TIVP082 (Video): Kaspi Stock ($KSPI): Beating the Market with an E-Commerce Monopoly? w/ Daniel Mahncke & Shawn O'Malley

Moniz Pabrai has recently invested in Casby, calling it one of his famous "Heads I win, Tails, I don't lose much bets." That's right. Moniz Pabrai is a large margin of safety here with the potential to copy Casby's success in its home market in Turkey. Casby's success in Kazakhstan has been outstanding. It's one of the strongest monopolies I've ever seen, dominating e-commerce, payments, lending, and many other things, and it's, without a doubt, a super app similar to WeChat in China. You're listening to the intrinsic value podcast by the Investors Podcast Network. Since 2014, with over 180 million downloads, we've learned directly from the world to best investors. Now, we're applying those lessons to analyze businesses and investment opportunities every week, helping you uncover intrinsic value. This show is not investment advice, it's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. And now, here are your hosts, Sean O'Malley, and Daniel Monka. Where do you want to start? I think we should start with the history today, because it's actually quite interesting where this company came from. Today we kind of know it as this super app, and a major e-commerce company, but it actually used to be a normal tier two retail banks. That was in the early 2000s, and the banking market was back then in Kazakhstan, dominated by the so-called "Holic Bank", which is the old Soviet savings bank, and it's actually still the biggest bank in Kazakhstan today, and the one little thing that Kaspi had going for it was that it had the banking license, and as we also learned in the new bank episode, which is a company you covered a long time ago by now, it's also an output for you, a banking license in a developing financial market, and probably you could also say in a developed financial market, those licenses are not easy to get, and they can be quite valuable for pretty much every business, because you don't necessarily need to be a bank, especially in today's tech world. There are so many things that you can do and kind of re-structure your business, and that's also what Kaspi did. We really learned in detail about what new bank was able to accomplish in Brazil, and it's fitting, because they're now a portfolio holding of ours, but that's a company that really truly defied the odds. They started with a credit card product, as you know, and they leveraged that massive popularity into getting a banking license, and then because they were an upstart bank in a more digital era, they actually had a huge cost structure advantage compared to the legacy banks, where the older incumbents were basically running on outdated and very messy IT systems, whereas new banks' ability to really start from scratch, which is a simple mobile app that helped boost its popularity and usability, correspondingly, pretty dramatically. And so, you know, in Kazakhstan, though, my question for you is, would you say that the setup was similar to Brazil, where new banks basically managed to disrupt decades-old incumbents that honestly had accumulated an outrageous degree of political pressure to try and ensure that new competition couldn't arise, is that sort of what the competitive landscape looked like in Kazakhstan, or was it a more level playing field? Well, you did certainly have these rather slow-moving oligopolies, and they were mostly serving the rich people in Kazakhstan, while the majority of the population similar to Brazil was mostly unbanked, and there was certainly a lot of political pressure to basically keep this oligopoly going, maybe even more than it was the case in Brazil, but Kaspi was not this newly established high-tech bank like new bank, which made it somewhat easier in this political environment because you don't start from scratch. So what changed the game for Kaspi was a management transition in the early 2000s, and I'm certainly going to butcher the name. I actually kind of tried it a couple of times already, but the two guys taking over were Virtus. Love Kim, who was a well-known Kazakh businessman with a retail background, and Mikhail Lom Tatsi, who was a Georgian, who also had a Harvard MBA, so he actually studied in the States at some point, and he had been a partner at the so-called bank or PE fund bearing Vostoch, which was one of the biggest private equity funds in that part of the world back then, and Mikhail was also the current CEO of the company, and I got to say, the more I watch from him, especially interviews, the more I'm convinced that he's not only a pretty smart guy, but that he was basically the one with the vision for the company. And I think if you take over a bank in Kazakhstan in the early 2000s, you sort of have to have a vision for where that's supposed to go if you suddenly want to turn into a super app. So you basically had someone with local knowledge who saw the value in having this banking license, and then an outsider who sort of knew this could be much bigger than just a bank. It's beginning to be a bit of a running trope on the show that it's only become more and more apparent to us over time, just how important great management teams are. And how special that is, and no CEO could do everything on their own. But the vision and strategy are what make the difference between companies becoming 10 baggers and 100 baggers. You could say the same for new bank, it's a phenomenal business. But if there hadn't been a person like David Veles, who saw the gap in the market and the advantage that a tech first player could have, that company wouldn't exist today. And honestly, millions of consumers across Latin America would be worse off. They would have probably not the same level of access to financial services and credit that they have now. That's a fascinating thing, right? I mean, Brazil just wouldn't be as a country where it is today's in terms of digitalizing the banking and the payment infrastructure. Although I got to say, Mellie likely would have got the job done as well, but I mean, honestly, I mean, it's kind of crazy to think about the impact that some companies can have on entire countries. And I think there are a few better examples than Caspi, I mean, it basically transformed all of Kazakhstan and we'll kind of get to how they did it and why they did it. But yeah, Mikhail and Kim kind of saw this opportunity to create a super app that covers not only banking and payments, but also e-commerce, logistics, delivery and even government services. So it doesn't really matter what you do. I mean, if you pay for your groceries, you do it with Caspi. If you, all of them, you probably do that on Caspi's marketplace and if you file your taxes, you can also do that using Caspi. And actually, I heard the fact that now there are way more people filing the taxes simply because it's so much easier since Caspi has been doing it that it's actually a benefit for the entire country that you can do it. But even more things. I mean, you can also apply for your driver's license on Caspi. You would also register the car that you would then hopefully get afterwards on Caspi. And you could even apply for marriage registration. So there's pretty much nothing that doesn't touch Caspi at some point if you live in Caspi. I'm imagining some absurd advertisement where they're just going down the list of every possible thing you can do with Caspi because at this point, it almost sounds a little ridiculous. The lock-in to everyday life is really incredible. And obviously, Caspi doesn't have the same size of the U.S. or even some other Asian countries where this super app concept is more widespread, but we are talking about a country of 20 million people. And that's how you get a company with a $14 billion market cap because it's so deeply entrenched into the lives of this population of people that isn't the biggest, but it is not entirely modest, either you're still talking about a significant number of the folks that you can tap into. I would say it's big considering just how entrenched Caspi is. So you might expect that in a country that's maybe a tenth of the size, but certainly not for 20 million people and we'll get into detail later on how that was possible, but I think why it started was really quite simple and also important to know. Just as in Brazil, again, these legacy banks didn't really solve most people's problems and even simple things, just like paying with your credit card. For example, we're just such a headache that most people couldn't do it. Even the merchants, I mean, card terminals were pretty expensive and then also just unreliable and the worst thing that could happen is you actually have a customer in your shop and then he wants to pay, but he can because the terminus is not working. So that basically caused a lot of, especially small merchants to not offer card terminals and that obviously also means that if you're the customer and you go to a store, you can't pay with a card. And even if you wanted to send money to someone, I mean, you basically needed their 20 digit account number and then wait for days until it's cleared and I even heard that if you wanted to pay your utility bill, that basically meant going and standing in line at an office doing working hours. Gosh, I feel kind of unbelievable. I'm somebody guilty of, I feel like I do almost my entire life remotely, right? We work remotely and I can't imagine standing in line to file paperwork in that way. So just imagine the productivity gains that Kazakhstan has made thanks to Caspi, right? By cutting out all of that bureaucratic inefficiency that we take for granted in countries like the US and across Europe and because you have citizens that no longer have to stand in line to pay utility bills, they can do much more productive things with that time. It's sort of the dream for a German, you know, suddenly you can do Texas and it's way easier. And now you can also have at least one or two hours back that you can spend with someone more fun than than standing in line, which, you know, for example, working is, I'm just getting as a good use of time and probably, you know, the Kazakhstanian government likes that, but I would assume that knowing you, you probably even have a special credit card or something like that for utility bills because I do know that you have one for most other things in life. I'll always give you this. Nice. payback rates. I knew you were gonna bring up my credit cards today. I just had a feeling when the company were talking about. Yes, I have a credit card that I used to pay my mortgage with that Daniel teases me about. And I actually do have a card that I think gives me some special perks, some special cashback for utilities if I use it. I kind of knew it. I just knew it. I thought this would be the one thing that you probably don't have and then I was joking about how cost we might launch one. And then you could move to Kazakhstan and use it. But obviously you already had that. But you know jokes aside, the interesting thing about cash is that it really just fixed all of those things. That was the first time for me personally. Do you ever look at a company that not only considered monopoly in a certain part of the market, but it really seems to be that the entire country is only working because that company is so entrenched in all of the processes. The innovative nature of these companies plus the favorable growth conditions and demographics as some emerging markets offer is partly why I've gotten slightly more comfortable investing in emerging market businesses. I would say Daniel has helped kind of pull me out of my shell a little bit out of my comfort zone. And here in the US, or for you in Germany, there is an inertia to daily life. People have banked shopped and filed official documents the same way for 40 years. And in a plastic Kazakhstan, there's less to unlearn and fewer habits that you have to change. So people are actually more willing to try new features. So you often see in emerging markets that adoption of new technology unfolds on a much faster timeline. And it's like the catch-up time is very, very quick because you don't have these drawn out adoption periods as you sometimes see in developed countries. I still believe that to some extent that's also why they have these soup apps because it all goes so fast because once you make the transition to digital, the progress is just sort of compounds. And again, you know, caspy as an app went from a banking tool to a payments app then to a marketplace to a lending business. Then eventually you have this super app where you can do everything important for daily life. I talked about some of the companies like C, limited or melee for example. And what they are so good at is focusing on what the customer needs and then basically creating a product just for them. And if you do that, you mostly end up with these ecosystems because obviously there's more than just one thing the customer wants. It's not just payments. They also want to buy stuff. So you end up with marketplaces with payment tools and that's basically what caspy did. So you always see new tools being introduced. So for example, in 2020, they launched caspy pay on the merchant side, which was, I would say the final step to turn the ecosystem into this sort of fully functional two-sided network. You know this, for example, is someone paying with a QR code that obviously generates data that then improves credit scoring. So a merchant who signs up for caspy pay suddenly has access to 15 million customers, basically the customer base of caspy. And then a borrower who shops on the marketplace is showing caspy exactly how they spend, which is again, we've discussed it in so many episodes. One of the most important data points that you can have. We've covered Mercado Libre C, limited and Amazon. So you probably feel like you've seen this story play out dozens of times. I do. And usually you and the audience can tell that by me just bringing up those companies and pretty much every second episode and probably five times. So I do feel like I have seen how that works. But I do not say that I got a better understanding with each company that I look at. And why they all look pretty similar on the surface. They all have important differences, the kind of effect, how they evolve and also how successful they are in the long term. Something I like to see across all these companies is that they're founder led or have been for a long time. And the founders own significant stakes, usually. And so I'm assuming that's also true here for Lamassan Kim. Is that right for caspy? Yes. And they might actually own the biggest stakes that we've yet seen. So Mercado owns about 22 percent of the company and came out into about 20 percent. So just between the two of them, they were more than 40 percent of the entire company. And if you look at all the officers and directors, obviously, the entire management team combined, they've inside our ownership north of 46 percent. So almost half of the company is owned by the members of the management team. And therefore also by the people who actually make their decisions. Good for them. That's great to see. I love that. You know, at the current valuation, despite the stocking flat over a five year time horizon, that would mean that Michele's stake is worth what about three billion dollars. And it's probably similar for Kim. And so with those stakes, I would expect or hope that they're mainly making money from stock appreciation and not from eight figure salaries. Yeah. Fortunately, that's not something that we see here. It's sort of a similar structure to Copa, the Panamanian airline that I covered, I think about two weeks ago. And they also had a high level of insider ownership. They have a pretty healthy dividend, which, you know, goes to investors and it's part of the thesis. But they also have pretty low salaries for the management team. So basically the entire management team of Caspi earned around $1.4 million last year. And that's basically the median CO salary times 10 if you would look at the S&P for fun. So I sure that to all of this, just sort of a note that especially talk about the CO stakes that Kim is currently selling some of his shares in Caspi to finance the stake in original bank that he not too long ago bought. And that's a bit of selling pressure obviously on the stock. I mean, again, he owns 20% of the company, but I don't really take it as a bad sign beyond the fact that they're selling pressure, especially since Mikael kind of continues to buy shares. And we'll probably also talk about it later in the episode, but they are quite sizable investors that are invested and also 10 cents, for example, coming in buying some of those shares. And I can also say there's good news on the SBC stock based compensation front as well. Well, most of the US listed tech companies that we look at have quite sizable stock based compensation, which is never a good thing for us to see Caspi has less than 0.5% of revenue in stock based comp. So basically, if you will look at the share count, it's completely flat over time and they don't need to spend a lot of money on buybacks to keep it that way, which is also kind of good because sometimes you look at companies and they have high SBC, but they also buy back stock. So, you know, the share count doesn't move, but in the end, it actually means that you as a shareholder are paying for that because instead of giving money back to shareholders, they're spending the money on burning issued shares in the first place. How about we take a deeper look into the business ecosystem here because Caspi's got a lot going on. It was going to be a lot of different things for us to try and wrap our head around. Today, you already mentioned some of the features, but that term super app is definitely thrown around in Caspi's context. And as someone who hasn't experienced one yet, we don't really have these super apps in the US in the way that people in Asia would think about it. I definitely want to better understand what that actually means. And so I recently asked you whether you had heard of a company, RAPI, which is an upcoming South American super app. And you know, your response is that you don't fully understand how this will become a super app given that e-commerce, payments, ride sharing, and many other things already have local champions with the point being, they're going to have to conquer a lot of verticals before they can accomplish their goal of being a super app. So maybe you can speak more to that. And to be sure before I get flamed in the comments, I don't know the company quite well. You asked me about it and you know, sort of thought I heard about it, which wasn't the case. And I think it's just that the term is so overuse, but now because just because you play in different verticals doesn't necessarily make you a super app. I mean, Caspi is one, in my opinion, because the three major business units, the major businesses that it operates are all market leaders by a wide margin. And you know, if they would be standalone businesses by itself, they would be monopolies in every single fear that they operate. And so for contacts, well, that's 70% of Kazakhstan's population actively uses Caspi. And when I say they actively use it, that means they interact with the app more than 77 times in month. So I know if you compare that to international players, or maybe the Western equivalents, and sometimes it's not the most accurate thing you can do. But if you would do it, I would say that Caspi kind of looks on the payments fund like Visa plus Square. On the marketplace, you could probably compare it to Amazon and also eBay to some extent. None of the fintech side, it's something like a so-fi plus affirm. So in the West, just by naming all of these companies, you can kind of get the idea that it's pretty much unthinkable that there's just one companies that covers all of them. But in this country, Kazakhstan, which again still has 20 million people, that pretty much all is one app. So it's really incredible. If we just take them one at a time, perhaps we start with my favorite area, payments, which I say sarcastically. I have historically not been known for enjoying the complexity of payments businesses, or at least I find them to be complex. But you know, it makes sense as Caspi started as a bank, for us to look at this payment side of things. So I assume that that was sort of the foundation and everything else followed. Yep, that's how it is. I mean, they currently run about 18 million transactions a day. Of course, your payments at merchants, peer-to-peer, transactions, bill pay, and then also some B2B transactions. So I think total volume is about $100 billion last year. And the best thing is that this business unit is certainly what drives margin. So it's responsible for only 16% of revenue, but about 40% of net income. So if you do the math, that's higher than 65% as net income margin, which is just incredible. More than 65% I think that's higher than visas, which speaks to really the quality of the business here. And with a number that high, though, I do wonder if that's going to be sustainable long term, either due to competition or government intervention. It actually is higher than visa and I checked it before, but I think the reason is that Caspi owns the entire payment ecosystem. So I don't want to get into the details with then volume, but Let's say when you scan a QR code at a merchant or let's say a cafe, for example, the money would go straight from your Caspi account to the merchant's Caspi account and that basically means there's no middle man. It's all about Caspi's own rails. And that's obviously where usually Visa or Marcia would take these interchange fees in the middle, but because that's not the case and there is no middle man. That means there's a whole lot of margin for Caspi to guess. So every merchant who sets up a QR code and every person who pays their bill in the app is almost pure profit for Caspi because again, processing one more transaction costs and pretty much nothing. And there is no middle man to take a cart and the newest product in the payment ecosystem is also kind of crazy and it's kind of making me wonder sometimes how far ahead some countries are in regards to their tech and I know it's not politically correct, but you know sometimes you feel that you're sitting here in Germany and you should in theory go into a shop and should pay with the newest thing out there. But then you learn that in Kazakhstan, Caspi has just dropped a product which is called Alakwan and it's basically a pay by Palm ecosystem or system basically. So you can just scan your hand and that's it. And half a million people already signed up in the first 90 days and nothing I'm talking about it. I think a while back, perhaps it was when we covered Amazon. You talked about a similar technology and I think it was in Whole Foods, isn't it right? Or maybe I just mix it up. Well, I think they were ahead of their time because it doesn't seem like it really caught on. I thought it was the coolest thing ever. I saw this Palm scan technology at the self checkout for Whole Foods and then I finally set it up and I was like, there's no way this is going to work or it's not going to scan my hand properly or sometimes when you're checking out with groceries, you're like, I don't want to sit here and spend five minutes like setting up an account. I just want to pack my groceries and go and I finally did. It was pretty easy to set up and it is incredible. My wife used to tease me and say that I would go to Whole Foods to shop just so I could scan my hand at checkout because I thought it was so cool. Unfortunately, I think Amazon is fading them out. That technology, at least in this case, hasn't caught on in the U.S. for whatever reason. Going to Caspies Marketplace, though, in one of our more recent calls in our TIP mastermind community, you talked about the concepts of the e-commerce slatter. Maybe you can elaborate a bit more on that concept and tell us where you see Caspies Marketplace hitting in and what that means for the moat and economics of the business. If you're a fundamental investor like me, you need a research terminal that actually keeps up with you. That's why me and my colleague Daniel Monca used Fiscal AI for every episode of the intrinsic value podcasts that we do. It's the complete stock research terminal built for people who care about the numbers. Fiscal AI pairs a modern interface with institutional grade data. It has over 20 years of financial statements, 40 quarters of history and company-specific segments and KPIs that I love digging into. Want Google's Cloud Revenue? It's there. You want to see Duolingo's monthly active users? It's there. And I know because we did that in our episode on Duolingo. There's millions more data points to all updated within minutes of earnings, not days later like legacy platforms. You can export data, run screeners, pull earnings call transcripts, and Morningstar reports, track super investor holdings, and compare companies head-to-head just like me and Daniel do, and even plug Fiscal AI into Cloud to power your AI research with institutional quality data. Head to Fiscal.AI/TIVP. You'll get two weeks off, Fiscal Pro free, and if you upgrade that same link, we'll save you 15% on any paid plan. Again, that's Fiscal.AI/TIVP. Hey folks, quick but exciting update here on Saturday, September 19th, Daniel, Kyle, and myself. We are hosting the intrinsic value conference New York City. This will be a full day of value investing talks, stock pitches, and panels in Midtown, Manhattan, as part of a bigger weekend with our mastermind community from September 18th through the 20th. And we're hoping to make it something like the value X and Ted Talks can buy it. And so members of our mastermind community, both the inner circle and our intrinsic value mastermind, will have spots reserved at the conference as part of their membership for free plus private community dinners on Friday and Saturday night in breakfast on Sunday. And for everyone else, there's two ways you can join us if you're interested. A general admission ticket gets you full access to the conference itself, a stockpitch presentation from Kyle and intrinsic value portfolio with Daniel and me, plus guest speakers that will be announcing in the coming weeks. Or if you want the full experience, our VIP ticket package, that gets you all day conference access, plus a seat at our Saturday night exclusive dinner with William Green and the rest of our inner circle community. And it will definitely be one of the more special evenings we host all year. So if you've ever wanted to spend a weekend talking shop with serious investors in the financial capital of the world, this is it. Find tickets in the full agenda at the intrinsic value conference dot com. That's the intrinsic value conference dot com. And if you'd rather join us as a member and get the conference plus the full weekend included, apply to the intrinsic value mastermind at the investors podcast dot com slash mastermind dash application. All the links are in the show notes below hope to see you in New York. Yes. So the general idea is to categorize ecommerce companies into three buckets or you could also say levels on level one, you have companies that are in the early ecommerce stages. So they're basically offering more low quality products off times that means they're unbranded and you know, potentially clothing, for example, usually also have pretty slow logistics network that is mostly covered through third party carriers. There's no ecosystem surrounding the ecommerce operation yet. So you don't have payments, you don't have your own logistics network. It's pretty much just the ecommerce side. And then you kind of try to figure out how to get the product to the customer. So a company on that level is, for example, TikTok shop and perhaps also to some extent Pindu Oduo, but that kind of depends on how you look at it. There's certainly also an argument to make that Pindu Oduo might be closer to level two. So if I'm understanding you correctly, level one is not necessarily worse in every aspect in level two or level three for these companies, right? They're just really it's about serving a different customer. Right. That means to some extent, at least in the long one, you do want to move up the ladder and basically create an ecosystem around the marketplace because obviously that's where you build a mode and that's also where you make most of your margin. But you're right that level one companies are important because they serve customers who otherwise just wouldn't be able to participate in ecommerce at all. And that can also be quite profitable as well. The only problem is that obviously the barriers to entry by level one are not that high. So you know, mostly your margin gets competed away over time, which is where you want to move upwards the ladder. The customer has mostly lived in these tier two or tier three cities and obviously their prioritize price over convenience and quality. And in part, that's because most purchases on this, you know, level one impulse purchases. So simply because level one marketplaces are built to evoke such purchases. So it's less about the customer generally and more about what the marketplace is incentivizing you to do. And if you buy something that you didn't even know you wanted two minutes ago, you also tend to not care too much about if it takes a bit longer for that product to arrive because essentially, it's not a good that you need for everyday life. And then companies on level three are basically the exact opposite. So their customers have a clear purchase intent when they visit the platform. And that's why you expect high quality products and also foster delivery and then exchange prices can obviously be higher. And most often customers are also willing to pay for, for example, faster shipping. Even if that happens through a subscription like prime, because obviously nobody likes to pay extra for shipping, but still in theory, they're doing it. And judge by Caspi's ecosystem, I think it's fair to say that they're level three e-commerce players. Is that right? Yeah, I mean, I would certainly categorize them as level three, although it's quite interesting because Caspi's ecosystem is obviously incredible. And you have them at the highest level judge by the flywheel and the mode. But usually level three e-commerce companies have spent billions of dollars on their logistics flywheel. Of course, two, you know, have only the best products and especially make sure that you deliver them fast. Mellie, for example, has dozens of massive logistics centers. They have thousands of delivery vans. And as you also know, they have their own fleet of airplanes. Caspi, on the other hand, still relies on acid light, third party logistics network. So the deliveries go through a network of, I think it's more than 10,000 so-called self-service parcel lockers. They call them poster mats. This is quite fast and effective. I mean, 84% of orders ship free and about half of them show up in under 48 hours. That's pretty comparable to, for example, Mellie or Cilimited, but it's also quite easy to copy. And so actually, this kind of reminds me of a manga quote. I think you once said that the young man knows the rules and the old man knows the exceptions. And usually I would look at Caspi's acid light logistics network and say, well, it's only a weakness, but then you have to consider all of the other parts of the ecosystem and the benefits that come from that. And just sort of the ridiculous customer lock in that all of that creates. And when you do that, you sort of realize that the model works perfectly fine for them at least in their home market. Daniel, I think you're dating yourself with that quote there because Munger made it when he was probably 60 years older than we are. So I'm not sure how helpful it is. Well, I think that's fair and to be completely honest, when I looked up this speech where Munger said this, I actually thought the quote went this smart. man knows the rules and the wise man knows the exception. So that would have made us wise man. Unfortunately, now it doesn't fit that world anymore. They actually believe that there's probably a pretty good chance that I publicly, at some point, misquote it mungo, handful of times on that quote. But getting back to Cusby's marketplace, it is responsible for about 47% of revenue and 26% of net income. And the world's merchandise value are often told GMV is surprisingly low actually at 19 billion. And that also includes what we will still talk about later, which is an acquisition of a Turkish economist company, which is called Haspi, which is at a GMV of about 4 to 5 billion. So if you would basically deduct that from the GMV of only the Kazakhstan home market, you would only get 14 billion in GMV. But then again, we also talk about the dominant player in Kazakhstan. It's not South America, it's not Brazil, it's not Europe, and certainly also not the US. How does the take rate look here? I mean, when I look at the ecosystem, Caspi looks pretty mature in terms of all the verticals that it's expanded into. But it's still growing fast in many of these business units. So it is more like a Umurkata Libre or a Shopee, which is a subsidiary of C Limited, or there's a company look more like Amazon in the US, where you have better take rates, but lower growth. It's sort of in between. As some business units are more mature and payments, in such an example, while others are still in the relatively early stages. So e-commerce is probably the one that our categorized as being closer to Mellie or Shopee. Amazon's all-in-chair grade, for example, is in the 30 to 40% range. So they pull about 30 to 40 cents of revenue from every dollar that goes across the platform. And that's slightly more when you add the advertising and also the logistics business or basically delivery to it. And Caspi's take rate on the marketplace alone is 12%. And then when you add delivery and also adds to that, you'd get to about 16%. So it's not very low, but it's also certainly not where Amazon is. And you know, in part that due to the geography, but also considering it's a monopoly in Kazakhstan, you could imagine that this gap will probably close over time. That's mostly about how quickly can they scale up the ads and the logistics business. And pure sales commission, I think we talked about that also in some of the other episodes. They're more or less the same. And you kind of don't want to push your merchants to pay more money without actually giving more value to them. So that's why you usually don't try to expand your take rate on just pushing up the the seller fee. And what you do instead usually is you have more advertising opportunities, which is obviously delivering value for the merchant because they can get their product before more eyes on the marketplace. All you build the logistics network and you charge for delivery, which once again, it's a good customer experience. And that's why it also benefits the merchant. So you basically increase the take rate by charging those fees only if you add value. So if you look at the advertising product of CASB, which is the on-platform, promoted listings, and certainly the highest margin, it is actually going at over 70% here. So there's certainly a long way to go for it. I think it's about 7% of merchants that is still today part of the advertising business. So there's plenty of opportunity for further growth and also much an expansion. The great thing to me is that we don't really have to guess and try to figure out if the business model will work, right? The advertising business works with pretty much every dominant e-commerce platform we've seen. And so it's really no reason to believe that it shouldn't work with CASB. Right, it's pretty much a proven model that just needs time to grow. But I do see it as having a high likelihood of succeeding obviously. I mean, delivery is somewhat different. Again, CASB is special because it's the only level three e-commerce company that I haven't seen with a major logistic network. And the fact that it relies to a large extent at least on these third-party carriers and the self-passed lockers is not only quite unique, but it's also obviously kind of setting a ceiling for how much you can charge for delivery because if you are not a huge part of the ecosystem that actually delivers the parcel from your warehouse to the doorstep, you cannot really charge the same amount of money that Amazon and maybe in the future also Mellie will be able to charge. And I should say that CASB is already monetizing it. So in the beginning, I thought they don't make any money from it, which is not true. They do have a take rate on delivery as well. But again, the ceiling on the take rate that it can achieve there's not, you know, comparable to what Amazon or Mellie can take in the long run. To be fair, CASB is making its margin with the financing and fintech business, which is much more mature and profitable than Mellie's fintech and lending business today. Yeah, that's right. Okay, so speaking about the finance and fintech business, what should we know about that? Any color you can paint there? Yeah, I feel that I have to go into much detail again, because obviously it's a great comparison for both Mellie and also Celimidate, which also it's its own payment arm or fintech arm by an island. May 1st I start by saying that fintech is about 38% revenue and 33% of net income. So about a third of the business, both in terms of revenue, as well as in terms of net income. And that's generated on about 24 billion dollars of lending last year, because mainly for products. You obviously got the buy now, pay later at checkout, which is what you see with every single marketplace out there. Then you have more regular consumer loans, then you have financing for merchants and small businesses, and then you also have car loans. And I wasn't surprised to see that Casby has a relatively cheap funding source, too, because obviously it was a bank when it started out. So Mellie and C are still kind of trying to set up customer deposits at scale to fund the credit book through that, because it's just way cheaper than actually getting other funding sources. Casby already has over 6 million customers with deposits totaling about 14 billion dollars. And those deposits then again, fund the loan book. The strong thing about Casby's loan book is that it's based on data that makes even Mellie's data, and it's not easy for me to say that look quite bad. I mean, as a super app, they obviously know everything about the customers. And by the time someone applies for a loan, Casby knows about their income, because obviously their salary lands in their Casby account. It knows they're spending, because they use Casby pay dozens of times a month. It knows whether they actually pay things back, because it's watched them on past Casby loans. And they even have all sorts of government service activities. So they approve 99.9% of applications automatically, no person involved in under six seconds. And you can also see that in the NPLs, which is a metric that we always look at and it's standing for non-performing loans. So despite still growing the loan book or the portfolio, by over 20% a year, NPL set at only 6%, and that's pretty much the same level as New Bank. And it's about 10%age points lower than Mercado Libre. One thing that I do see the data, though, is that the NPL coverage is below 100%. And for Mally, it's over 150% for context. So is that a risk that concerns you here? When I first looked at it, I thought it was a bit weird. I think it was back in Malta when I was visiting one of our mastermind members and we talked a bit about Casby and he talked about the company and I was looking it up just at the first glance. And I looked at the numbers and I kind of didn't know why that was happening. So as a quick explanation, NPL coverage is the ratio of provisions, so basically money set aside for expected losses to the NPL balance. So 78% coverage means that for every dollar of 90 day overdue loans, Casby holds about 78 cents of provisions against it. Then, intuitively, you would say, well, that's 22 cents short, at least. But it also depends on what the lender expects to recover on the non-performing loans. So a secure loan, for example, doesn't need 100% coverage since you can recover a lot chunk off the loan. So car loans, for example, right? You still have the car, even if the borough can pay, so then you recover a lot of that loan. So my second thought then was to just check the credit mix shift and kind of see what percentage of the loans were actually securitized or backed by an asset. But it turned out, it wasn't a lot. It was kind of comparable to Mally. So that was kind of surprising to me because that obviously makes the lending business pretty risky. And that's not the impression I had from the management team. I didn't think that's how they operate. But then I looked at the so-called LDG ratio, the loss given default. And it turns out that Casby does recover significantly more or larger chunk of an unsecured loan than most other companies, despite it not being asset-backed. And the reason is that it has, again, the best data and also just an uncomparable market position. So since Casby knows everything about you, they know when money is coming in and also how much, and since Casby is pretty much vital to almost every person living in Kazakhstan, they just can't afford to lose access. So Casby recovers many loans even after the 90 days, when most other companies, including Mally and Climited, can't even dream of getting the money back anymore. Well, that's pretty cool actually. And potentially something we can hope for with Mally at some point. And with both Mally and Climited, we discuss the importance of increasing order frequency and order quality to improve their data. And as you said, Casby can work with data from 77 transactions a month per user, which is just absurd. That's about, you know, if I do the quick math, about two and a half transactions per day, which I don't know, it's kind of insane. I mean, the average American uses their debit card, about 25 times a month. Though I could imagine it might be a bit more for you, but Casby's users are dissecting three times as often. And even the government services at this, you know, new layer of stickiness, over 12 million people pull up official documents through Casby. And while Casby makes no money on that, at least directly, it sort of builds engagement and trusts that strengthens the rest of the ecosystem. So for example, thinking back to COVID, when the government picked Casby to hand out a pandemic relief, That's it. was you know a way better ad campaign than you could have ever paid for or you get me wrong Daniel I said I don't use a debit card I only use credit cards got to get those cash back in points right but anyways is there also a messaging app or something similar that's integrated for Caspi right I mean we chat is arguably the biggest super app in the world even if it's not well known to North Americans and it started by running the most dominant messaging platform and then they built into different verticals from there and one of the advantages of starting with messaging is that it comes with huge network effect benefits that you can then roll into these other types of businesses well maybe we've now found the one weakness for why we should also call Caspi not a super app because no they don't have one they are active on pretty much all the verticals that you could think about but not in messaging and as far as I know I think WhatsApp is the dominant messaging app in Kazakhstan and the network effects of Caspi therefore you know mainly come from its two-sided marketplace and its scale which I think a lot of our portfolio companies benefit from so it's not like we underestimate the scale and the network effects that two-sided marketplace is benefit from and Caspi again facilitates about 18 million transactions a day with over 14 and a half million payment users and more than 750,000 merchants and again we're not talking about the assets still Kazakhstan so you have this typical market and fintech flywheel which is incredible so more consumers pull in more merchants more merchants mean better selection and also better prices and more purchases mean more data better data means better credit cheaper credit means more buying it's the same kind of flywheel that we talked about with all of these companies and any new entrant would have to reach basically critical mass on both sides of the marketplace which you and I know that best is nearly impossible not only because it's incredibly difficult to do generally it's even more impossible if you already have you know an incumbent like Caspi this scale and probably also the political connections in Kazakhstan one of the major differences between the old incumbents and these new tech-first companies is that they seem to always be on the lookout for upcoming competitors to not fall prey to innovators dilemma and so you know that's something we see worldwide it doesn't matter whether it's with Mercato Libre, Alibaba, coupang, Chappie, Amazon or the other big tech companies in the US all of them have won their market by disrupting old legacy players and then have maintained that market share and expanded into new verticals by being hyper focused on not allowing the same thing to happen to them and so that's essentially their rationale behind spending hundreds of billions of dollars on AI right now right I mean this might be the first time a technology has emerged with the potential to disrupt their legacy business models for companies like Amazon and Meta in Alphabet so they have to front run it and ensure that they dominate on all things AI so no other company can take their place and turn them into one of the you know negative outcomes of the innovators dilemma and so if the investments work out that's great but even if they don't that does just really in other words mean that they keep their old business models in modes in place because you know AI doesn't end up being a disruptive force that they feared we were spent a lot of hours in the last couple of weeks discussing with in some of our mastermind members what it means to have these hundreds of billions of dollars invested in AI and data centers and what it could potentially mean for the future modes of companies like Google and I guess you can say that it's just sort of justifying today's investments by saying well even if you just keep your market position that's probably worth a dollar of money because if Google keeps being Google for the next 20 years the cash flows that they will have are 10 times 20 times larger than whatever they could spend today on AI and data centers and I mean even if you look at SpaceX going public at a two trillion dollar valuation that probably means the world's have changed to semics and I know those are famous last words but if I look at you know Google and compared to SpaceX much rather go with the company that has already built a mode and is printing cash like there's no tomorrow I think we're on the same page there and you know speaking of all the advantages Cassie has due to its monopoly like position I do want to bring up the topic of what their local competition if any looks like and at the beginning of today's episode I was a bit surprised when you said that there is actually a local competitor that is the biggest bank in the country that seems pretty antithetical to really this whole idea of Cassie being this deeply entrenched potential super app and I would have thought that Cassie would be at this point considered the largest bank in Kazakhstan so it's surprising to be that it's not so you know how should we think about this dynamic between Cassie and some of the other legacy banks and local competitors and whether they're really much of a threat to Cassie's business at this point yeah I think the bank you're referring to is called Holic and it's a great business as well it is still as you said the biggest financial institution in Kazakhstan measured by assets deposits and also corporate loans and they're on more than a trillion tang in net income they run 30 plus return on equity and they also pay huge dividend kind of similar to Cassie and if I had never heard of Cassie and I would look at Holic and I would say you know that's a pretty dominant bank and just as you said I'll probably don't think it's possible to still have the sort of monopoly like position that we described for Cassie but I think the bet that the Holic bank made was a very different one than Cassie so for them it was mainly about banking relationships and the banking business in general and Cassie back in the early 2000s we doubled down on the consumer relationships so we're talking daily payments we're talking a BTC marketplace and so on and it turns out in the long run with a lot of high set buyers the consumer side was the more valuable real estate I mean software businesses and banks are also data businesses today and the data Cassie could gather over all their time is certainly a competitive advantage that's impossible for a normal bank to match even if you are the biggest bank in the market and I think it's always easy now 20 years later to look back at how sort of the situation has evolved and say why didn't Holic bank kind of tried to go into the same direction 20 years ago few people could imagine how important the consumer side and the data would actually get of course it was obvious that it would play a bigger role than in the past but very few people knew how it would actually play out and one thing I noticed when I listened to Cass BCO it's just how focused he is on the customer experience Holic optimized mostly for banking products so for them it was about having for example the best credit card and Cassie looked at things through more of the consumer lands so how can I make the life of a consumer as easy as possible and initially that was simplifying finance and payments but over time that kind of spilled over to all other parts of life well I don't want to throw a wrench in sort of the narrative here but Holic has released its own super app I understand and so has that taken chair from Cass B I mean does that complicate the picture that you're painting here yeah the the super app was called home bank and was originally launched in the mid 2000 so it's not necessarily a new app but for the longest time it was just a banking app and then in 2023 was basically transformed and started to integrate things like payments installments also marketplace and also some of the government services that we talked about before for Cass B so they basically try to do what Cass B was doing but they have only about 10% of market share for example on the payments market and I think they're primarily succeeded in cross-selling the app to the bank's customers which is not a small number of accounts but it's also not comparable to the reach that Cass B has and Holic basically handles the majority of Kazakhstan's corporate banking state pensions pay world programs and sort of the government funding account so pretty much the exact sort of legacy bank that we talked about in the beginning so just by integrating e-government services and also the e-commerce engine directly into its super app Holic has converted a lot of these passive institutional accounts into active digital consumers but it's a totally different part of the market than what Cass B is trying to capture. Well I think that's the first time I've ever heard anybody say e-government services but we were joking about that earlier about how Cass B does so many different things you can do anything with Cass B and that's you know part of the value add and probably helps their relationship with regulators but that does weaken the kind of bull case if other companies are actually able to offer these governmental services too right I mean it's not a totally unique offering that Cass B is able to provide. You know for a second I thought you were making fun of English being my second language but saying you never heard e-government services run on government rails and they are obviously open to the public and that means to multiple banks and the Holic Bank is one of them and there are a few others too but I think why I think of it as more of a Cass B service is because Cass B is dominating again the consumer relationships and it doesn't sound like a huge mode especially with other banks also opening up super apps or there's just no reason in my opinion for consumer to actually go and change and basically spend time on another app because they are just these deeply integrated habits and network effects and all of that stuff and if it's already sitting on Cass B I just don't see it moving away we're putting up examples showing how difficult it is to change deeply ingrained in consumer habits. And Apple once tried to do peer-to-peer payments on iMessage and on paper that made a whole lot of sense. But it did not gain much traction. I don't know many people who are sending payments over iMessage. Another good example was also in our Spotify episode, because you know I have YouTube premium and one of the best decisions in my life. So in theory, I would also not need to pay for Spotify anymore because I can just use YouTube music, but I never do it. And if I ask my friends who also are subscribed to YouTube premium and none of them is using the music feature. So I think there are many reasons for that. But sometimes it's as easy as saying people like to stick with what they know, especially for things that are sort of their daily habits. I think that you don't believe Casby will have its monopoly status challenged anytime soon. Is that fair? That's fair. I think when I set that pub or I invested in Casby with the, you know, heads, I win tails, I don't lose much philosophy. Then Kazakhstan is the tails part of that equation. So highly profitable business with a huge mode still growing quite fast. And also, you know, the source for sizable dividend. You could also look at Casby as more of a growth story. And that's mostly coming from an investment made in late 2024 and kind of early 2025. That's when the deal actually closed. And that's when Casby bought a 65% stake in one of the leading Turkish e-commerce companies called Hepsiburada for $1.1 billion entirely in cash. And for context, Hepsib has about 16 to 20% market share, depending on the data that you look at. And Turkey has 85 million people versus Kazakhstan's 20 million people. So in theory, in one move, Casby roughly 5x the size of its market or of the market that's going after while owning a dominant playo in the country. And the bull is framing. I would think he's at five times the addressable market and doing so in a country that's structurally culturally similar to Kazakhstan in some ways makes it, you know, a great place to invest with a team that has run a similar playbook before. And yet on the other hand, I kind of wonder whether the expansion into Turkey suggests the home market is saturated, right? It's more mature. So they're they're having to look abroad for growth, which comes with pros and cons. That's what I thought about as well. I mean, in an honestly limited episode, I kind of mentioned how impressive it was, but their ability to expand into Brazil with the success that they had. But you also wondered why they don't just double down on Southeast Asia instead of spending billions to be the number two somewhere across the globe. And in Casby's case, I think the answer is slightly easier. I think they're completely dominating Kazakhstan, but it's also a small market. And why there is still growth potential in many of their business segments. So for example, e-commerce being one of them, the highest margin business undoubtedly is the payment part of the business and the financial and the banking segment are already quite mature. So I think it makes sense to kind of see what market is similar to where we have been successful and then expand over there. I'm not going to pretend to be an expert on the Turkish e-commerce market, but at first glance, right? I mean, it does look somewhat similar to Kazakhstan. So Casby has a blueprint on how to succeed in this kind of market. And it's similar to why I think see limited was able to successfully expand into Brazil, despite the fact that their operations were originally focused on Southeast Asia. And they seem to have had some early success talking about Casby here. Right, purchase activity has increased 19% in Q4 last year. GMV grew at a low teens rate and revenue has grown in the high teens. And we're also seeing some operating leverage. So there are definitely signs of early traction, even if I a little bit skeptical of their likelihood of, you know, having the same level of success that they had in Kazakhstan. I think that's fair and we'll get to some of the reasons that I think what's mainly different is the competition. So perhaps the year's again, the number two, but the other big player in Turkey is trendy, which is backed by Alibaba. And again, we kind of have to talk about it. It's limited also competed in Alibaba backed competitor in Southeast Asia and clearly won that battle. But it's sort of not the same. And just as you kind of doubt that the same will happen for Casby and Turkey, I think the Turkish market is it's sort of similar in terms of, you know, culture, citizens' wealth and perhaps also demand. But Casby just won't have some of the very important advantages that it had in its home market. You know, it's hard to kind of overstate how important the monopoly like position is also why Casby didn't need the logistical infrastructure of international competitors and why Casby has some of the best payment data in the world. Why, you know, they don't have to cover 100% of the non-performing loans. And I could keep going with this list for hours. My main point is that a lot of the advantages Casby had in Kazakhstan do not exist for Pepsi and Turkey. Well, it sounds like neither of us are bullish on the Turkey expansion. I think it kind of, you know, comes down to how Casby approaches it and what success would look like in Turkey. I mean, if Casby is trying to build a similar ecosystem in Turkey through Pepsi, I think that would mean a lot of CapEx and a low chance of success. But if they know, they can't replicate that success and instead kind of try to just copy some of the best practices any commerce and finance operations. I could see that as a great opportunity that doesn't come at a huge cost. So that would basically mean improving metrics like order value, order frequency, which, you know, you just talked about. And on Casby, customer purchases 27 times per year on average. And on Casby, it's only seven times. So if you think about just, you know, the marginal improvements like that and consider that the Turkish ECOM is market is going 10 to 15 percent per year in dollar terms, you can see what might be attractive to enter. I think I make 27 e-commerce purchases a month, maybe a week. But obviously just getting back to it here, how much market share does Trendy all have? Because I think you mentioned Casby has slightly less than 20%. So expect Trendy all to top that. And do you know how much Trendy all spins annually and what margins they're operating with? It's sort of a lot of questions. But I do think it's really important to understand the market dynamics here in Turkey for us to really be able to underwrite Casby with any conviction. Yeah, I'm kind of out here trying to impress you with some of the numbers that Casby's putting up. And then I'm talking to a guy who orders an Amazon every single day and maybe twice. So obviously that's sort of difficult to do. But no, I definitely agree. I mean, it's incredibly important to kind of figure out what game Casby is playing in Turkey. And I talked to one of our mass amount members about Casby recently because he's a front manager from Singapore who has a small position in the company. And we discussed how we thought about the investment thesis and also the expansion into Turkey. And if you kind of like the optimality, but we also agree that it is a very different market and that understanding how it works and especially the competitive environment is just crucial for the thesis and getting back to your question about how much money are they spending. Since Alibaba owns about 85% of 20, we only get the numbers that Alibaba is giving to us on their Turkish operation. And they kind of lump it into this international commerce arm, which hadn't adjusted EBITDA loss of about $2 billion last year. And the majority of that is supposedly coming from cross-border operations. So Alibaba is saying that 20 all itself improved profitability. However, that doesn't really tell us whether they are actually profitable or just came a bit closer in terms of improving profitability. So Casby, on the other hand, was already profitable when Casby bought it, operating at an EBITDA to GMV margin of about 2.5%, which doesn't sound that high, but you know, if you compare that to most other marketplaces, it's not that bad. And this certainly has come down over the last few quarters to about only 0.5% of a margin, which certainly is significantly lower. But that's mostly due to the investments made by Casby. So the goal seems to be to not operate it at a loss, which proves to me that Miguel kind of doesn't plan to burn money here and gain market share just for the sake of it. I guess my problem would be that I can't see Hesby taking Trendy all's number one spot. You know, I know that C Limited did it in their home market, but the difference, as you just kind of said, is that they played on their home turf. They had to fight to win no matter the cost. And with Casby, we sort of are trying to get the best of both worlds, right? We don't want them to spend ridiculously on the Turkey expansion. But then at the same time, they also have to beat out the local competitors to win market share at the same time. And that is going to require aggressive investment. This debate is going to remind me of a quote. As you know, I just recently visited Stig, our boss and the CEO of TIP in all weeks. And you know, it's somewhat of an annual tradition at this point. And one thing that he repeatedly said was you can have anything, but not everything. And there's a cost to everything. That's basically what it means, right? And oftentimes it's sort of an opportunity cost. And the Casby's case, I would like to buy a high margin monopoly in Kazakhstan. It pays, let's say a high single digit dividend and also get the upside of having Turkey work out. And the problem is that for Turkey to play out, Casby needs to spend the money to make with the operations in Kazakhstan. So the rest of the sort of is that you, you know, make good money and then you throw it after bad in Turkey. And when I talk to Casby investors, I sort of hoped they would tell me that their thesis is about Kazakhstan. And that Turkey is just this call option that we keep talking about. But it seems to me that most see Turkey as kind of the key part of the thesis. And I'm just not sure I want to bet on the number two e-commerce player in Turkey. You just mentioned the dividend is a relatively large part of your thesis. And we don't actually talk about dividends a lot on this show. We cover a lot of companies. We spend much more time on on shared buybacks and stock based comp and a lot less time on dividends. And so, no, perhaps you can give some background on the dividend history and whether you expect the dividend to be a priority going forward for this company. And the reason I bring it up now is because in emerging markets and in frontier markets, a healthy dividend can actually be a sign that the cash is really there, right? There isn't any fraud occurring. It should be hard to verify at a distance, especially in an economy that historically has had a lot of trouble with corruption and money laundering and let's say nefarious accounting. And, you know, I don't want to imply that I think necessarily anything bad is happening at Caspi at the moment because I just don't know. But the dividend was suspended last year when Caspi bought Caspi, right? So that's something to think about. I don't necessarily know, again, whether that spells a doom or anything nefarious, but suspension of the dividend, there could be a good reason for it, right? The acquisition would justify it, but again, it's something that we wouldn't want to make sure we understand. And one other quick thought is that with COPA, you mentioned that you expect the dividend to be paid out long-term because that's how the management team makes its money. And based on the insider ownership of Caspi's founders, I would imagine that there's a similar case here too, right? We're there, have a strong incentive to pay a dividend out to all shareholders because they want to collect cash dividends from their own ownership sakes in the business. That's all I think about it. That's sort of your, you know, marginal of safety that you have on the dividend part of the thesis, so that as long as the founders get paid through dividends, I expect them to be a priority just because that's the way they're getting paid. And there's actually an interesting and perhaps somewhat controversial story here. I don't know if it adds to your suspicion about the company and COs in that region or not, but Mikael actually has a hobby that, you know, I personally quite like, but it's also quite expensive. And in 2024, he bought the English League One football club waycomb wanders. And I should say that League One kind of sounds like the first league. It's actually the third league. So, you know, it's not that high up. So it probably wasn't too expensive. And you did buy them from American owners, which I kind of need to figure out because fortunately, even Sean is now in somewhat of a football mood watching the World Cup here and there, which kind of makes me a bit proud because I was certainly, I hope to be part of the reason for that. But anyway, even that one club was not enough for him. He also bought a club in the Kazakh Premier League a year later. And in an interview, he basically said that he has this goal of, you know, establishing an integrated youth academy between Kazakhstan and England. And again, as a football fan, I'm kind of biased to like him even more for that. But also as an investor, I'm kind of wondering whether cash be pays dividends because the controlling shelter needs cash for his, let's call it love for football. A football have it. It's not such a bad thing. And that would help out with the dividend part of your thesis, right? Because he would need cash to keep funding for these acquisitions. That's true. Like at first glance, it's probably a good thing. But he also wouldn't be the first billionaire who suddenly loses interest in owning a club. And you know, if he loses interest and doesn't need the money anymore in theory, he also doesn't need the dividend anymore. So again, I'm kind of feel like I just fabricating very serious here because we talked so much about how great the company is. I do generally have a good feeling about the CEO and how he thinks about both the company, but also about treating shareholders. And since you don't have any stock based comb, it's not like you being diluted if they pay a dividend instead of buying back shares, which again, you mentioned we kind of usually like to see. Plus, that's also suboptimal way to stop delusion. Because again, I mentioned it basically just taking cash out of the business to pay back the dilution part of the business, which in general, it just means, hey, you know, that's cash that you and I don't get a share of this. So it's not really a much better way to pay back shareholders, but I'm somewhat of going on attention here. Look, we're talking about central Asian former Soviet Republic. So I think at some point we need to talk about the macro here and make sure we understand how geopolitical and currency and all these types of risks that are really beyond our control factor into the thesis today. And there definitely is macro risk involved, right? I mean, currency debasement is a real concern. You've got a legacy of governmental corruption ties to Russia, which is problematic for us as American and Western European investors. And then you've even had coups in recent history, where you've had attempts at over throwing the government. And so if we could only bet an isolation on a stable dividend 10% earnings per share growth and have this call option on growth in Turkey, Caspi would absolutely be a no-brainer. This would be like at the current valuation, dump everything you have in the Caspi. But the problem is that's not the entire context you have these other macro risk. And so really the thing that gives me positive and the reason that this company trades at seven or eight times earnings is because of the macro and political risks. I guess it can only invoke sticky again saying you can have anything, but not everything. And in this case, you have a company trading at seven times earnings because of everything that you mentioned, you know. And I think the first thing that we should talk about macro wise is the currency. So Caspians, everything in Kazakhstan, but you and I would own it in dollars. Obviously, since we would buy this dog trading on the NASDAQ and the dividend would also get paid to us in dollars as well. So it's only one thing how the business does in its local currency. And another what the local currency is worth if you actually look at it in dollar terms. So Caspi could have a great year in local terms and you could still be down as an investor if you invested through dollars. So we have that problem with New Bank and Mally too, but this time the risk is pretty much amplified since Kazakhstan. And therefore also the local currency, the Tang, a lot more concentrated and Kazakhstan's economy is heavily export oriented. And you know, the main export product is crude oil. So the strength of the currency basically depends entirely on the oil price. It's sort of similar to the problem we had with Kopa, which is an airline and their alliance on jet fuel prices. And in this case, the impact is more long term and also more difficult to figure out. And for example, you would think that with oil prices being relatively high at the moment due to ongoing conflicts in the Middle East, you think that would be good for Kazakhstan because it means they'll get more money from oil exports, which should then also support the Tang as occurrence. And however, the general instability volatility of oil curts other parts of the economy, right? Very high oil prices, for example, fuels inflation up and down the supply chain and consumer prices, which then means that the central bank has to step in and raise interest rates. And that can again ripple across the economy and cause deceleration and growth. And that just means there's a lot of very nuanced interrelated dynamics for us to consider. And unfortunately, it's not as simple as just to say, oil goes up, Kazakhstan's currency appreciates. The relation is much more complicated. I guess the best thing for Kazakhstan would actually just have relatively stable oil market at least a reasonable price. So perhaps oil trading in the $70 range. So you could have expected the local currency to rise after the war driven by higher oil prices. However, the Tangs actually been pretty firm sitting around $490 compared to the dollar. And it's even a touch stronger than it was a year ago. And the reason for that and you kind of alluded to it is mostly that the central bank has raised the base rate to 18%, which makes holding the in local currency attractive. So the currency has been propped up by higher rates, which is sort of also part of oil going up lately, just because you know, they have all of these interconnections going on in the markets. And I think the main risk I see long term still is not necessarily that oil is higher than it should be. It's a perfect world for Kazakhstan. But the risk is just that it's a sustained low level environment. So that would put long term pressure obviously on the local currency. And the halix bank is actually looking for 600 plus to the dollar by the end of next year on lower oil and the government cutting those national fund transfers. So even with oil doing okay right now in the currency being sort of firm, the medium term outlook is a weaker tang and that obviously is a sort of headwind for for Caspi. Yeah, that's just the thing that that gives me about Caspi. I mean, the business is not an oil business at all. It's really a payment in software business in a data business, but you can't escape the currency headwind and the tide of oil when most of their earnings are being generated in Kazakhstan's local currency. And it's certainly above my pay grade to figure out where oil prices are going to be in the coming years. And nobody really knows the answer to that. And yet that is going to materially impact the returns that we receive in US dollar terms really irrespective of the underlying businesses performance. You certainly have to debate it whenever you look at these emerging market companies, but sometimes I just like to simplify. and you know, look at the past and see how it is done. And to be fair to caspy, they grew their revenue at a keg of over 30% in the last decade in dollar terms. So that's important, not local currency. The operating profits were going even faster at 36% and that didn't come at over 60%. And again, all of that isn't dollar terms. So you are accounting for the local currency two dollar losses. And it's basically the amount of money or the growth that you would have gotten as an investor in the dollar. So it's a headwind that they faced for the longest time and it has not diminished your returns in any meaningful way. Or related to that, but even bigger picture. What do we think about the geography? Right? I mean, Kazakhstan is sitting right at the border of Russia and China. You know, this is I think the part of the thesis where I'm getting good. I mean, we're going from all places to boarding Russia and China. And to be honest, I kind of saw myself doing some research into how capable Kazakhstan's defense would be in a scenario for example, a Russian attack. And while doing that, I kind of just stopped and asked myself, well, what does it say about the margin of safety of this investment when I suddenly have to transition or kind of pretend to be a military expert, which, you know, I'm obviously and not to the surprise of not that many people. And obviously could pretend that, you know, I have sort of an idea of how the relationship between Russia and China actually work, but that would obviously is only me speculating about something that I simply don't understand. And I think the only thing I can say is that it seems like Kazakhstan knows how to balance its geographical and political position in the region. I mean, they did maintain functional relationships with Russia and China and the US and Europe simultaneously. And also still attracted a lot of foreign investment from all of them, which is quite important, because, you know, for example, you can build the infrastructure that you need for the oil transport, which we're kind of getting to, because I think the biggest risk is not necessarily whether Kazakhstan will get into any conflict itself, but mostly how other conflicts will impact it. I mean, Kazakhstan's oil mostly has to physically transit out through pipelines that, for example, go through Russia. And if you would imagine that there's disruption, so there could be sanctions, it could be the one that Ukraine having an impact on the logistics, or it could even be the Iran situation, you know, some way shape of form disrupting the regional transport, all of that could sort of bottleneck the export of oil from Kazakhstan. And all of these things are just things that pretty much are known unknowns to me. I just don't know how to account for that. Caspi could do everything right. And the stock could sell off dramatically in US dollar terms, because of something like you said, where there's some sort of bottleneck in oil exports, and the currency just collapses. And your returns fall off dramatically. That is something that truly can happen here. And so that's why you have that PE of seven. And it might look like a bargain, but in reality, it is also just a very large margin of safety accounting for all the unknowns and things that are beyond Caspi's control, right. If this same business was doing just as well in the US or Western Europe, it might be at 20 or 30 times earnings. And so, you know, the fact that it trades at less than 10 times earnings, again, is just that margin of safety reflecting the higher degree of uncertainty and the fact that a number of risks are out of their control, but also very directly could hurt the business to a significant degree. So that was the last question on all this. What are your thoughts on the Russia connection specifically? Because I know that's been the center of some criticism and short reports and you have some speculation that Caspi has been helping launder money for people in Russia. It has ties to the Russian government. Obviously that, again, would be problematic for us as US and European investors where there are very strict sanctions on Russian assets and businesses with connections to Russia. So how do you think about that here with Caspi and the risks that we would be introducing to our portfolio if we were to actually put real capital into it? I think I talked to you before we started this episode then I said that basically the short report is the first thing I looked for with this company because I thought, if I find anything that I find so critical to the thesis, I might not even do all the work on the name. So since we're sitting here and I'm pitching the stock, I didn't think anything will actually come from it on the short report. And just for context, it mainly leaned on Caspi's links to again Russia. That means Caspi having Russian users, Russian business, and so on, which obviously, as you just said, it kind of matters because of the sanctions after the quaint war. And again, Kazakhstan and Russia have a deep historical and they're also economic ties obviously still. And they were the last two Soviet republics. There's a long border. I think it's the second longest border of any country on earth between Kazakhstan and Russia. So obviously, there is a lot of cross-border commerce and some connection wasn't really a shocking surprise to me. I think many of the claims made in the short report have also been debunked by now. I've also linked to an article in the show notes if you want to get some more details on that. However, I would also say there were some points that were brought up that do give me a little pause. I mean, one of them, for example, is to claim that as you kind of talked about, Caspi was involved in the money laundering activities of Dahan Sagibarli, one of the most powerful politicians in Kazakhstan. And to be clear, Caspi was certainly not part of the actual laundering process, but there might have been one of the many bank accounts where some of the laundered money went. And that is something that obviously still should be flacked by them. And I guess it kind of shows that ultimately you are still operating in a country like Kazakhstan, where potentially, you have to look away when certain people do things. And obviously, that's not great for years in a investor. And it's sort of difficult, you know, would be surprised if there's any bad news coming out at any point in the future. I would also say this has been quite some time ago. And personally, I couldn't find anything on, for example, the class action lawsuit that was started. I think it never actually get interaction. I also think again that most of the things in the short report were debunked. And I do only always look at it in sort of two sides. When, you know, a short report is coming out, obviously the person who's publishing it has a short position on it. So they put it as much as possible into that report. And it's also quite good if you cannot actually just, you know, debunk it just at the first thought because the stock is always dropping at that point. So I felt like this report has been somewhat like that, although I wouldn't be surprised if they are ties to usher that maybe potentially will also help the stock to some more. And you know, you will even get a PE that's lower than seven. I mean, the public bank, for example, is trading at a PE of three to four. So it can certainly still go lower if you invested in Kazakhstan. When I bought Russian oil stocks at three and four and five times earnings in 2021, I thought I was genius. And then they went to zero when the invasion of Ukraine occurred in 2022. And it became illegal to own Russian assets. And so I'd like to think I was a lot younger and more naive at that time. And yet here I am quite intrigued by Caspi, not to say that that's a perfect one-to-one comparison. But there is definitely some similarities that I'm sort of feeling, you know, tingling down my spine. But let's just go ahead and move forward here. And let me ask if there's maybe anything else we should cover before we talk about the valuation and your final thoughts on the intrinsic value of Caspi. And if it's a good fit for our intrinsic value portfolio of about 15 companies. I think there's only one thing that I still want to bring up and it might explain some of the more recent press actions. So for years, Barring Vostok, which is a PE fund and actually the PE fund that not only backed Caspi from the start, but also the one where Mikhail, the currency, oh, worked before he joined Caspi. That fund had a huge 35% stake in Caspi and over the last couple of quarters, especially since Caspi listed on the NASDAQ, especially sold part of its stake and taking the gains. And obviously, that means that there was a lot of selling pressure on the stock for the last couple of months. And that's now largely clear. And I think I kind of refer to it in the beginning of the episode. What I like to see is that both the CEO, as well as Tencent, stepped in and bought a big block of the Barring Vostok stake. So that obviously took the pressure off. And I think it's also a vote of confidence that the CEO is putting his money into the company and also kind of like that you know, the other buyer was not some firm that I never heard of, but actually Tencent, which obviously is quite a well-known company that also I've heard tends to have a pretty good idea of what upcoming companies out there. All right. What's time? What's stock valuation? I guess I would have expected you to be a bit more bullish on Caspi here, to be honest, but perhaps it's cheap enough to still work with your dividend plus monopoly and Kazakhstan thesis. I guess I'm only coming across as a bit bearish because I actually liked the company a lot, which I think it wasn't that bearish. I think there were also certainly some bullish points brought up. But I think whenever that's the case, and I'm bullish on a company, I just like to try to poke holes into the thesis. And to be fair, I'm also a bit spoiled by again, looking at companies like Amazon, like Mally, Lexi Limited, when it comes to, you know, e-commerce and payments companies. So I could have easily felt an entire episode, you know, talk about how good Caspi's core business is and why no one can compete with it. But I think most can quickly agree on that. So figuring out what might be wrong with the business and thesis. Kind of delivers more value in my opinion. And again, you know, there's not that much value I can offer when it's about Russia, but especially the Turkish market dynamics are the ones that I think you know, deserve to have a second look. And anyway, long story short, I thought today I would go with somewhat of a different valuation approach today, at least as one option today. I still also have a DCF, but I thought, you know, I just kind of want to mix it up. Oh, mixing it up, okay. I assume that has something to do with the dividend or what's the approach you're going to take? It has. I mean, it's, you know, a very simplified model, but I thought if we do talk about a company where part of my thesis is actually dividend, which you said is not happening that often, I also wanted to go with an approach that is sort of having the dividend as, you know, a major part of thesis. And my idea has kind of been to test, summarize the thesis of hats, a win, tails, I don't lose much. And I should say that, um, generally, and we kind of discussed the reasons not badding that this stock gets a higher multiple in any of my valuation purchase. So not in the DCF and also not in this approach. And what it's basically doing is that I say, okay, well, cash will pay the dividend of about 8% at today's stock price, which is about $80. And the question is simply, does a dividend like this on a neomanopoli, the weighing off 50% return on the equity, deserve to sit at eight or nine percent of a dividend yield or should maybe the market accept something lower, like seven or perhaps six percent. What I did is I basically looked at the history of cash being that figured out where the yield on average has been sitting. And if so, you can figure out, okay, well, what would that mean for the stock price? So it's basically just some simple back of the envelope math. And if the yield would, for example, compress to about seven percent, that would mean that the stock price has to obviously go up. And the total return, after I had cut it for the currency and at the dividend, I would collect along the way is about 25%. So that's basically the upside of the market believes the stock should trade at a yield of seven percent. If you would get a yield of six percent, the return would be over 40%. And I should say that six to seven percent dividend yield is mostly the historical average for cash being the last couple of years. So it's not unrealistic that we get there. Basically, the logic here is kind of just like changing the multiple. It's kind of how does the market view the company? Where should I trade at? Just, you know, instead of a multiple, you sort of look at the dividend yield. And by the way, again, I'm, you know, not making this up. These are the years based on historical evidence. And even if the market says, you know what, there's so much stuff going on that I just don't know and don't understand. And they don't really rate it and say eight percent is dividend yet where you should be. Well, you know, then that's the return that you would get the eight percent from the dividend. So that's all of the tales I don't lose much part of the thesis. And for the DCF to come up with a similar value or do you see the upside has been higher or lower? How do you think that? Yeah, that's kind of the interesting part. I would obviously not only do this, you know, sort of back of the envelope math because, you know, it's sort of arbitrary to some extent. But it's kind of interesting if you compare it with another valuation model. And I can say that the DCF is kind of painting a similar picture. It looks more attractive because it not only shows the immediate rewriting potential, but also the annual return potential, which combining growth and the dividend seems quite attractive. I mean, if you would just assume wherever in UK, over about 11 percent significantly below the historical averages, which again are close to 30 percent. And then more or less flat net income margin and no multiple expansion. Again, the expected return would still be over 20 percent per year for the next five years. So keep in mind that includes the dividend yield of about 8 percent. But I don't know, Sean, you got to tell me, am I too biased, as always, when it comes to these ecosystem-like companies? Because I think I could see us establishing a startup position. I think I would first want to look at especially the Turkish market a bit more. I kind of looked into it and there are a lot of dynamics. It's in some sense similar to Kazakhstan. In some sense, it's different. And I think I didn't have enough time to really dig deep into that part of the market. But yeah, otherwise, I think it's just looking at the spreadsheet. And I think that's not, you know, outlandish assumptions, looking like quite a good opportunity. I think you're going to be surprised to hear this because I told that story about having my investments in Russian and oil gas companies just completely wiped out in 2022. But I actually, I could be open to this. I've looked at it cast me a bit before and we both have some very smart investors who are excited about the business. So I don't want to be too close-minded here. And I definitely don't want to immediately roll it out because it's outside of my comfort zone. Yeah, it feels like a company where there is a huge degree of not knowing what you don't know from what the customer experience in the ground is like to the political realities of Kazakhstan. But the fact that I'm open to the idea, I think, speaks to how compelling of a picture you've paid in here at the data flywheel, the favorable relationship with the government, the deep entrenchment across daily life and Kazakhstan, domination across a handful of verticals. Again, that is all really, really compelling to me as I think about comparing Caspi with the other ecosystem businesses that we've looked at before Mercata Libre in Amazon and even Uber to an extent to get this company with the kind of quality and growth prospects that they have at this valuation does almost feel too good to be true. And I think besides the political risks, the currency risks is what scares me most. It's not uncommon for emerging market currencies to get cut in half in value in USC exchange rate terms over the course of a decade or so. And we've actually seen that happen with Kazakhstan's currency. All right. With the point being, the company's dependence on one volatile currency creates some very serious risk for us as USD and Euro-based investors, which you and I are respectively and expanding into Turkey, where you've nearly had hyperinflation for a few years now with the Turkish Lira, that's not exactly the most inspiring currency diversification ever I've ever heard of. And so I could maybe talk myself into owning it. I could also just as easily talk myself into putting it in the too hard pile just on currency risk alone. But I think maybe the best thing to do would be to truly keep it our radar. And I would be open to a starter position, but also I would love to try and speak to the executives of the company, learn more about the business, maybe do a follow-up episode down the road where we explore what's changed and whether we think the company is worth a spot in our portfolio. But yeah, how do you how do you think about it? I mean, some of the truth of actually managing portfolio and doing it seriously is that you only want to build positions in stocks that are very comfortable in owning and some of it is also just following a stock for quite some time. So you can do as much research as you want and kind of understand the business. There's something to say about simply following the stock for some weeks and especially some month and then kind of see how it actually reacts to market moves and also to market news and all that sort of stuff. And I think that's what's still kind of missing for me. And it's even more important when you just don't have the sort of consumer insight that we both obviously don't have. You kind of have these patterns and how you think about marketplace companies, how you think about payment companies. And I think that gave me a very good insight in how Caspi generally functions. But there's still a lot of these again unknown unknowns that would sort of need to feel a bit more comfortable with. So I'm totally fine with putting it on, you know, high up on our watch list and then potentially talking to management and getting some new insights and then we will revisit it and potentially at that point do start a position in this so pretty cheap and phenomenal business. And I would say with that, let me close it for today with a quote by Jeff Bezos, who I still consider the father of e-commerce players. And he said, if we can keep our competitors focused on us while we stay focused on the customer, ultimately we will turn out all right. And I feel like this quote kind of fits Caspi's culture quite well. So I thought that's how I would end today's episode. And with that, see you all next time. Just a quick note before you go, this episode would not be possible if it weren't for our friends at fiscal AI. It's our complete stock research terminal that Daniel and I use on every single episode and with every company we dig into, pulling 20 years worth of financials, digging into segment data, grabbing quotes from the latest earnings calls and making use of real-time institutional grade data all in one place. And if you want to try it yourself, well head to fiscal.ai/tivp. That'll include two weeks of fiscal pro for free and 15% off if you upgrade to a paid plant. That's fiscal.ai/tivp. Thanks for listening. [BLANK_AUDIO]