Red Robin (NAS:RRGB) — mrkt cap $100mm; Price $6.5; EV/EBITDA 3.7
SPECULATIVE POSITION INITIATED. Red Robin is an overly indebted U.S.-based casual diner with roughly 500 restaurants located predominantly on the west coast. We passed on this name late last year but have recently had another look given the stock is down 45% YTD on higher-for-longer rate outlooks (RRGB debt costs are variable) and an overall challenging environment for restaurants as consumers shift spending to grocery stores. In November of last year, we spent time with the CFO discussing their “back to roots” strategy. New management has done away with Virtual Brands, discounting, and lack of investment. The company is guiding for 65mm EBITDA for FY 2024, with about ~30mm of that going to capital expenditure and ~22mm going towards interest payments. Sale-leasebacks will continue to reduce debt this year and are in part responsible for lower EBITDA targets (additional lease expense). We think highly of management and they have taken appropriate steps to improve RRGB. Given the recent sell-off, the risk/reward skew is attractive, and we are happy to initiate a position.
Zillow (NAS:Z) — mrkt cap $11.1B; Price $47.9; EV/EBITDA NA
PASS. Zillow has ambitions to become the housing super app. The name sold off ~16% after a seismic news event dropped in the real estate world (NAR Settlement 418mm). To summarize, buyers’ agents’ commission will likely have to negotiate fees directly with the buyer instead of being entitled to a commission on the sale. This will totally upend the way buyers’ commissions are currently paid. Roughly 65% of Zillow’s revenue is generated from buyers’ agents. Zillow generates leads, and agents pay monthly fees to receive these leads. Zillow generates additional revenue from their Rentals and Mortgage segment. And although they exited iBuying (instant buying), they have partnered with Opendoor as a risk-free way to reenter this market. We think there could be significant impacts to the ruling that have yet to reflect in Zillow’s stock price, and we will be patient, waiting for a better opportunity. (After any significant news event, we take a fresh look at names that are impacted – this is a good example).
Vimeo (NAS:VMEO) — mrkt cap $937mm; Price $5.58; EV/EBITDA 22
PASS. VMEO was founded in 2004 and is a niche alternative to Youtube. It caters to high quality content creators, businesses, and Youtube outcasts (either they have been kicked off the platform or convert people to Vimeo given the lower revenue share). Users that upload videos pay Vimeo with different tier subscription plans as Vimeo does not serve advertisements. Although its TAM is limited, VMEO has a robust business model and generated positive cash flow in 2023. We will wait for a pullback in price before considering a position.