Thanks for the sell case - always appreciate a well put together counterargument for something I'm bullish on. Here's why I own this and am contemplating doubling down:
1.
Zameen is the jewel of the crown and the 30% ownership valuation is worth more than the FDV market cap (valued at 1bn at some point)Even II is now valuing Zameen at zero.
If others think Zameen is indeed worth zero, I'd be very happy to pay $1 for it.
Zero value for Zameen would be predicated on Pakistan's crisis getting irreparably worse and there being nil or extremely limited housing market in the long term. Possible but unlikely; in its last quarter, Zameen's revenue nearly halved from its peak a year ago, but FDV tells us it is EBITDA and cashflow positive (unfortunately we have no visibility of this) and the listing numbers on their website show us that people are still advertising houses for sale and presumably transacting them, just at lower volumes.
The June 2020 to December 2020 quarters showed us that (a) these types of businesses have a relatively low fixed cost base with a substantial proportion of growth costs (marketing & product development) can be trimmed back in tough times and (b) revenues can be depressed rapidly with macro shocks but also recover very quickly.
Has Pakistan's economy been obliterated for ever? It's possible, but if it recovers then we will see Zameen's revenue and profit jump again. And I think there's more than an even chance that this crisis is resolved one way or the other and Pakistan recovers within 2 years.
2.
FDV or its businesses might eventually be taken over by OLX
This was a potential catalyst, but any buy thesis has to be based on the underlying value of FDV's businesses. If its value is substantially below market, there's still a buy case irrespective of whether there's an obvious acquirer.
3.
FDV turns network effect website into cash cows by taking a clip of the transaction. From II article: "Propzy, the market leader in Vietnam and one of FDV's investments, has forsaken advertising revenue for 100% reliance on clipping the ticket on property transactions."
I didn't follow Propzy closely enough to understand why it failed, but FDV's management were clear that they didn't agree with the majority shareholder's strategy. We could argue that their timing was lucky but it would have been luckier in late 2020 or 2021 when speculative tech businesses peaked. It was still the right call.
The mix of ad revenue and ticket clipping on transactions has worked well for FDV's other businesses; the dip over the last 3 quarters is attributable to Zameen, which in my opinion is excusable.
4.
FDV is about to enter the ASX300
See point 2. on catalyst vs underlying value.
5a.
Zameen is worthless now but don't worry LATAM is the new Zameen!
The LATAM businesses have been growing quickly and are profitable - CF Infocasas. Would they suffer if there's a US or global recession? Sure - cue joke about Economists predicting 20 of the last 3 recessions. Their revenue growth should also significantly outpace economic growth if it continues.
5b.
If these businesses had so much potential why has no one made an offer yet?
General scepticism about pre-profit / "point of inflection" tech businesses. FDV isn't alone in getting massively sold down without an acquirer emerging, similar what's happened to XRO, JAN, ALC etc.
The challenge for investors to pick among the bombed out wreckage, find the ones that will make it and pick them up for a song. There's an uncomfortably high probability that FDV won't make it, but if it does, it will pay off handsomely.
(DYOR of course)
(20min delay)