidance takes the hit. The incentive is working exactly as written. The profit guidance is the part to trust, and the growth story is the part to discount until they prove it.

His pay is built almost entirely on those targets too, roughly €13M a year with over 90% of it variable, and he owns about €54M of stock, per outside estimates. His own wealth rides on hitting the EPS targets, and guiding revenue high does nothing for his paycheck.

Then there’s the departure. Bernard Charlès spent four decades building this company, and he left the board ten days after the worst day in its stock history, effective immediately, for personal reasons. The succession itself was the prepared part. Daloz is a 25-year insider who ran finance, then operations, and had already been CEO for two years, with the Medidata acquisition as his deal. The exit didn't look prepared. Orderly chairman transitions get announced months ahead, and same-day resignations don't happen when everything is fine. Daloz now holds both jobs, which is normal for a French company. The part that changed is that the founder who used to look over his shoulder is gone.

My verdict is a disciplined operating team with a two-year habit of overpromising growth, now running a plan they’ve finally sized to hit. That’s good enough to keep going, and not good enough to pay up for.

What Is This Company Worth?

So where does this leave us. A real moat in its two deepest layers. A trough that’s probably this year. Management you can trust on profits. And a stock at 13x EV/FCF that traded at 55x.

That sounds like a buy. Then you run the numbers.

I grow 2025 revenue 4% this year while the cycle bottoms, then 7% a year through 2029. That’s €7.9B of revenue. At the 24% free cash flow margin built a few sections back, one point from cost discipline they’re already delivering and one from the AI layer, they earn €1.9B of free cash flow. I put 24x on it, below anything the stock has traded at in its public life.

The cash matters too. They’ll generate over €6B of free cash flow between now and 2029, and it has to go somewhere. The dividend keeps growing, they raised it weeks after the crash. Buybacks step up like they did in 2022, the last time the stock got cheap, and the share count shrinks to 1.28B. Maybe a deal or two. They still end 2029 holding around €3B of net cash.

That gets me to about €38 per share by year-end 2029, plus close to a euro in dividends along the way. From €18.23, the 7/10/26 close, that’s better than a 2x. About 24% a year.

24% a year on a business this durable is a clear buy for most portfolios.

My hurdle is 30%, and this doesn’t clear it.

The assumed 7% growth builds in macro improvements and the AI layer helping. The 24% margin already builds in expansion that's likely but not guaranteed. For the math to get interesting, the stock needs to be near €15.50, and even then it just qualifies for a deep dive. Not an instant buy.

My Thoughts

This is a very solid business and I’m not buying it.

The market is pricing Dassault like traditional software, the kind AI is supposed to eat. I don’t think that’s what this is. The Boeings and BMWs of the world design the most complex machines on earth inside these systems, and 20 years of their parts, tests, and certified decisions live there and nowhere else.

That history is exactly the data an AI challenger would need to train on, and it doesn’t exist outside Dassault’s walls. Bezos raised $18B to build the disruptor, and so far there are about 150 employees, no product, and an open admission that the training data has to be created from scratch.

They do have real issues, especially at the low end against Autodesk, but real issues are a long way from destroying a company with this kind of customer lock-in.

Price and value are two different things. In 2021 the market set the price, 55x free cash flow, and it has spent the four years since trying to figure out the value, with AI shifting the landscape underneath the whole search. That kind of answer takes time, and it usually overshoots on the way down.

That is where I search for opportunities.

For the math to get interesting, the stock needs to be near €15.50. Until something changes, Dassault sits on the watchlist at €15, and that's where I'd pick this file back up.

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Here are the highlights.

Welcome to 📉DeepValue Capital📈

I’m Kyler Johnson, a husband, dad, and self taught investor of 7 years.

24K+ subscribers and 259% returns from Jan 2024 to June 2026. I buy turnarounds and good companies at great prices.

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Q: What is QXO’s value creation plan?

A: Our value creation plan is straightforward: leverage the attractive long-term fundamentals of the building products sector, capitalize on the scale we’re building through acquisitions, and execute a comprehensive transformation that drives superior customer outcomes and financial performance. Through the completed acquisitions of Beacon, Kodiak, and, most recently, TopBuild, we now have approximately $18 billion in combined company revenue and nearly $2 billion in combined company Adjusted EBITDA.

Q: What does scale accomplish in this industry?

A: The paramount benefit is talent. High-performing professionals generally want to work for growing, ambitious businesses with opportunity and resources. The largest financial benefit from scale is procurement. As we become more important to major suppliers, we gain a better seat at the table, more influence in negotiations. Scale also allows us to invest in technology and infrastructure that smaller competitors often can’t justify economically.

Q: How should investors think about the platform you have assembled today?

A: The platform we have today is both strategically coherent and still early in its development. We now have a much broader presence across the building envelope in North America:

• #1 in insulation

• #2 in roofing

• #1 in waterproofing

• #1 or #2 in the lumber and building materials sector in the key geographies we serve

The strategy is to go narrow and deep, not broad and shallow.

Q: Why was TopBuild the right next step for QXO?

A: TopBuild was the right next step because it added a high-quality business that changes both the scale and the nature of our platform. Beacon and Kodiak gave us substantial midstream distribution capability. TopBuild brought us much closer to the customer and the job site. TopBuild visits about 22,000 job sites per day. This gives direct visibility into what is happening on projects in real time, which products are needed, what stage the job is in, and where there may be an opportunity to cross-sell, improve planning, or serve the customer more completely.

Q: What proof points should investors watch to judge whether execution is working?

A: We believe investors should watch sequential improvement in Beacon volumes, pricing, procurement, gross margin, and EBITDA progression. On the balance sheet side, we think investors should watch free cash flow and deleveraging.

Q: How should investors think about the path to more than doubling your nearly $2 billion of combined company Adjusted EBITDA by 2030?

A: We see a clear path to grow organically from almost $2 billion of combined company Adjusted EBITDA in 2025 to about $4 billion by 2030. At a high level, our current internal bridge assumes legacy Beacon moves from roughly $800 million of EBITDA to about $2 billion, Kodiak moves from about $210 million to about $400 million, and TopBuild moves from about $1.1 billion to about $1.6 billion, before the contribution of any future insulation tuck-in acquisitions. On top of that, we see a path to about $5.5 billion of EBITDA by 2030, representing a mid-teens EBITDA margin, when you include self-funded tuck-ins and moderate leverage.

Q: How much of the story depends on a housing recovery versus self-help?

A: The macro obviously matters. But the investment case doesn’t require us to predict interest rates, housing starts, or weather. Our model is built around controllable, company-specific levers. TopBuild makes the combined company less cyclical than a pure distributor by diversifying QXO across products, services, and end markets. It also creates a more balanced portfolio, with roughly a 50/50 split between new construction and repair and remodel, and a roughly 60/40 split between residential and commercial.

Q: Where do you see the biggest margin opportunities across the portfolio?

A: For the company, the biggest levers are procurement rebate capture, pricing optimization, inventory management, private-label penetration, salesforce effectiveness (including cross-selling), technology enablement, transportation and logistics, sales compensation redesign, and service quality improvement. In Beacon specifically, we also see operating leverage as prior platform investments normalize and begin to carry a larger revenue base. In Kodiak, we see a concrete synergy opportunity, because 16 of Kodiak’s top 20 vendors are shared with Beacon, and those vendors represent about $5.3 billion of spend. We’re not relying on a quick silver bullet. This is a multi-lever model where many smaller and medium-sized improvements will add up over time.

Q: What does a better customer experience look like in practice?

A: In our view, the customer experience in this industry comes down to a few practical things. Do we have the product when the customer needs it? Can we quote quickly? Do we deliver on time and in full? Do we have the installation teams available when the job is ready? Do we help customers get jobs finished on time? Is the invoice accurate? Are our people competent, responsive, and easy to work with? If we consistently do those things better, we should earn more share of wallet and better economics over time.

Q: Why is technology such a central part of QXO’s thesis?

A: It’s how we move from a collection of acquired businesses to a single, highly connected network. It’s how we improve visibility into what’s selling, where it’s selling, how people are performing, and how customers are buying. It’s also how we create better discipline around pricing, procurement, branch operations, and transportation. We see technology as a core source of differentiation, not a support function. We expect accelerated organic growth in 2027 and beyond once the tech stack and basic integration work have matured.

Q: Where are you in the technology rollout today?

A: Our current roadmap has core legacy Beacon moving through the major stack rollout first, with the broader Beacon build substantially complete by the end of Q1 2027, and legacy Kodiak and TopBuild following after that by the end of Q3 2027. We’re moving quickly, but we’re also trying to do it the right way. The goal is to drive adoption and visibility and to fundamentally improve how the business runs.

Q: What’s your plan to de-lever the balance sheet?

A: This business generates strong cash flow, and our priorities from here are straightforward: grow EBITDA, apply substantial free cash flow to reduce net debt, and de-lever while we integrate the assets we’ve acquired. TopBuild’s asset-light installation model, lean working-capital needs, and pricing discipline have historically produced cash conversion that exceeds many distribution peers. We also have portfolio optionality if we decide that a non-core asset is worth more outside QXO than inside it.

Q: Is any near-term equity issuance planned?

A: We do not currently foresee any near-term equity issuance. Our focus right now is on integration, execution, free cash flow, and deleveraging, not on raising equity.

Q: Are you in digestion mode after TopBuild? How are you thinking about future M&A?

A: Our near-term emphasis is on integration, optimization, and deleveraging. Our organizational focus is on pricing, procurement, technology, customer experience, and operating improvement. That does not mean we’ve stepped away from M&A permanently. It means the bar for new capital deployment is appropriately high.

Looking for more details on their acquisition of TopBuild or a deep dive on QXO?

• Pentagon adds Alibaba to the 1260H list (June 8): designated a “Chinese military company,” with a Pentagon contracting ban effective June 30.

• China preps a $295B AI data center plan (June 9): a state-led compute buildout stoked fears it could undercut Alibaba Cloud’s pricing.

• Beijing summons platforms over 618 subsidy claims (June 11): regulators called in Alibaba and peers over misleading “billion-yuan subsidy” language.

• 618 festival results disappoint (June 18): online sales growth slowed to 4% YoY versus 15.2% a year ago.

• Anthropic accuses Alibaba of distilling Claude, senators respond (June 24 & 27): a fake-account extraction claim sent BABA to a 16-month low, followed by a Senate push to sanction the practice.

So what does this all mean for Alibaba?

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Crazy how much has happened, how much I have learned and how far I have come. Thank you everyone for the support.

I really can’t thank you enough.

With that said another month is down so it is time for a full update.

June was a very interesting month for the portfolio. 2 big holdings down 10%+ and the other 7 mostly flat to up as much as ~21%.

My biggest holding continues to announce partnerships after several in May and also released data on how one of their product is performing vs competition. It is clear they are are top tier in the industry, and still no one wants to touch them.

Other names in the portfolio had important news too.

One completed an important refinance, another launched a next gen product to succeed their already #1 position, one secured hundreds of millions in investments to retired expensive financing, and highlighted a more than $1.5B asset no one is giving them credit for, to top it off a couple had senior leadership in interviews.

It was a great month of movement for the portfolio.

In the rest of this article I walk through performance details, new commentary on the portfolio and market, details on portfolio allocation, weights, buys & sells, plus links to all the news and most recent deep dives on each name.

Lets get to it.

Welcome to 📉DeepValue Capital📈

I’m Kyler Johnson, a husband, dad, and self taught investor of 7 years with a 22K+ subscriber following buying turnaround and good companies at great prices.

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Performance

Here is my performance so far.

• 2024 Returns: 85.23%

• 2025 Returns: 118.83%

• 2026 YTD Returns: -11.25% vs S&P 500 9.55%

• Since Inception (01/01/2024): 259.75% vs S&P 500 57.23%

Important Note: I finally had my check get deposited after market close yesterday which is why you see the big jump in cash overnight. I am excited to deploy that cash into names in drawdowns right now. Some incredible opportunities out there.

Back to it.

I am very happy with how my portfolio has performed since 2024 but I understand, as YTD shows, I will not outperform all the time. Skill as an investor is proven through long term outperformance.

These returns are unaudited but almost every step has been documented here on Substack.

Now to all the details.

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Not sure you are ready to go paid and see my live portfolio below? Feel free to read some of my other free content to get familiar with who I am, what I offer, or my investing process.

Below are also a couple free reports on companies I didn’t buy but let you see my process in action.

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Below is a 4 question survey to help me do just that. I will read every single response, and do my best to make this publication as good as possible.

My goal is to save you time and give you the tools to make more money over time.

Start Survey

Adorama, a New York photography and electronics retailer got a 7.3x incremental return on advertising spend (ROAS) and 14.9% incremental transaction lift. The campaign also brought in new buyers, 56% of purchasers had not bought from Adorama in the prior 12 months.

Best Buy reached 6.25x ROAS and dwell time 22% above platform benchmarks.

Once you define a couple of terms and put these numbers in context, it becomes clear how massive this is, and will become for PayPal.

You may have noticed when reporting their figures for Adorama PayPal was clear it was incremental lift they delivered. That is inherently a tougher bar to clear and would typically mean comparing their incremental lift to industry attributed PayPal would come out lower.

But when you look at the actual numbers, PayPal is top tier vs competition even with a more difficult comparable.

Sources: ( Google, Meta, Amazon, TikTok, PayPal)

PayPal was able to get good results for their customers because they have one of the largest data sets in the world with unique merchant and consumer perspectives that lets them put ads in front of the people genuinely likely to buy, AND they own both sides of the transactions so they can actually prove the ad drove the sale.

As they put it:

“PayPal's Transaction Graph aggregates real, cross-merchant purchase signals from more than 25B transactions across 400M+ PayPal and Venmo accounts, spanning how people search, share, and shop. Unlike traditional retail media networks, which are limited to what happens inside a single retailer's ecosystem, PayPal's view is cross-merchant, which helps capture purchase behavior across categories and merchants. The result is an audience signal built on what, where, when, and how consumers spend, not what they scroll or browse.”

Compared to Amazon’s ~310M global active customers and their ~5.6B/yr orders you can see the scale to which PayPal collects data on. They are a juggernaut but it isn’t mainly because of their size.

Their real advantage here is that PayPal is both the consumer's account and the merchant's payment processor, the same logged in person they showed the ad to is the same person they watch check out. So instead of guessing whether the ad worked like everyone else has to, they can draw a straight line from ad to sale.

These are only two examples they reported but they make it very clear what PayPal’s data and connections can deliver. And we can trust results like these because they're measured against actual purchases, not statistical guesses.

What makes this more exciting though is the man building the ads business.

Mark Grether

If you aren’t familiar with Mark let me highlight two businesses on his resume.

Amazon Ads from 2019 to 2021

Mark ended up in Amazon in 2019 after they bought his company, Sizmek, which at the time the largest independent ad platform in the world. When he came in Amazon was doing ~$11.6B/yr of ads and they put him in charge of the behind the scenes systems that allow advertisers to bid for placement of the ad you will see when the screen loads. All of that happens in milliseconds.

He had to take all of Amazon’s data to make sure ads got in front of the right high intent people and if successful advertisers would get better results. But more importantly for Amazon, spend more.

And I can say he did a fantastic job in just those two years, helping grow the business from ~$11.6B (TTM) when he arrived to ~$26B when he left.

Uber Ads from 2021 to 2024

Mark was hired to come into Uber and build their ads business from scratch using their 100M+ user data base to appeal to advertisers. It took him about a year to build a team and lay the foundation but by 2024 this was a $1B run rate business for Uber that has since doubled again after he left running on the low end at at least 50% margins.

After those successes he has come to PayPal to build their ads business and is ~2 years into the job starting essentially from scratch just like Uber.

I am sure it was no accident either about 1 year into his tenure they launched PayPal Ads Manager, the time it took him to build a team and foundation lining up exactly with Uber’s timeline.

Today if we draw a parallel to Uber’s timeline we are coming up on “year 1” in October when they launched ads. By year 2 if he follows the same trajectory, despite the multiples larger data set from both the merchants and customers perspectives, we are looking at $1B in revenue, $500M in cash flow. Another 18 months later, $2B in revenue and $1B in cash flow.

And this is all hidden inside a company the market thinks is dead.

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