I kind of like reading Charles Mizrahi’s stuff — the teaser pitches are over-the-top, of course, promising way more than they can deliver, but the companies he touts tend to also be relatively rational when it comes to things like earnings or cash flow.
For example… his pitch about Brink’s being the best play for marijuana legalization a couple years ago was awfully misleading, in my mind, but that didn’t take away from the fact that Brink’s was a pretty reasonable investment idea, with real earnings and cash flow. There was at least a little meat to chew on, it wasn’t all flash.
So when he started pitching another hot trend this week, subscriptions, in ads for his Alpha Investor (that’s his “entry level” newsletter, $79/yr), I thought I’d look into that for you today.
He has a little lead-in that’s meant to make you realize how much you’ve gradually begun to subscribe to everything in your life, how we’re all participating in this “user” economy instead of an “owner” economy, with his look at a credit card statement as the gimmick, showing the monthly payments for Netflix, Stitch Fix, Electronic Arts, Spotify, Zoom, etc… but this is basically a pitch for the fact that everything is going to subscriptions, and that it’s good for both companies and customers (customers don’t have to buy everything up front and can moderate their spending based on usage, companies get predictable and steady cash flow, which investors are generally willing to pay more for).
That’s nothing new, of course — ever since Salesforce.com (CRM) came on the scene we’ve been gradually building an investor obsession with Cloud and Software as a Service (SaaS) businesses, SaaS has been the “next big thing” for 15 years now… and we see lots of other “as a service” trends, from Mobility or Transportation as a Service (MaaS or TaaS) to Communication as a Service (CaaS) to Security as a Service (SECaaS), and there are dozens of other buzzy terms just like that… if you can make up an aaS acronym, I’m sure someone will help you popularize it.
But how does he think we’ll make money off of this trend toward subscriptions? We’ve heard plenty of pitches about cloud and SaaS companies over the years, and many of them did extraordinarily well, particularly over the past year… is Mizrahi just pitching one of those stocks we’ve seen before, or is it something new? Let’s dig in and see.
Here’s the tantalizing bit…
“In fact, scores of companies have been created across the world for the sole purpose of cashing in on the subscription revolution….
“With my top SoE stock pick, you can get your share of this exploding industry.
“In fact, this is the perfect time to jump on board. If anything, SoE’s growth is just going to accelerate.
“How can I be so sure?
“I’ve got one word for you … COVID-19.
“When the pandemic hit, America switched to a subscription model virtually overnight.
“And SoE shifted into high gear.”
He keep harping on the huge potential of this “SoE” revolution…
“Over HALF the things more than 7 billion people are using right now … things you use every single day to live your life … could be radically transformed by SoE.
“This is beyond big. It’s colossal. And the money that can be made here is mind-blowing.
“And some of our country’s richest investors know it.
“Billionaire investor George Soros already owns an estimated $79 million worth of shares in SoE.
“Warren Buffett has invested $250 million.
“And Bill Gates has injected $644 million into a company that branched out into SoE just a couple of years ago. Could its move into SoE be why he made that huge investment? No telling for sure, but I wouldn’t be surprised.”
“SoE” is just his little acronym to make things seem more memorable, it stands for “Subscription of Everything,” and I guess you can argue that we’re all heading in that direction. You’re probably subscribed to this website, after all, even if your subscription is free (if you want the better stuff, of course, we’re also happy to take your money).
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But there are thousands of SaaS and subscription companies out there, what makes this one special? More from the ad…
“SoE is not only transforming the way companies do business … it’s maximizing their sales and revenue by practically putting them on autopilot.
“And one leading company in this industry stands to profit big time.
“You know the ‘essential’ businesses you’ve been hearing about lately?
“Most of them can be found in the exact same industries that are cashing in on SoE … including my top SoE stock pick.
“Now, essential is a word that describes this breakout company to a T. It’s so essential … every other company looking to get in on the SoE revolution needs what it offers to run their operations effectively.
“Every single one of them.
“In fact, I would go so far as to say that SoE companies will struggle to succeed … or even stay in business … without the cutting-edge systems this company has created.”
Huh, OK — so it’s a service company for other subscription companies. I think I know where we’re headed here, but let’s see if he drops some more clues.
First, he lays on a little hyperbole…
“The subscription model is like turning on the spigot of a tank full of money…
“And releasing a