Authored By Louis Stevens
Today, I will briefly articulate L.A. Stevens' MACS thesis.
On X, I often share data related to this thesis, however, for the uninitiated, it may seem a bit disjointed, so, in this Brief, we will walk through the thesis briefly and concisely.
To start, let's define MACS (some have noted that the inverse of MACS is SCAM, which is funny and, in my estimation, an ode to the inherent uncertainty of any investment thesis. That said, the MACS thesis has already been demonstrated to a very high degree, as I will illustrate, and, now, it's a matter of allowing the trend to continue to play out).
What does MACS stand for?
MACS is an acronym proprietary to L.A. Stevens that stands for MercadoLibre, Amazon, Coupang, and Sea Ltd.
What Are We Trying To Accomplish In Owning MACS?
Of course, the central goal is to generate returns via an attractive risk/return setup where risk is dwarfed by the prospective returns being offered, and I believe MACS offers just this. These are giant, dominant, well-capitalized, competitively advantaged businesses used by billions of consumers globally (in aggregate).
The MACS strategy is meant to capitalize on, principally, the growth of ecommerce digital ads, which is a rapidly growing industry globally, from which the most dominant ecommerce businesses on earth have benefited immensely (statistically speaking, MACS are the most dominance ecommerce businesses on earth, with Sea being the most dominant as measured by its percent market share of SE Asian ecommerce GMV. This is, of course, very ironic to note because Sea has been treated as if it were the least dominant as measured by this metric over the last couple years).
Over the last decade or so, the cumulative digital ads sales generated by MACS has grown from ~$0 to ~$60B, a scaling feat that has outstripped the early days of Google!
Notably, Amazon currently accounts for the majority of these sales, and the U.S. ecommerce ads market is the most mature:
U.S. Ecommerce Digital Ads Market Growth
Presently, the size of Amazon's ads business is at ~5% of its ecommerce GMV. As the oldest and most mature ecommerce platform among MACS, it also has the most mature ads business as measured by this statistic.
MercadoLibre is the second most mature, and its ads as a percentage of ecommerce GMV stands at about 2%, up from approximately 0% five years ago. Over time, this will likely expand to Amazon levels, as management has messaged that there's still ample room for growth.
For Sea ltd. and Coupang, which are much, much younger ecommerce platforms, though likewise dominant as measured by their market share in their respective regions (which I see as a proxy metric for competitive advantage, though the market has disagreed), we've not yet received precise disclosures as to the level of ads take rate as a % of GMV. This is to be expected, and we did not receive disclosures from Amazon nor MercadoLibre for this line of business when they were as early in their corporate lifecycles as Sea and Coupang are presently.
That said, we have received promising messaging from Sea and Coupang regarding their ads businesses. For example, here's what Tony Hou, Sea's CFO, recently shared on the company's Q1'24 earnings call:
"For the ad take rate, I don't think we disclose the ad take rate actual number. But what we can share is that if you compare with our global peers, for example, in China or in the U.S., we are kind of like still meaningfully lower than where they are. We still have a few percentage to catch up to them. So there is meaningful room for us to increase the ad take rate.
I think there are a few tools that we can deploy to do that. I think one is just having more seller presentation in terms of the -- to enhance the total pool of the skills they're utilizing the ad. In order to do that, we have to develop simpler ad products for the sellers to use. Unlike many of the sellers in multiple markets, we are more familiar with the apps in our market, they have quite some sellers that left some with that. So we have to customize our app tool for those sellers to make sure that it's easier for them to adopt so they can -- so we can have more skills into our app pool. That's number one.
Number two is to increase ad efficiencies through technology. We are spending a lot of effort on making sure that we increase the conversion rates for our ad products, so the conversion ad, so we can actually serve more ads to our users because of increased conversion rate. And number three is to find a way to balance organic and add traffic better. So by having an enhanced product to balance the organic and ad products in a common frame, we can essentially dynamic adjust and load. It depends on the conversion rate and the SKU presentation and scenarios within our app. So by doing all the three things, we see there is a meaningful potential to increase the ad take rate over the next few quarters."
Sea Ltd. Q1'24 Earnings Call
To close, the following research note from J.P. Morgan on MercadoLibre's ads business will further augment your understanding of the MACS thesis via a study of Meli's ads business:
Please let us know if you have any questions on the thesis.
