Investor letter, January 2021

The author is bullish on Digital Turbine, noting its software is installed on 500M+ phones (growing 20M/month), expansion beyond app-install revenue into content for carriers like Sprint (with Verizon/AT&T/T-Mobile as potential additions), over 10M monetizable DAUs in Content Media, and further penetration into hardware partners like Samsung.

“Digital Turbine (APPS) – 2021 will be a year of increased penetration for Digital Turbine, which provides "a platform for simplified app and content discovery." Digital Turbine software is installed on over 500M phones, and this total is increasing by 20M phones per month. Beyond getting paid for installing apps upon phone activation, the company is increasingly building additional revenue streams, such as providing content for carriers like Sprint. Signing on Verizon or AT&T for content or Sprint/T-Mobile for app installation would bring a substantial growth. In November, Digital Turbine noted, "[t]he Company currently has more than 10 million monetizable daily active users (DAUs) for its Content Media products and is actively in the process of extending the reach to additional carrier partners." The growth in the content business, addition of new carriers, and further penetration into existing hardware manufacturers such as Samsung bode well for Digital Turbine.”

The author is bullish on KKR, citing the closing of the General Atlantic insurance deal (raising permanent capital from 9% to 33% of AUM), continued asset growth in fundraising mode for its three largest strategies, likely S&P 500 inclusion driving forced buying, stable locked-up management fees that help it weather market cycles, and strong demand for 8%-return strategies in a zero-interest-rate world; he also expects 2022-2024 to be favorable.

“KKR (KKR) – In 2021, KKR will close on their purchase of General Atlantic insurance company, substantially increasing their permanent capital from 9% to 33% of AUM. 2021 should also see continued asset growth as they are in fundraising mode for their three largest strategies. Historically, KKR has been excluded from the S&P 500 for governance reasons but the company will likely make changes to qualify for inclusion, which would bring a large forced buyer to the stock. With its ballast of stable, locked-up management fees, KKR is designed to survive market fluctuations and economic cycles. The desire for pension funds and endowments to have a path to 8% returns in a zero-interest rate world should drive continued demand for KKR's services. Quite frankly, I believe that 2022, 2023, and 2024 look rosy for KKR as well.”

The author is bullish on Roku because it is becoming the go-to OS for connected TVs (built into ~1 in 3 U.S. TVs with international expansion), cord-cutting is accelerating, advertisers can now reach more U.S. households via streaming than linear TV, HBO Max and Peacock partnered with Roku, and Roku can monetize via advertising and subscription revenue sharing in a capital-light model similar to John Malone's TCI.

“ROKU (ROKU) – Roku is well on its way to becoming the go-to operating system for connected televisions as it continues to benefit from being built into roughly one in three televisions in the United States while international expansion (Mexico, Canada, Brazil, Great Britain) increases as well. According to the recent Trade Desk white paper on connected TVs (link), "A staggering 27 percent of consumers, for instance, said they intend to ditch their cable subscriptions this year, up from 15 percent in 2020…. Such is the extent of this shift that advertisers can now reach more U.S. households via connected, streaming TV than via traditional linear TV. And many of them are embracing the opportunity to rethink decades-old TV ad processes, such as the 'upfront' ad buying model, the 30 second ad-spot, and TV targeting and measurement." Roku is ideally positioned to benefit from the continued transition to connected TVs given its role as a must-have platform, as evidenced by HBO Max and Peacock abandoning their go-it-alone strategies to partner with Roku instead. Roku provides the consumer with a superior experience to linear TV. Streaming allows "time shifting," and shows streamed on Roku typically carry ¼ of the advertisements shown on linear TV. From an advertiser's perspective, Roku allows for superior targeting as much more is known about the Roku viewer when the ad is purchased and served. Roku can monetize their strategic position through advertising and revenue sharing agreements on subscriptions and streaming services carried on the platform. The Roku business model has similarities to John Malone's TCI without the required capital expenditures.”