$TINY - Berkshire Cloner?
I don't think they quite make the cut
Introduction
What initially attracted me to researching this company was the TIP podcast. They are students of Buffett and Munger, they structured their company exactly like Berkshire, they have a capital allocation mindset and they are focused on long term value creation. The letter to shareholders also read nicely, the business philosophy read nicely and I thought this is worth investigation.
As I began digging in deeper, I read all available filings and as I was reading I wrote down all the questions that started coming into my mind. These questions are listed below as well as my notes on specific references and financial statements. I thought it may be interesting for the reader to read about something as it is in research.
Conclusion for TINY
I decided that TINY is not structured like Berkshire yet. This could be due to the youth of the company and the nature of becoming public and merging with entities or because they simply are not like Berkshire. Nobody really is like Berkshire, but you know what I mean. In addition the open questions simply cannot be answered at the moment due to lack of information and history. Tiny is therefore placed on hold.
I will follow them with an interested eye to see if they make their financials simpler, reduce debt and continue a path towards FCF creation.
Open Questions I wrote down during reading the financial statements
Are the individual operating groups an advantage or a disadvantage? Berkshire didn't do it, why do they?
Is having a private fund a risk for investors or an asset? Why have money in there?
2023.Q2.10Q: They are accounting for their interest, but not the individual companies owned by it.
Is the dilution fully capped at 10% as of 2023 or will dilution increase?
Are dividends here to stay or is this temporary?
23.Q1.10Q: The company has reduced dividends by $5.8m, need to watch if they stop.
$1.7m on travel meals and entertainment: report says it is based on meeting investors etc. Is this really necessary?
What kind of returns are present for the increase in ads & promotion spend? This would need to be organic revenue growth per segment?
Got to watch if the shift to larger enterprise customers in the digital service segment (23.Q1.10Q) is going to materialize.
Why did the company take on debt?
Beam entered into the debt facilities and bought interest rate swaps. The other was WeCommerce with JP Morgan.
Why was Button, Inc sold?
They are using shares to purchase other companies, specifically WeCommerce to purchase KnoCommerce. Why use shares versus just cash?
Research Storage
In order in which I watched and read the information
TINY buys tech companies, implements best practices into the private companies they find and then they harness the cash flow from those businesses.
The CEO believes that a certain amount of leverage is needed in the beginning, when not yet at scale. They need to be able to give their companies the ability to invest it with debt. He gave an example of a company that invested $10K a month and returned about $20K two months later and they simply didn't have more cash flow to use. They use debt for such cases, he said.
They keep founders on and let them do their thing without much interference. Some founders want to cash out and they replace them. They do both when acquiring companies. When they replace founders then they want to hire someone who has done a similar business before, but scaled to a place further than where their company currently is at.
They BONUS people with the metrics they care about. They believe that if people win together it creates a much better environment and more profit for everyone in the end. They try to set metrics from a company to company basis and they try hard to avoid lottery ticket type rewards.
Shareholder Letter
TINY has an operating structure similar to Berkshire, but they form smaller holding companies when they reach a number of similar businesses and achieve scale. This means the main head office gives away capital allocation to other CEO's, which creates a potential risk.
They also have a private fund with money inside, which they do not include in the financials.
2023.Q1.10Q
The company has begun shifting their accounting, which is the reason for several of the expense items and numbers. The company is simply quite young. The loss in revenue was attributed to macro, but also a shift in strategy which is noted under open questions.
2023.Q2.10Q
https://s202.q4cdn.com/676416790/files/doc_financials/2023/q2/Tiny-Ltd-Q2-2023-MDA-FINAL.pdf
They are expecting the revenue streams for the digital services business to stabilize and increase in the coming quarters. Generally the mergers and restructuring are causing financials to be more erratic. This should subside this next year.