Next Level Platform Companies – Weekly Stocktake with Danyaal

Next Level Platform Companies – Weekly Stocktake with Danyaal

14 April 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 049 77 114 78 870 7.97%
NASDAQ Composite 10 467 12 067 12 123 15.83%
S&P 500 3 840 4 105 4 138 7.75%
Prime Lending Rate 10,50% 11.25% 11.25% 7.14%
Lunar BCI WW Flexible Fund 141,43 159.18 160.34 13.37%
USD/ZAR 16,98 18.23 18.03 6.18%
EUR/ZAR 18,44 19.92 19.88 7.81%
Brent Crude ($’barrel) 85,95 84.91 86.39 0.51%

Source: Iress

Weekly Stocktake with Danyaal

Next Level Platform Companies

Apple, Microsoft, and Amazon are companies that facilitate the exchange of goods and services between buyers and sellers. These are known as platform companies. They provide products and services that allow other businesses to grow and scale using their platform or product. Each company has a unique way of enabling this exchange; whether it is through creating an app-store ecosystem, or facilitating a large scale e-commerce market-place.

Amazon has two unique ecosystems, with the more well-known one being its e-commerce business. Third-party sellers can use Amazon’s website to sell their products to customers, with Amazon providing the warehousing and transport services in exchange for a fee. Because Amazon operates at such a large scale, it can offer customers competitive prices, which in turn attracts more potential customers to its platform. This creates further incentives for businesses to sell their products on Amazon, leading to increased competition and even more competitive pricing.

Amazon’s cloud service AWS, is also a platform company, but from a different perspective. It provides a wide range of services such as computing power, storage, and databases, as well as various other tools and services to help businesses build and scale their applications and services in the cloud. With AWS, businesses can create their own infrastructure without having to invest large amounts of capital to build servers. Due to the scale of AWS, businesses can also scale their operations more seamlessly, without worrying about website and operational system downtime. This offers a level of reliability that can be difficult and expensive to create on their own.

Platform companies require a significant amount of capital to invest in building new capacity and maintaining their infrastructure. To be successful, they also need to attract a large number of users to interact on their platform. Competition for users’ time on the platform can be intense. Breaking into this type of business can be difficult, but if successful, can be quite lucrative. For example, Amazon’s AWS segment had an operating margin of 28.5% last year. Similarly, Apple charges businesses a 30% fee on revenue derived from the App Store.

At Lunar Capital we hold Amazon, Berkshire Hathaway (which owns a portion of Apple) and Microsoft in the Lunar Capital BCI World Wide Flexible Fund.

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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.
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Lunar Capital
on Eastwave Radio

Every Wednesday, at 07h45, Sabir chats with Nazia from Eastwave Radio (92.2 fm, live stream on on investing and the markets.

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